Superfast Broadband - Evidence - Parliament

Select Committee on Communications
INQUIRY INTO SUPERFAST BROADBAND
Oral and written evidence
Contents
Aardman Animations – written evidence .......................................................................................... 4
Arqiva – written evidence .................................................................................................................... 8
Avanti Communications – written evidence ................................................................................. 17
Bentley Walker – written evidence ................................................................................................. 20
Boundless Communications Ltd – written evidence ................................................................... 21
British Film Institute – written evidence ........................................................................................ 24
British Recorded Music (BPI) – written evidence ........................................................................ 29
Broadband Stakeholder Group (BSG) – written evidence ......................................................... 39
Broadband Stakeholder Group – oral evidence (QQ 550-622) ............................................... 48
Broadway Partners – written evidence .......................................................................................... 68
BT Group plc – written evidence .................................................................................................... 74
BT Group plc – oral evidence (QQ 466-549) .............................................................................. 86
Buckinghamshire Business First – written evidence .................................................................. 110
Professor Peter Buneman – written evidence ............................................................................ 115
Francesco Caio – oral evidence (QQ 115-135) ......................................................................... 116
Click4Internet – written evidence ................................................................................................. 127
The Coalition for a Digital Economy (Coadec) – written evidence ...................................... 131
Dr Peter Cochrane OBE – oral evidence (QQ 29-74)............................................................. 135
Communication Workers Union (CWU) – written evidence ................................................ 150
Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) 157
Communications Consumer Panel – written evidence ............................................................ 197
David Cooper CEng MIET – written evidence ........................................................................... 210
Cotswold Community Networks Ltd – written evidence ....................................................... 216
The Country Land & Business Association – written evidence .............................................. 221
Creative Coalition Campaign – written evidence ...................................................................... 226
Cumbria County Council – written evidence ............................................................................. 230
David Hall Systems Ltd – written evidence ................................................................................. 236
Department for Culture, Media and Sport – written evidence .............................................. 241
Department for Culture, Media and Sport – oral evidence (QQ 748-809) ........................ 249
Department for Culture, Media and Sport – supplementary written evidence .................. 270

Digital Outreach – written evidence ............................................................................................. 271
Directors UK – written evidence .................................................................................................. 275
Everything Everywhere – written evidence ................................................................................. 283
Everything Everywhere – supplementary written evidence ..................................................... 286
Federation of Communications Services – written evidence .................................................. 288
Federation of Small Businesses – written evidence ................................................................... 292
Fibre GarDen (the Garsdale & Dentdale Community Fibre Broadband Initiative) – written
evidence ............................................................................................................................................... 296
Film Distributors Association – written evidence ..................................................................... 302
Forum of Private Business – written evidence ............................................................................ 306
FTTH Council Europe – written evidence .................................................................................. 307
FTTH Council Europe and Communications Chambers – oral evidence (QQ 136-249) 313
Fujitsu – written evidence................................................................................................................ 314
Geo Networks Limited – written evidence ................................................................................ 316
Dr Tehmina Goskar – written evidence ...................................................................................... 319
GreySky Consulting – written evidence ....................................................................................... 321
Peter Griffin - written evidence ..................................................................................................... 326
Groupe Intellex – written evidence .............................................................................................. 330
Mr John Howkins – written evidence ........................................................................................... 334
Huawei – written evidence ............................................................................................................. 335
The Independent Networks Cooperative Association (INCA) – written evidence .......... 377
KCOM Group PLC – written evidence ....................................................................................... 383
Robert Kenny – written evidence ................................................................................................. 387
Leire Exchange Broadband Action Group – written evidence ............................................... 394
The Liberal Democrats Action for Land Taxation and Economic Reform (ALTER) –
written evidence ................................................................................................................................ 396
Suvi Lindén – oral evidence (QQ 1-28) ........................................................................................ 397
John McDonald – written evidence ............................................................................................... 410
Miles Mandelson – written evidence ............................................................................................. 415
Miles Mandelson and Rory Stewart MP – oral evidence (QQ 430-465) .............................. 426
Dr Christopher T Marsden – written evidence ......................................................................... 444
Microsoft – written evidence .......................................................................................................... 456
Microsoft – oral evidence (QQ 623-649) .................................................................................... 463
Microspec – written evidence ........................................................................................................ 474
Dr Catherine A. Middleton – written evidence ......................................................................... 476
Middleton Tyas Parish Council – written evidence ................................................................... 481
Milton Keynes Council – written evidence ................................................................................. 482
Tom Morris – written evidence ..................................................................................................... 485
Motion Picture Association – written evidence ......................................................................... 490
The National Education Network – written evidence .............................................................. 494
NG Events Ltd – written evidence ................................................................................................ 510
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NICC Ethernet Working Group – written evidence ................................................................ 514
Northern Fells Broadband (Cumbria) - written evidence ........................................................ 518
Objective Designers – written evidence ...................................................................................... 522
Objective Designers – oral evidence (QQ 75-114) ................................................................... 526
Ofcom – written evidence ............................................................................................................... 543
Ofcom – oral evidence (QQ 650-747) ......................................................................................... 556
Chi Onwurah MP – oral evidence (QQ 250-282) ..................................................................... 580
Chi Onwurah MP – supplementary written evidence ............................................................... 591
Parliamentary Office of Science and Technology (POST) – written evidence .................... 594
John Peart – written evidence ........................................................................................................ 598
Mike Phillips – written evidence ..................................................................................................... 600
Simon Pike – written evidence ....................................................................................................... 602
Pitchup.com – written evidence ..................................................................................................... 608
Prospect – written evidence ........................................................................................................... 610
The Publishers Association – written evidence .......................................................................... 621
Steve Robertson – oral evidence (QQ 320-353) ....................................................................... 625
Les Savill – written evidence ........................................................................................................... 639
South West Internet CIC – written evidence ............................................................................ 640
SSE plc – written evidence............................................................................................................... 643
SSE plc - oral evidence (QQ 379-407) .......................................................................................... 649
SSE plc – supplementary written evidence .................................................................................. 660
Rory Stewart MP and Miles Mandelson – oral evidence (QQ 430-465) .............................. 670
Sunderland Software City – written evidence ............................................................................ 671
TalkTalk Group – written evidence .............................................................................................. 673
TalkTalk Group – oral evidence (QQ 408-429)......................................................................... 679
TalkTalk Group – supplementary written evidence .................................................................. 688
TalkTalk Group – further supplementary written evidence .................................................... 690
Taxpayers’ Alliance – written evidence ........................................................................................ 693
Three – written evidence ................................................................................................................ 698
Three and Vodafone – oral evidence (QQ 354-378) ................................................................ 702
UCL Centre for Digital Humanities – written evidence ........................................................... 715
Upper Deverills Broadband Action Group (BAG) – written evidence ................................. 717
Virgin Media – written evidence .................................................................................................... 720
Virgin Media – oral evidence (QQ 283-319) ............................................................................... 729
Vodafone – written evidence .......................................................................................................... 744
Vodafone and Three – oral evidence (QQ 354-378) ................................................................ 748
Vtesse Networks – written evidence ........................................................................................... 749
Wispa Limited – written evidence ................................................................................................. 750
3

Aardman Animations – written evidence
Aardman Animations – written evidence
Summary
1. I am making this submission as Head of IT for Aardman Animations based in Bristol.
2. Aardman are a typical creative company living in the digital age. We are in the happy
position of needing to push material out for many different types of clients and this
gives us a great deal of industrial experience. Most companies don’t cover quite as
many bases as we do, although their data needs may actually be higher. So what’s
good for us will definitely be good for the industry as a whole.
3. The submission is based around comments on the list of questions in the ‘Will
superfast broadband meet the needs of our “bandwidth hungry” nation?’ call for
evidence document; the original question is prefixed with (Q) and is in red text.
Response
4. (Q) What is being done to prevent a greater digital divide occurring between people who
can access superfast broadband and people in areas where the roll-out of superfast
broadband may not be commercially attractive? How does the UK communications market
vary regionally and what is the best way to connect the areas that the market alone cannot
reach? Is a universal service obligation necessary to avoid widening the digital divide?
5. A universal service obligation is needed, this would expand the ability of companies
to utilise home working in particular which would have a significant green advantage
whilst reducing company costs, many workers commute from poorly serviced areas,
so it is these areas that could see serious advantages from improved broadband, it
would also enable people with commitments to family at home or disabled people to
be able to engage with the workplace from a home office opening up work
opportunities that are difficult currently for many people.
We need to ensure that rural communities are not penalised due to the far greater
cost of rolling out the infrastructure for remote communities and seeing
disproportionate charges etc. for the service.
(Q) Will the Government’s targets be met and are they ambitious enough? What speed of
broadband do we need and what drives demand for superfast broadband?
6. History of government projects tends to show that targets won’t be met and will fall
short of what is expects, whilst costing far more than originally projected.
7. The digital world is moving forward at a huge pace, with broadband there is a focus
on the download speed but never on the upload speed or contention, to succeed in a
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Aardman Animations – written evidence
digital era we need to see a much greater upload speed and low contention, for
every download there has to have been an upload that is actually the important bit if
you are producing content.
8. In my opinion we need to see faster download but more importantly we need to see
upload speeds matching download speeds or it will not be of any use to people
needing to work in the digital space, contention needs to be lower to give a more
predictable performance.
As an example, a typical production size on completion is 624 Gigabytes (Shaun the
Sheep as an example) with the best business broadband speeds this would take about
6 days to upload and over a day to download… assuming you see no service
interruption.
9. I would say we need synchronous speeds in excess of 100Mb to ensure we can be
competitive in the large content production and distribution space, content is going
to continue to increase in size and complexity (>high def, 3d etc.) so bandwidth will
need to be regularly reviewed and improved.
10. (Q) In fact, are there other targets the Government should set; are there other indicators
which should be used to monitor the health of the digital economy? What communications
infrastructure does the UK ultimately need to remain competitive and meet consumer
demand over the next 20 years?
11. You need to ensure that the back end infrastructure can cope with any increase of
consumer broadband speeds; if this is neglected we will see contention at the backend
that will negate any benefits at the client side. This will present itself as erratic
performance, which is not good for business working in this space.
12. We need low contention high speed (>100Mb) synchronous bandwidth to remain
competitive.
13. A number of possible metrics could be used here which could include the uptake of
broadband based digital media technologies such as TV and Film services, the uptake
of Internet TV’s and growth of smartphone and tablet sales.
14. (Q) How will individuals and companies use cloud services for distributed storage and
computation? What network properties are required to enable efficient provision and use of
such services?
15. Cloud Services are being pushed heavily by the cloud companies, but this sort of
service is completely reliant on a fast upload speed, which current high speed
broadband just does not deliver, and this is not understood by many SME’s. We
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Aardman Animations – written evidence
regularly see data changes internally of greater than 1 Terabyte, such data flows
would need serious uplink speeds to ensure those changes successfully reached a
backup/archive containment in any business acceptable time frame.
16. What also needs to be considered with cloud services is resilience of your network;
this is something that is also not properly understood. If a company moves key
business activity into the cloud they need to be very sure they have a faster and fully
resilient network link to the internet than they had previously , because if they lose
any of these links the business is at risk of not being able to function until the link is
restored. Network links are currently too expensive to make this viable to many
SME’s and hence I suspect they just take the risk of non-resilient slower links putting
their business at risk of failure.
17. (Q) To what extent will the advent of superfast broadband affect the ways in which people
view, listen to and use media content? Will the broadband networks have the capacity to
meet demand for new media services such as interactive TV, HD TV and 3D content? How
will superfast broadband change e-commerce and the provision of Government services?
18. Without doubt broadband is going to increasingly be used for all types of high
bandwidth content as we have seen in recent years. Nearly all consumption of
content in the home will be via broadband in coming years. Unless the infrastructure
is dramatically improved it will be a miserable experience for many users and
businesses.
19. These technologies are already being pushed at national level but in reality it is only
achievable in useable form in cities and large towns. Attention also has to be paid to
back end infrastructure as that risks being the bottleneck as more and more of these
client services come online. Has anyone computed the real likely costs of the
necessary infrastructure and the impact these costs may have on SME overhead, or
indeed Government services?
20. (Q) Will the UK's infrastructure provide effective, affordable access to the 'internet of things',
and what new opportunities could this enable?
21. This will only happen if significant investment is made and in all areas of the country.
If done correctly it will empower small businesses to spring up outside of the big
cities, reduce the need to travel to work and give opportunities to people who find
mobility for work difficult. It could also revolutionize communications by enabling
useable personal video conferencing capabilities etc. See above regarding costs.
22. (Q) What role could or should the different methods of delivery play in ensuring the
superfast broadband network is fit for purpose and is as widely available as possible? How
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Aardman Animations – written evidence
does the expected demand for superfast broadband influence investment to enhance the
capacity of the broadband network?
23. Multiple delivery methods definitely need to be part of the plan to ensure a broad
reach for the service in all areas.
24. If investment does not run ahead of demand we will see an appalling service that
hinders rather than helps the consumer.
25. (Q) What impact will enhanced broadband provision have on the media and creative
industries in the UK, not least in light of the increased danger of online piracy? What is the
role of the Government in assuring internet security, and how should intellectual property
(IP) best be protected, taking into account the benefits of openness and security?
26. Enhanced broadband opens opportunities for media and creative companies to reach
many more consumers in new and innovative ways. This does of course increase the
risk of piracy and hacking etc. so all companies need to pay much more attention to
security and data protection.
27. The government needs to put more funding and greater priority on internet security,
making companies far more aware of the risks they encounter when working in
cyber-space, possibly using legislation to ensure this happens, as in the finance
industries etc.
CONCLUSION
28. In my humble opinion the High speed broadband that is currently being proposed will
fall short of the requirements needed for a competitive digital economy. We need to
be looking at low contention synchronous bandwidth with speeds of 100Mb
minimum and 1Gb requirements will not be many years behind this.
29. We also need to improve the delivery times for high speed infrastructure as this can
be appalling and very expensive; even in supposedly highly connected cities. Councils
need to work closer with the data companies to smooth the way here.
4 March 2012
7

Arqiva – written evidence
Arqiva – written evidence
Summary of Key Points and Recommendations:
• Arqiva welcomes the opportunity to respond to the House of Lords Communications
Committee’s timely new Inquiry into The Government’s Superfast Broadband Strategy.
• The Committee are quite right to begin this Inquiry by focusing on the risk of a ‘digital
divide’. Arqiva strongly believes that the real gain for UK plc is to achieve universal
access to broadband - not to push fibre to a little over 90% penetration and then stop.
We believe there would be a considerable opportunity cost (both economically and
socially) if, come 2015, consumers who already have access to broadband were “superserved”
with fibre… while millions who currently have little, or no, broadband provision
remain under-served, forgotten or left behind.
• Arqiva strongly welcomes the £530 million of public investment in broadband being
managed by DCMS. Yet, it appears that the current broadband procurements by the
Devolved Bodies and Local Authorities in the English Counties will still leave some
consumers without access to broadband by the Government’s target of 2015. The
emphasis placed on making superfast broadband (essentially fibre) as widely available as
possible is a laudable aim - but there are insufficient funds to offer superfast to all. Some
funding must be targeted at other solutions for those who will not be offered fibre.
• Only by investing in wireless/mobile broadband alongside fibre can we ensure that the
final 6-8% or so of homes can also have access to a minimum 2 Mbps service.
• Arqiva welcomes Ofcom recent revised proposal to increase the coverage obligation
from 95% of the UK population to 98% in the auction of 4G licences. This is positive
news – however, by setting a UK-wide obligation, rather than measuring this obligation
by Nation separately, England, Scotland, Wales and Northern Ireland may not benefit
equally.
• Arqiva also strongly welcomes the initiative by the Chancellor of the Exchequer to invest
£150 million in improving rural mobile phone coverage. Although principally envisaged to
address mobile voice “not spots”, it would be a missed opportunity if this Mobile
Infrastructure Project (MIP) failed to secure 4G mobile broadband for affected
consumers, as a complement to the 4G coverage obligation, not least since many of
them would have no reliable fixed line broadband alternative. To maximise the
effectiveness with which the £150 million in invested, shared infrastructure with shared
backhaul should be procured by BDUK.
• An essential element of the UK’s digital communications infrastructure needs to be
consideration of how far the UK has managed to deliver pervasive mobile broadband and
Wi-Fi – including on the London Underground and major train lines where coverage is
currently either non-existent or, at best, patchy. Given that Transport for London and
Network Rail are both public sector bodies there is a clear role for Government in
addressing this.
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Arqiva – written evidence
About Arqiva
Arqiva is a media infrastructure and technology company operating at the heart of the
broadcast and mobile communications industry and at the forefront of network
solutions and services in an increasingly digital world. Arqiva provides much of the
infrastructure behind television, radio and wireless communications in the UK and has
a growing presence in Ireland, mainland Europe and the USA.
Arqiva is implementing UK Digital ‘Switch-Over’ from analogue television to Freeview
– a huge logistical exercise which touches every Parliamentary constituency, requiring
an investment by Arqiva of some £630m and which is successfully being delivered to
time and budget.
Arqiva is also founder member and Shareholder of Freeview (Arqiva broadcasts all six
Freeview multiplexes and is the licensed operator of two of them) and was a key
launch technology partner for Freesat. Arqiva is also the licensed operator of the
Digital One national commercial DAB digital radio multiplex.
Arqiva operates five international satellite teleports, over 70 other staffed locations,
and around 9000 shared radio sites throughout the UK and Ireland including masts,
towers and rooftops from under 30 to over 300 metres tall.
In addition for broadcasters, media companies and corporate enterprises Arqiva
provides end-to-end capability ranging from –
• outside broadcasts (10 trucks including HD, used for such popular programmes
as Question Time and Antiques Roadshow);
• satellite newsgathering (30 international broadcast trucks);
• 10 TV studios (including the National Lottery Live)
• spectrum for Programme-Making & Special Events (PMSE) 1 ;
• playout (capacity to play out over 70 channels including HD); to
• satellite distribution (over 1200 services delivered).
Elsewhere in the communications sector, the company supports cellular, wireless
broadband, video, voice and data solutions for the mobile phone, public safety, public
sector, public space and transport markets.
Arqiva’s major customers include the BBC, ITV, Channel 4, Five, BSkyB, Classic FM, the
four UK mobile operators, Metropolitan Police and the RNLI.
Arqiva welcomes the opportunity to respond to the House of Lords Communications
Committee’s new Inquiry into The Government’s Superfast Broadband Strategy.
1
Such as the wireless cameras operated by the BBC and Sky News, and the radio microphones used in virtually all
television production and many West End shows.
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Arqiva – written evidence
The Questions
What is being done to prevent a greater digital divide occurring between
people who can access superfast broadband and people in areas where the
roll-out of superfast broadband may not be commercially attractive? How
does the UK communications market vary regionally and what is the best
way to connect the areas that the market alone cannot reach? Is a universal
service obligation necessary to avoid widening the digital divide?
1. Arqiva welcomes the opportunity to respond to the House of Lords
Communications Committee’s timely new Inquiry into The Government’s Superfast
Broadband Strategy.
2. The Committee are quite right to begin this Inquiry by focusing on the risk of a
‘digital divide’. Arqiva strongly believes that the real gain for UK plc is to achieve
universal access to broadband - not to push fibre to a little over 90% penetration and
then stop. We believe there would be a considerable opportunity cost (both
economically and socially) if, come 2015, consumers who already have access to
broadband were “super-served” with fibre… while millions who currently have little,
or no, broadband provision remain under-served, forgotten or left behind. Indeed,
there is an ever-greater social and economic cost to each person who falls, or is left
behind on the wrong side of this divide. Indeed, 2009 studies undertaken by
McKinsey, Allen, OECD and the World Bank showed that a 10% increase in
broadband penetration results in a 1% increase in the rate of growth of GDP. Now,
more than ever, the UK needs growth.
3. Broadband penetration varies considerably by area, as does its speed and reliability
for consumers who can access it. Sadly, the actual take-up in some areas falls far
short of potential access. Digital inclusion cannot be overlooked.
4. Arqiva, therefore, strongly welcomes the £530 million of public investment in
broadband being managed by DCMS. Yet, it appears that the current broadband
procurements by the Devolved Bodies and Local Authorities in the English Counties
will still leave some consumers without access to broadband by the Government’s
target of 2015. The emphasis placed on making superfast broadband (essentially fibre)
as widely available as possible is a laudable aim - but there are insufficient funds to
offer superfast to all. Some funding must be targeted at other solutions for those
who will not be offered fibre.
5. There needs to be a mixed solution: fibre where it makes most sense to deploy it;
wireless/mobile broadband for the remainder - except for the most remote locations
which could only practically be offered satellite broadband.
6. Only by investing in wireless/mobile broadband alongside fibre can we ensure that
the final 6-8% or so of homes can also have access to a minimum 2 Mbps service.
7. To that end, Arqiva welcomes Ofcom recent revised proposal to increase the
coverage obligation from 95% of the UK population to 98% in the auction of 4G
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Arqiva – written evidence
licences. This is positive news – however, by setting a UK-wide obligation, rather
than measuring this obligation by Nation separately, England, Scotland, Wales and
Northern Ireland may not benefit equally.
8. Arqiva also strongly welcomes the initiative by the Chancellor of the Exchequer to
invest £150 million in improving rural mobile phone coverage. Although principally
envisaged to address mobile voice “not spots”, it would be a missed opportunity if
this Mobile Infrastructure Project (MIP) failed to secure 4G mobile broadband for
affected consumers, as a complement to the 4G coverage obligation, not least since
many of them would have no reliable fixed line broadband alternative. To maximise
the effectiveness with which the £150 million in invested, shared infrastructure with
shared backhaul should be procured by BDUK.
The Government have committed £530 million to help stimulate private
investment – is this enough and is it being effectively applied to develop
maximum social and economic benefit?
9. Arqiva welcomes the £530 million intervention – but the emphasis appears to be on
enabling the market to deliver superfast to 90% of households by 2015 – rather than
ensuring that all households have reliable access to broadband of at least 2Mbps (fast
enough for iPlayer). We also note that at the time of writing not one single contract
has been placed – so it is too early to tell whether the amount is being effectively
applied.
10. Developing ‘maximum social and economic benefit’ requires more than just
maximising access to broadband, it also requires:
• Competition amongst service providers, where the terms of access to
BT’s infrastructure and services is a factor (we also note that Ofcom
currently proposes to apply the 4G coverage obligation to only one
mobile operator)
• Lowering prices to ensure all households are able to afford access (if
superfast is offered at a premium price to “fast enough” broadband, then
many consumers won’t take it).
• An effective strategy for digital inclusion.
11. However, Arqiva believes the debate about ‘superfast’ broadband is not just about
installing the infrastructure, it’s about the uses to which it is put and what we can
achieve with it. We note that the Government has ambitious plans to move to
digitised public services, which should i) deliver better public services for lower cost;
and ii) create a new dialogue between citizens and public service providers. We
recognise there is also a broad consensus that a programme to address digital
inclusion is essential, not just to ensure that the expected efficiency savings from
digitising public services are achieved, but as an instrument of real social change:
• Improving the life chances for the unemployed.
• Widening access to online educational materials and resources and
ultimately raising children’s grades and life chances.
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Arqiva – written evidence
• Enabling the financially-disadvantaged and less knowledgeable, or media
literate, to pay the same discounted prices for commercial products and
services as the technology-savvy (who, ironically, are usually better able to
pay more).
12. In addition, there is a risk that the much-heralded huge cost savings from slimming
down “offline” Whitehall will not be realised - until access to digitised public services
becomes universal.
Will the Government’s targets be met and are they ambitious enough? What
speed of broadband do we need and what drives demand for superfast
broadband?
13. The government target of having the “best broadband in Europe” in 2015 is very
challenging, and Arqiva believes this will be difficult to meet within the current
funding if it is interpreted as meaning that there will be universal access to the best
broadband in Europe.
14. Arqiva is concerned, as outlined above, that there remains a risk that not everyone
will get something by 2015. We believe that all households should receive a minimum
of 2 Mbps of reliable broadband which is sufficient to watch BBC iPlayer, and file tax
returns etc. True, consumer demands may exceed this in the future – not least
where demand for faster speed is driven predominantly by ‘multiple-user’
households. However, there is currently no clear legal driver at present for
‘superfast’ broadband.
In fact, are there other targets the Government should set; are there other
indicators which should be used to monitor the health of the digital economy?
What communications infrastructure does the UK ultimately need to remain
competitive and meet consumer demand over the next 20 years?
15. As well as coverage and availability, Government should measure both take-up and
usage. At the moment there is little data captured regarding how services are used,
although we note that the UK is the European leader in e-commerce use.
16. The competitive market is delivering the infrastructure that it thinks consumers will
need and which can be provided at a price that they will pay (which is where
commercial provision in many rural areas is so challenging); it remains the best
arbiter for investing in communications infrastructure. However, in order to ensure
industry continues to invest in the future, both government and Ofcom must ensure
that the levels of competition in the market are maintained and/or strengthened.
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Arqiva – written evidence
17. In addition, Arqiva believes that as video is the principal driver of consumer-demand
for data (and fast access to it), government needs to also have regard for content
delivery networks and UK-based data centres.
How will individuals and companies use cloud services for distributed
storage and computation? What network properties are required to enable
efficient provision and use of such services?
18. Cloud computing offers flexibility to the Enterprise market, enabling SMEs to access
the computing power previously enjoyed only by much larger competitors. For
consumers, access to cloud services enables content and other data to be shared
between devices so that, for example, phone contacts need no longer be specific to
their current handset, and books and films can be “bookmarked” to enable later
continuation from the same point on a different device.
19. Demand for Data Centres will expand as market demand for digital content and
services grows. As facilities grow in size and number, the associated increase in
power consumption will require far greater efficiency in terms of the facility power
utilisation and within IT server / storage equipment. The growth in HD video and
content distribution networks will require a wider geographical distribution of Data
Centre facilities and require higher capacity connectivity.
To what extent will the advent of superfast broadband affect the ways in
which people view, listen to and use media content? Will the broadband
networks have the capacity to meet demand for new media services such as
interactive TV, HD TV and 3D content? How will superfast broadband
change e-commerce and the provision of Government services?
20. Arqiva maintains that some broadband is better than nothing – and that the faster the
broadband the better the experience. However, the way that audiences are
consuming media content has changed significantly over the past decade. New
platforms, services, applications and devices will continue to shift consumer
behaviour.
21. Consumers are demanding “catch up” content from BBC iPlayer, ITV Player, 4oD
and similar applications in ever greater numbers. Although this is overwhelmingly
additional, rather than substitutional, to consumption of traditional linear television.
Audiences are increasingly irritated by problems like ‘buffering’ from poor broadband
connections. With such applications being rolled out to tablets and other mobile
devices, we are witnessing a shift in consumer demand to more data being consumed
outside the home or office and ‘on the go’.
22. An essential element of the UK’s digital communications infrastructure therefore
needs to be consideration of how far the UK has managed to deliver pervasive
mobile broadband and Wi-Fi – including on the London Underground and major train
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Arqiva – written evidence
lines where coverage is currently either non-existent or, at best, patchy. Given that
Transport for London and Network Rail are both public sector bodies there is a
clear role for Government in addressing this.
Will the UK's infrastructure provide effective, affordable access to the
'internet of things', and what new opportunities could this enable?
23. The “Internet of Things” is a reference to pervasive “machine-to-machine”
communications, where devices such as energy smart meters, connected TVs,
connected fridges and connected cars unilaterally access the internet to communicate
data about their performance, location, consumer usage data etc. Machine-tomachine
communications is expected to grow exponentially, so that there will be
many more devices connected to the internet than people, although the absolute
amount of data generated may be relatively small.
24. If the UK’s infrastructure is to enable effective access to such communications, then
it needs to be recognised that the “last hop” will almost always be wireless, so both
availability of suitable spectrum and associated infrastructure where demand is likely
to be generated are key considerations.
25. Access could not be regarded as effective if machine-to-machine communications
were essentially precluded from the London Underground, major train lines or major
roads (in that latter case, Intelligent Transport Systems are expected to be a major
growth area where the UK should be positioning itself as Europe’s lead). To that end
public sector bodies such as Network Rail, Highways Agency and Transport for
London will have a role to play.
How might superfast broadband change the relationship between providers
and consumers in other sectors such as content? What aspects of this
relationship are key to enabling future innovations that will benefit society?
26. It is too early to say with any certainty how superfast broadband will change
relationships between providers and consumers in other sectors such as content.
Arqiva notes that during the last decade the digital consumption of music and, for
that matter books, has posed serious questions and challenges for the long-term
future health of the music and book publishing world. The online legal purchase of
music through iTunes and Amazon etc – as well as the ongoing challenges of illegal
downloading has posed questions for producers, and rights-holders as well as the
business models of traditional retailers including HMV, WH Smith and the defunct
Woolworths. Superfast broadband may similarly pose challenges for linear
broadcasting and the traditional public service broadcasters, with significant
implications for investment in UK-originated content. However assuming that
consumers will continue to overwhelmingly demand content of UK origin, then
universal access to broadband will offer new routes to market for UK content
producers outside of their traditional relationship with broadcasters.
27. Faster broadband will clearly be beneficial for households likely to demand
simultaneous HD content, but in the medium term ensuring universal access to
14

Arqiva – written evidence
broadband may prove to be a bigger enabler of new content opportunities than
superfast. Whether broadband does change the relationship between content
providers and consumers will also be influenced by ‘data caps’, where even in
Standard Definition a single one hour programme could comprise 1GB of data.
28. For this reason, in addition to its universality, Freeview will continue to offer a more
efficient means of offering a range of (increasingly HD) content to all consumers.
What role could or should the different methods of delivery play in ensuring
the superfast broadband network is fit for purpose and is as widely available
as possible? How does the expected demand for superfast broadband
influence investment to enhance the capacity of the broadband network?
29. Public investment will maximise the number of consumers who will be offered
superfast broadband, where the vast majority will be offered a service based on
Fibre-To-The-Cabinet (FTTC) rather than Fibre-To-The-Premise. But even FTTC
would be prohibitively expensive to provide for many rural consumers, including
many of the 30% of SMEs in rural areas which would be too small to justify their own
dedicated Ethernet line, so would need consumer or small business ISPs for
connectivity.
30. As we contend above, wireless/mobile broadband must complement fixed provision
to ensure that broadband is as widely available as possible. Unlike fixed solutions, no
roads need to be dug up and no ducts shared (not that there are many in rural areas
anyway), so wireless broadband could be deployed quickly.
31. As already stated, given the limited commercial appeal to the market of offering
broadband to the last 5% or so of the population, both Ofcom’s proposed 4G
coverage obligation and the MIP are essential elements in ensuring that those
consumers who won’t be offered superfast are still offered broadband of at least 2
Mbps.
32. There will still be some consumers for whom even wireless broadband would not be
the most cost-effective solution. Where population density falls below 15 houses per
km 2 , satellite is likely to be the cheapest broadband solution. However the level of
monthly subscriptions and associated speed and data caps, latency, and even “rain
fade” are issues with satellite broadband.
Does the UK, for example, have a properly competitive market in
wholesale fibre connectivity? What benefits could such a market provide,
and what actions could the Government take to ensure such a market?
33. Ofcom must remain vigilant that the competition remedies in place continue to
deliver the benefits that we have seen over the last decade, and explore alternative
remedies in the future should existing remedies fail to sustain the level of
competition that the market is capable of supporting.
15

Arqiva – written evidence
What impact will enhanced broadband provision have on the media and
creative industries in the UK, not least in light of the increased danger of
online piracy? What is the role of the Government in assuring internet
security, and how should intellectual property (IP) best be protected, taking
into account the benefits of openness and security?
34. As already argued, universal and (on average) faster broadband connections have the
potential to offer new ways for content producers to reach consumers. Faster
speeds enable simultaneous consumption of HD content and should particularly
provide new opportunities for the UK’s innovative games industry to extend
successful franchises such as Grand Theft Auto to a real-time multi-player service.
35. It is not clear what the relationship might be between piracy and superfast
broadband; one view is that improved infrastructure may better support attractive
legal services that would entice the consumer away from illegal services; another is
that more bandwidth will support more piracy. In any event it is probably not helpful
to link the two issues too closely and instead focus on the current remedies being
pursued now in relation to the protection of IP online. In addition, a move to cloud
services and initiatives such as UltraViolet may help to reduce online piracy.
13 March 2012
16

Avanti Communications – written evidence
Avanti Communications – written evidence
What is being done to prevent a greater digital divide occurring between people who can access
superfast broadband and people in areas where the roll-out of superfast broadband may not be
commercially attractive?
ANSWER
The phrase super fast broadband is misleading. No government report has adequately
explained why 24Mb is necessary. Fibre provides this kind of peak speed, but only in urban
areas, so why promote this as a national target?
But one could alternatively choose to prioritise a technology which provides 100%
geographic coverage at 10Mb as satellite does. The Broadband Stakeholder Group, in its
work leading up to the Carter Report did NOT recommend a 24mb standard. We believe
that government has got carried away promoting a technical standard which is unnecessary,
impractical and not at all analysed or clearly understood. 24Mb would only be necessary if
multiple occupants of a dwelling were simultaneously watching streaming high definition
television. Is this an objective worthy of government subsidy, when HD television is
universally available at lower cost with BSkyB?
The provision of fibre on a universal, national basis is a preposterous notion which ignores
fundamental economics. If the £530m is spent on fibre, it will either:
A) subsidise investments which would have been made anyway in densely populated areas,
or
B) fund pilot projects which are not economically viable and will end when the subsidy ends.
Government objectives should instead by re-prioritised to make sure that every family in the
country has a minimum 2mb broadband service. Satellite can provide 10Mb universally and
should therefore be the technology of choice.
How does the UK communications market vary regionally and what is the best way to connect the
areas that the market alone cannot reach? Is a universal service obligation necessary to avoid
widening the digital divide?
ANSWER
There is no such thing as a region that the market cannot reach. Satellite can provide 10Mb
everywhere. The installation costs of up to £400 can be a barrier for some families or their
service providers but are VASTLY lower than the enormous cost of laying fibre outside
cities.
The Government have committed £530 million to help stimulate private investment – is this enough
and is it being effectively applied to develop maximum social and economic benefit?
17

Avanti Communications – written evidence
ANSWER
No, it should be target first at Universal service.
Will the Government’s targets be met and are they ambitious enough? What speed of broadband
do we need and what drives demand for superfast broadband?
ANSWER
The government will fail to ensure that every family has broadband because it is wasting
money on unnecessary pilots with the wrong technology. Every child should have access to
broadband regardless of family income, and every job seeker should have the same access to
information.
In fact, are there other targets the Government should set; are there other indicators which
should be used to monitor the health of the digital economy? What communications infrastructure
does the UK ultimately need to remain competitive and meet consumer demand over the next 20
years?
ANSWER
Universal Service should be mandatory.
How will individuals and companies use cloud services for distributed storage and computation?
What network properties are required to enable efficient provision and use of such services?
No comment
To what extent will the advent of superfast broadband affect the ways in which people view, listen to
and use media content? Will the broadband networks have the capacity to meet demand for new
media services such as interactive TV, HD TV and 3D content? How will superfast broadband
change e-commerce and the provision of Government services?
ANSWER
The highest profile media will remain broadcast because it is time sensitive, and this is
overwhelmingly more efficient using broadcast technology rather than unicast. Time shifted
download content will grow, but it will not dominate, and the costs of using it will moderate
consumer behavior.
Will the UK's infrastructure provide effective, affordable access to the 'internet of things', and what
new opportunities could this enable?
ANSWER
The market will provide adequate service; the question which remains is about affordability
to the poorest families.
18

Avanti Communications – written evidence
How might superfast broadband change the relationship between providers and consumers in other
sectors such as content? What aspects of this relationship are key to enabling future innovations
that will benefit society?
What role could or should the different methods of delivery play in ensuring the superfast
broadband network is fit for purpose and is as widely available as possible? How does the expected
demand for superfast broadband influence investment to enhance the capacity of the broadband
network?
ANSWER
Money wasted on fibre subsidy is crowding out the benefits of Universal Service.
Does the UK, for example, have a properly competitive market in wholesale fibre connectivity? What
benefits could such a market provide, and what actions could the Government take to ensure such a
market?
No comment
What impact will enhanced broadband provision have on the media and creative industries in the
UK, not least in light of the increased danger of online piracy? What is the role of the
Government in assuring internet security, and how should intellectual property (IP) best be
protected, taking into account the benefits of openness and security?
No comment
12 March 2012
19

Bentley Walker – written evidence
Bentley Walker – written evidence
May I present the following remarks/responses to points raised in respect to broadband
delivery throughout the UK.
Digital Britain target is questionable!
The delivery through fibre optic service suppliers has a major part to play and one would
imagine a significant target to achieve. The costs associated are obviously significant and
the time to complete the infrastructure completion is upon us. I readily except that Fibre
Optic services for broadband are suitably justified throughout urbanised areas but to what
expense elsewhere. I just feel that we have been ignored to some degree as a satellite
internet service provider, currently delivering systems to many homes through the UK,
providing speeds up to 10mgbts/sec. If you map out the not spots and allocate satellite
broadband services to these locations then the job to achieve Digital Britain becomes easier
to achieve. We could work together with these fibre optic service providers to deliver the
satellite broadband solution where the infrastructure becomes unfeasible, this would make
some sense. We could actively complete 1,000s of installations throughout the UK within
weeks; it is purely a case of working out our position and objectives adding a government
supportive marketing statement explaining our position in respect to the delivery of
broadband to these rural communities/villages.
Please examine our pricing and proposal based on a method to achieve the Digital Britain
target in conjunction to Fibre Optic services which means a subscription from the second
month is the only payment required by the customer cost.
Customer requires hardware & installation plus a service speed of 6mgbts/sec download and
is a (light user) £214.99 hardware cost and completed installation which includes the first
month subscription @ £24.99 /month. (All prices inc vat.)
With a grant of £250.00 by allocation we can then actively market the services to these
locations with the supportive statement outlining our position in providing internet
connection at these locations. The problems with current grant arrangements it is left to the
customer to become aware of the offer which leads to low up takes and the service
provider to not market the product effectively.
17 February 2012
20

Boundless Communications Ltd – written evidence
Boundless Communications Ltd – written evidence
Questions the Committee will consider: Response Name/Status Response on behalf of Boundless Communications
What is being done to prevent a greater
digital divide occurring between people
who can access superfast broadband and
people in areas where the roll-out of
superfast broadband may not be
commercially attractive? How does the
UK communications market vary
regionally and what is the best way to
connect the areas that the market alone
cannot reach? Is a universal service
obligation necessary to avoid widening
the digital divide?
1 Andy Wilson, Chief
Executive
Boundless Communications
21
There has been and continues to be a great deal of coverage
about bridging the digital divide with many private and
Government initiatives aimed at delivering a uniformly high speed
service. It is our view that although these initiatives are well
intentioned most seem to start from the premise that the only
way forward is “Fibre”. Although this is an ideal solution for
many premises (business and residential) it is not a cost effective
solution for many in rural communities and some business parks,
located on the outskirts of many towns. As a consequence the
strategy of ”upgrading exchanges and certain cabinets with fibre”
will actually widen the digital gap by delivering higher and higher
speeds to the people that currently receive acceptable
broadband whilst leaving many people with the same or even
lower speeds.
For example it is estimated that this type of policy would address
95 -97% of the population in Lancashire; Lancashire County
Council estimates, January 2012.
It is our view that the 3-5% not covered will probably account
for over 10% of the rural community; the very communities
these initiatives are aimed at.
This does not have to be the case. It is possible to deliver a
super-fast service at speeds of up to 100Mbps into virtually all
community groups and businesses now. To do this government
strategy needs to change from a technology, grant funding and
partnership perspective to achieve it.

Boundless Communications Ltd – written evidence
The Government have committed
£530 million to help stimulate private
investment – is this enough and is it
being effectively applied to develop
maximum social and economic benefit?
Will the Government’s targets be met
and are they ambitious enough? What
speed of broadband do we need and
what drives demand for superfast
broadband?
In fact, are there other targets the
Government should set; are there other
2 Andy Wilson, Chief
Executive
Boundless Communications
3 Andy Wilson, Chief
Executive
Boundless Communications
4 Andy Wilson, Chief
Executive
22
By adopting a blend of FTTC (Fibre To The Cabinet) and FTTM
(Fibre To The Mast) coupled with high speed radio delivery to
the premises that cannot be reached easily with fibre it is
possible to deliver 100Mbps broadband to virtually everyone
now.
Grant funded FTTC schemes will not address the demand or the
population fully in Rural areas. A “Universal Service Obligation”
is a must along with the recognition that large Tier 1 providers
will not deliver without partnerships with other smaller rural
providers.
The £530M is a welcome addition to help bridge the “Digital
Divide”. However, many organisations ideally suited to deliver
maximum benefit to rural communities are prohibited from
bidding because of the selection criteria used. It appears to be
geared towards large Tier 1 providers. Adopting a more flexible
approach would allow other companies to participate delivering
greater penetration and a faster roll out at a much lower price
point.
Targets will always be achieved if the criteria used for defining
them are not tight enough. For example “97% of the population
will receive superfast broadband” is a great headline figure and
technically true. However if you are in the 3%, which may
actually equate to 10 or 20% of the rural population in
geographic terms, it is a failure. Care should be taken to ensure
any targets will directly drive benefits to the communities in real
need. It is possible with a blend of technology to deliver high
speeds to the majority of communities providing coverage close
to 100%.
See (1 & 3) above however more specific measurements
focussed directly at the target communities and groups should be

Boundless Communications Ltd – written evidence
indicators which should be used to
monitor the health of the digital
economy? What communications
infrastructure does the UK ultimately
need to remain competitive and meet
consumer demand over the next 20
years?
What role could or should the different
methods of delivery play in ensuring the
superfast broadband network is fit for
purpose and is as widely available as
possible? How does the expected
demand for superfast broadband
influence investment to enhance the
capacity of the broadband network?
Does the UK, for example, have a
properly competitive market in
wholesale fibre connectivity? What
benefits could such a market provide,
and what actions could the Government
take to ensure such a market?
March 2012
Boundless Communications implemented. For example tighter geographic speed targets
down to post code sector (incode) level rather than high level
percentage statements. This would focus any funding to areas of
real need rather than “easy wins”. This approach would
maximise the benefit into areas either poorly or not served at all.
5 Andy Wilson, Chief
Executive
Boundless Communications
6 Andy Wilson, Chief
Executive
Boundless Communications
23
See (1) above. It is essential if we are to achieve a near universal
superfast service to use a variety of delivery methods. FTTC and
fibre to the home is not a cost effective or practical solution for
many rural properties. A combination of 4G, FTTC, FTTM and
either fibre to the home or high speed radio links will allow the
government to exceed its superfast broadband goals. A pure
fibre strategy will fail and prove to be prohibitively expensive. A
typical radio link from an FTTM mast can be delivered for less
£300 per property. The equivalent fibre delivery in hard to
reach communities would typically run into the thousands or
even tens of thousands per property.
YES in major towns and cities however NO in rural areas. A
scheme that would allow rural broadband projects either
managed by the community or speculative ventures by business
to receive subsidised super high speed fibre backhaul, Gbps
speeds, would massively reduce the delivery costs for these
projects. This would allow smaller more agile
organisations/communities to offer competitive superfast
services in areas that would not be cost effective otherwise.
Local connectivity is a must but this must be coupled with high
speed backhaul to ensure the digital gap is bridged.

British Film Institute – written evidence
British Film Institute – written evidence
Introduction
1. The British Film Institute (BFI) is today the lead organisation for film in the UK.
Founded in 1933, it has always been a champion of film culture in the UK but in its
new wider role, it has the additional purpose of supporting and helping to develop
the entire film sector. Its Royal Charter emphasises its responsibilities to develop the
arts of film, television, and the moving image. Its new role as a Government armslength
body and distributor of Lottery funds, widens the BFI’s strategic focus and
increases its potential impact, both culturally and industrially.
The BFI welcomes the opportunity to respond to the House of Lords Select
Committee on Communications’ Call for Evidence in relation to its inquiry into the
Government’s superfast broadband strategy.
2. The Government’s broadband strategy has important implications for the film
industry in general, and for film culture and the BFI’s public policy goals in particular.
As with other content industries, the internet is transforming the ways in which films
are delivered and consumed, both legally and illegally. As with other forms of
content, there are both opportunities and threats.
3. The greatest opportunity comes from the growing availability of video-on-demand
(VOD) services, which allow potentially limitless libraries of films to be offered to
people wherever they live. Films and other forms of audiovisual content are being
consumed in greater amounts on smart-phones and tablet devices. And as take-up of
connected TVs grows, VOD services will migrate over time from PCs to TV sets,
allowing families and friends to watch films together on large screens in their living
rooms.
4. The BFI especially welcomes the access VOD services can potentially provide to
contemporary and classic British and international films that have historically been
difficult to see, especially for people who live a distance from their nearest
independent cinemas (which are typically located in the main metropolitan areas). As
well as allowing films themselves to be distributed, new digital services offer a wide
range of information on films – such as film-related news and blogs, previews and
clips, and reviews – enabling communities of fans to engage more deeply with the
films that they love.
5. As DVD sales fall, it is important for film rights-holders to be able to develop new
business models that generate sufficient income from the exploitation of films via
online services. Alongside the difficulty in establishing viable business models, one of
the biggest threats to the film industry comes from copyright theft and infringement,
given the ease with which it is possible to make perfect digital copies of films and
distribute them illegally around the world.
6. The Call for Evidence asks if superfast broadband will meet the needs of our
“bandwidth hungry” nation. More than any other popular form of content, film is
highly reliant on fast and reliable broadband services to enable online distribution,
given the large data requirements: it is audiovisual in nature, feature-length films often
24

British Film Institute – written evidence
run to more than two hours in duration, and consumer expectations of high picture
and sound quality are typically higher than for other forms of audiovisual content
(such as TV programmes). Our understanding is that minimum bandwidth
requirements of 3Mb/s are needed to provide DVD-quality pictures. The
requirements for HD video are higher (in the region of 5-10Mb/s) and much higher
still to match the quality of Blu-ray discs (50-100 Mb/s).
7. For these reasons, the rollout of superfast broadband in the UK will have a significant
effect on the film sector. This brief submission responds to the issues raised by the
Call for Evidence that are of greatest concern to the BFI. We would be pleased to
provide further information to the Select Committee on any of the matters
discussed, on request.
Responses to individual questions
Overall communications infrastructure
1. What communications infrastructure does the UK ultimately need to remain
competitive and meet consumer demand over the next 20 years?
The BFI believes that the UK needs a broadband infrastructure that is (a) universally
available, and (b) sufficiently fast to provide the full range of digital media services that
people will demand. We discuss these points in relation to other questions in greater
detail below.
2. To what extent will the advent of superfast broadband affect the ways in
which people view, listen to and use media content? Will the broadband
networks have the capacity to meet demand for new media services such as
interactive TV, HD TV and 3D content?
For films, in particular, the availability and quality of superfast broadband services will
have a significant impact on levels of consumption in the home. The success of DVDs
relative to their predecessors, VHS cassettes, indicates how much consumers value
superior picture and sound quality, and how this can drive levels of consumption.
The growth in demand for large flat-screen HD TV sets in people’s homes has led to
the increased popularity of Blu-ray discs in recent years, offering even higher levels of
quality, including the ability to offer films in 3D (this also requires special TV sets and
glasses, although glasses-free 3D technologies are expected to come to market in the
near future). Audiences increasingly want to watch feature films at home with the
highest levels of picture and sound quality. New VOD services linked to connected
TVs can potentially bring vast libraries of films to people’s living rooms. But such
services can only deliver HD-level (or higher) sound and vision with superfast
broadband. Reliability of service is also very important. At peak times of day,
delivered broadband speeds can be substantially less than advertised rates. This has a
disproportionate impact on video streaming services. As with other utilities, fit-forpurpose
broadband networks need sufficient capacity to be able to meet demand at
all times of day.
More generally, superfast broadband opens up the potential for a broader range of
consumer, business and educational services, particularly those that require two-way
25

British Film Institute – written evidence
Digital divide
interactivity or which involve the use of moving images. One area of particular
interest to the BFI, given its educational remit, is the potential for new services to be
developed that facilitate learning in schools and in higher education.
Given the rapidly growing demands for bandwidth for audiovisual and other kinds of
content that we can expect over the coming years – which will be exacerbated by
the development of cloud-based services and by the proliferation of new kinds of
internet-enabled devices – we agree with the comment in the Call for Evidence that
broadband speeds of 1Gb/s may be needed by 2020, if not sooner (see also para 4
below).
3. Several questions in the Call for Evidence relate to the digital divide, and regional
variations in service. The BFI welcomes the focus on the digital divide in the Call for
Evidence. A key public policy goal of the BFI is to ensure that audiences all over the
UK have access to a rich diversity of films. As we noted in the introductory remarks,
VOD services potentially have an invaluable role to play in making a rich and diverse
range of films available to rural and remote populations. There is a risk that – if the
digital divide is not adequately addressed – the same people who do not live close to
independent cinemas or other cultural venues that offer films other than those
programmed by the main multiplex chains will likewise be denied of access to VOD
services that would expand the range and kinds of films available to them.
4. Is a universal service obligation necessary to avoid widening the digital divide?
We believe that the Government’s commitment to ensuring universal access to
standard (2 Mb/s) broadband represents only a modest start. As ever more
audiovisual content is distributed online, and in particular as the demand for access
to feature films grows, the BFI believes that such speeds will rapidly come to seem as
outdated as dial-up internet access now is. We believe that the universal access
provisions should be extended, over a sensible time frame, to superfast broadband,
to ensure that feature films are not excluded from the types of content that are able
to benefit from this new means of delivery.
We would welcome greater clarity in the definitions of broadband speeds, as
different levels of what are loosely referred to as “superfast” broadband will have
very different implications for the range of services that are feasible. Speeds of 1Gb/s
(which the South Korean government aims to achieve in all homes by the end of this
year) will enable a much richer range of services than speeds of 100Mb/s, for
example. We would suggest that different tiers of “superfast” broadband should be
clearly defined (e.g. 1-10 Mb/s, 10-100 Mb/s, etc), and that the government should set
an ambitious but realistic series of targets to achieve universal access for each
successive tier of broadband over the next decade.
5. The Government have committed £530 million to help stimulate private
investment – is this enough and is it being effectively applied to develop
maximum social and economic benefit [in locations where the commercial
investment case is weak]?
26

British Film Institute – written evidence
While the BFI is not in a position to comment on the effectiveness of the deployment
of the £530 million of public funds, we believe that sufficient funds should be made
available to ensure that the universal service obligations can be met, given that it will
not be commercially viable to serve the most remote parts of the UK.
Impact on creative industries
6. How might superfast broadband change the relationship between providers
and consumers in other sectors such as content?
The BFI believes that superfast broadband can stimulate a series of positive changes
in the film industry, to the benefits of audiences and the industry alike. On the supply
side, as noted above, it becomes feasible to offer much wider selections of films than
are typically offered in cinemas and video rental stores. This means that, where most
multiplex cinema chains mostly show films from the major studios, there is far more
potential for VOD services to make available films from a wider selection of
producers and distributors. This can have positive benefits for UK plc, helping British
filmmakers get their films to audiences. Of particular importance to the BFI is the
ability for a wider range of current and archive British films to be made available to
the public, including those in the BFI National Archive. On the demand side, audience
tastes need no longer be constrained by the range of films on offer at their local
multiplex. These changes can trigger a virtuous circle: by expanding audiences’
horizons, it can stimulate demand for a more diverse range of films, making it easier
for British filmmakers to raise funding for new projects.
7. What impact will enhanced broadband provision have on the media and
creative industries in the UK, not least in light of the increased danger of
online piracy? What is the role of the Government in assuring internet security,
and how should intellectual property (IP) best be protected, taking into
account the benefits of openness and security?
Conclusion
Our responses to previous questions have covered the impact of broadband
provision on film, focusing primarily on ensuring the potential opportunities can be
realised. Alongside this, online copyright theft and infringement is a major concern, as
we noted in the introduction. As an organisation which invests public money in the
production, distribution, exhibition and archiving of films, the BFI is keenly aware that
copyright infringement and theft is damaging to the interests of citizens generally as
well as to rights-holders and the creative community. It is crucial that rights holders
are able to make their films available to audiences secure in the knowledge that there
is a robust legal framework in place which is designed to significantly reduce
copyright infringement and theft – both online and offline. In previous submissions,
the BFI has welcomed the announcements by Government regarding the next steps
for the implementation of the Digital Economy Act (DEA) in respect of measures to
curb online copyright infringement, and we wish to see rapid implementation of the
measures to significantly reduce online copyright infringement that are contained
within the Act.
27

British Film Institute – written evidence
8. Film is the most “bandwidth hungry” of all kinds of content, and demand for films via
new VOD services will play a significant role in setting overall levels of demand for
bandwidth from UK consumers. The BFI believes that the Government’s superfast
broadband policy should seek to ensure universal access across the UK, closing the
digital divide over time. This will enable audiences across the country to access the
rich heritage and diversity of films – and information about them – with an ease
never previously available. Measures to combat online piracy should remain a
priority for the Government, to enable legal services to develop and viable business
models to emerge.
March 2012
28

British Recorded Music (BPI) – written evidence
British Recorded Music (BPI) – written evidence
The BPI (British Recorded Music Industry) is the representative voice for the recorded
music industry. Our membership comprises 426 record companies and associates including
over 350 independent labels and the four major record labels – Universal Music, Sony Music,
EMI Music and Warner Music. Together, these account for more than 85 per cent of the
sound recordings sold in the UK every year.
The BPI welcomes this inquiry as a sensible way to look at broadband development in the
round, considering all of the potential economic benefits but also the costs. Higher speeds of
broadband ensure that consumers and businesses can access large audio visual files, enabling
the speedy consumption, distribution and use of content. Much of the economic benefits of
wider access to broadband will accrue to those countries that produce the best content and
in this the UK has a comparative advantage as a world leader in creative content.
Within this submission we will give some context of the economic success of the UK music
industry and highlight the opportunities and challenges of superfast broadband. The
submission makes several recommendations to ensure a healthy, growing digital economy
that allows the UK to maintain its comparative advantage in content. The BPI recommends
that:
• ISPs in the UK that are publicly subsidised sign up to voluntary agreements with
rights holders, based on the US model, to implement graduated response to
copyright infringement by subscribers on the network. This should be a condition of
the subsidy and should be contracted for through any intermediary.
• Subsidised broadband networks must offer software filters to subscribers that allow
parents to make decisions about access to content by children using the metadata
from schemes such as Parental Advisory.
• Government sets a target to reduce illegal distribution of content on UK networks.
The distribution of subsidy should be connected to this target, so that increased
speeds go hand in hand with increased security.
• Government does not extend a format shifting exception to cloud services, and
makes it clear that cloud services should seek licences for storage and access to
copyrighted material.
• Ofcom be given both a general duty to tackle infringing content online to ensure
customers have confidence in safety and legality online, particularly when using
trusted brands. BPI also recommends that the Ofcom media literacy duty includes a
duty to educate about copyright and the importance of using legal sites.
• BPI recommends that the Intellectual Property Office is re-established as a body to
champion the UK copyright industries, with clear statutory duties to protect and
promote the interests of UK intellectual property in the UK and overseas and to coordinate
effective enforcement of UK rights domestically and internationally. The
Intellectual Property Office should also have a duty to educate consumers on the
value of ideas and intellectual property and the importance of respecting intellectual
property rights
The Digital World and Music
29

British Recorded Music (BPI) – written evidence
1. The growth of online means that the UK music industry can sell content in many
different ways to consumers and faster broadband access makes it much easier for
consumers and businesses to access and share content. However, it also allows the
widespread uploading and downloading of content illegally.
2. Music has embraced digital markets, and the UK is a world leader in innovation in
digital music services. However, Internet piracy remains a huge problem for the future
development of the UK digital music market as faster speeds make it harder for
legitimate businesses to compete with illegal file sharing sites and prices are
constrained by free illegal content. Faster broadband speeds mean it is possible
to illegally download all 24 of the Beatles albums (compiled as a
discography) in less than an hour. The BPI ran a test on the Adele discography
whilst compiling this response and all of it could be obtained and downloaded illegally
in fewer than 30 minutes.
3. Without effective measures to combat piracy, legitimate business models will always
be competing with illegal, free content. Revenues lost to UK content industries are an
economic loss that means jobs, growth and opportunity for world class UK creative
talent. The lack of implementation of the Digital Economy Act is a stumbling block to
the ability of the creative community to enforce their own rights. The Act was passed
almost two years ago in April 2010 and has not yet been implemented. As a result,
rights holders continue to lose revenue which is vitally important in the investment of
future generations of musical talent.
British Music and the Economy
4. The British music industry is the second largest exporter of music in the world
with a 12% share of global sales of recorded music. This is significantly higher than the
UK’s average share of trade in goods (3%) and services (7%).
5. Following in the footsteps of an exceptional heritage of global superstar artists, British
performers still punch above their weight:
• Adele’s album 21 was the biggest selling album in the world in 2011. The
top-selling global artist album also came from a British act in four of the
last five years; 2
• in 2011, for the fourth year running, British artists accounted for around one
in 10 of every artist album sold in the US, with cumulative share of sales totalling
11.7% (up from 9.8% the previous year);
• In March 2011, the UK claimed the top 3 positions in the US Billboard Album
chart with Adele, Mumford and Sons and Marsha Ambrosius for the first time in
over 25 years; and
• Adele’s album 21 had the longest run at the top of the US charts by a UK
album this century (overtaking the Beatles 1 album in 2000).
6. The trade in invisible services for music is a significant net benefit to the UK economy.
Taking income abroad and payment made overseas from UK record companies for
public performance royalties, synchronisation and licensing for use on sound carriers,
2 Amy Winehouse - Back to Black, 2007; Coldplay - Viva la Vida, 2008; Susan Boyle - I Dreamed a Dream, 2009.
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British Recorded Music (BPI) – written evidence
and digital income, the trade surplus for the industry in 2009 was £137.7m, the highest
annual total since 2001.
7. The British music industry is both a major employer and in the main is a business
based on a significant number of very small businesses:
• Music & Visual and Performing Arts are the largest employers in the Creative
Industries with 300,000 employed in 2009 (1% of UK employment).
• In the middle of difficult times for the UK economy, employment in
music and visual and performing arts went up by nearly 13,000, from
279,636 in 2009 to 292,536 from in 2010.
• In 2011, Music & Visual and Performing Arts sector had the greatest number
of enterprises for the Creative Industries (30,500, 1.5% of the UK).
8. As an industry it reinvests over 20% of its revenue in artist development with 47% of
this expenditure provided upfront in the form of advances. As a comparator biotech -
considered to be a significant R&D based industry in the UK – typically invests 15% of
its revenue in R&D.
An innovative sector in the digital age
9. The record industry has worked hard to create and licence new business models for
the digital age. There are more than 70 legal digital music services in the UK,
more than any other country in the world.
10. More than £1bn has now been spent on digital music in the UK since the first
legitimate services were launched in the UK in 2004 and digital retail sales in the UK
grew by 18.2% to £316.5m, accounting for 26% of sales in 2010. Strong growth
continued in 2011, pushing digital sales to 41% of revenue in Q3 2011.
The Challenge from Broadband File Sharing
11. Internet piracy remains a huge problem for the future development of the UK digital
music market as faster speeds make it harder for legitimate businesses to compete
with illegal file sharing sites and prices are constrained by free illegal content. As
mentioned above, entire discographies can be searched for online and downloaded in a
short amount of time. Search engines will almost exclusively put infringing links on the
first page of search, and advertising by recognised brands fund sites that earn money
distributing infringing content.
12. Recent research from Harris Interactive shows that three quarters of all digital
music obtained in 2010 was done so illegally and that the retail value of single
tracks downloaded from unauthorised sources in the UK totalled £984,000,000 during
that year. In the face of this challenge the legal digital market is doing extremely well,
but it cannot hope to compete fairly with the illegal market. BPI recognises, of course,
that every track downloaded illegally would not be substituted with a legally purchased
track. Taking this into account, Jupiter (now Forrester) Research estimates the lost
31

British Recorded Music (BPI) – written evidence
revenue of the recorded music industry in 2011 to illegal music downloading to be
£236 million, at retail values.
13. Despite the exceptional creative achievements of UK artists and the expertise of UK
labels in marketing their music abroad, the UK recorded music sector faces difficult
times as increasing illegal downloading has deprived the industry of revenue which is
essential to ongoing investment. Revenues of UK record labels have fallen by 32%
since 2004 from £1,220.4m to £823.8m in 2011.
14. The UK risks falling behind its competitor nations when protecting and
enforcing the rights of creators. The Hadopi law in France has been in effect for more
than a year and the industry is seeing positive results in the decrease of peer-to-peer
filesharing. In the United States, voluntary discussions have led to an agreement
between rightsholders and major ISPs - the “Progressive Copyright Alert System”
allows rightsholders to detect infringement and ISPs to send an electronic alert or
message to the internet user which must be acknowledged by them. The alert informs
the user that they have violated the Terms and Conditions of the contract between
the user and the ISP. More recently, in Spain, we’ve seen the introduction of the Sinde
Law (Law on Sustainable Economy) which provides for an expedited procedure for the
blocking of illegal websites and the removal of illegal links.
South Korea and Superfast Broadband
15. In South Korea the Government took an interventionist approach to the roll out of
fibre optic based broadband, with targets that more than 80 percent of households
would have access to fast connections of 20mbps or more by 2007 3 . The South
Korean recorded music market began to contract in 2002 as illegal downloading
soared, driven by the rapid adoption of broadband. This decline continued to the end
of 2007. During this period, the number of physical record stores in the country fell
from around 2,000 to fewer than 200.
16. In April 2009, however, new legislation was introduced establishing additional
measures to tackle online piracy, including graduated response procedures. The
legislation became effective in July 2009 and was accompanied by major educational
and public awareness campaigns initiated by the government.
17. The South Korean music market increased by 10% in value in 2009 and then
by a further 12% in 2010. A range of legitimate services have developed, offering
consumers easy and low-cost access to music. Record companies increased their
rosters of local artists, laying the foundations for a boom in K-Pop that has spread
across Asia. South Korea moved from being the 19 th largest recorded music
market in the world in 2007 to the 12 th largest in 2010.
Specific questions in the call for evidence
The Government have committed £530 million to help stimulate private investment – is this enough
and is it being effectively applied to develop maximum social and economic benefit?
3 Borland and Kanellos, 2004
32

British Recorded Music (BPI) – written evidence
18. BPI believes that maximum social and economic benefit for the UK will only come
from the development of legal markets for the production and distribution of content
online. Superfast broadband is a significant opportunity for the UK’s world leading
content industries. However, superfast broadband is also a great threat if it is not used
to develop legitimate online industries and instead allows a portal to piracy.
19. Two years on from its enactment, the Digital Economy Act has not been implemented.
The measures within the Act require content holders to pay the costs of the system,
yet large amounts of public money are being used to subsidise the superfast broadband
networks that will increase the amount of illegally distributed content. Without a legal
framework that secures a legitimate market, the subsidy will hasten the decline of the
UK content industry and cause great economic harm.
20. A very small proportion of that money, say £20m, would be enough to fund both the
measures under the Act and an extensive education campaign around the importance
of copyright and the economic cost of theft of content. This would be a small
contribution by the Government compared to a broadband subsidy that could have a
high impact on the behaviour of consumers.
21. When allocating public money the BPI believes it is in the interests of the taxpayer to
only offer subsidies to internet providers that are prepared to take measures to secure
those networks against illegal activity. Where public money is used, networks must
implement the highest possible standards of consumer protection.
22. BPI believes it should be a condition of public subsidy to ensure that networks block
access to sites that are involved in the facilitation and distribution of illegal content and
measures in place to tackle copyright infringement through connections to their
networks. This should include blocking websites notified to the ISPs as dealing in illegal
content and by allowing rights owners to send notices to subscribers that are using
networks to distribute and download infringing content.
23. BPI recognises that the subsidy may not be given directly to an internet service
provider, but through an intermediary. However, the subsidy should bring with it an
obligation to place contract terms with any suppliers to ensure that networks are
secured against illegal distribution of content.
24. BPI recommends that the ISPs in the UK that are publicly subsidised sign
up to voluntary agreements with rights holders, based on the US model, to
implement graduated response to copyright infringement by subscribers on
the network. This should be a condition of the subsidy and should be
contracted through any intermediary.
25. There are also issues over harmful content. The BPI has a digital scheme in place for
Parental Advisory to help parents protect children from viewing and listening online to
music that is unsuitable for children. The BPI makes this scheme available for all legal
services.
26. BPI recommends that subsidised broadband networks must offer software
filters to subscribers that allow parents to make decisions about access to
33

British Recorded Music (BPI) – written evidence
In fact, are there other targets the Government should set; are there other indicators which should
be used to monitor the health of the digital economy? What communications infrastructure does the
UK ultimately need to remain competitive and meet consumer demand over the next 20 years?
27. Speed of broadband alone is not an indicator of economic wellbeing. The BPI believes a
healthy digital economy would focus on the growth of legal digital markets for content,
products and services.
28. BPI recommends that Government sets a target to reduce illegal
distribution of content on UK networks. The distribution of subsidy should
be connected to this target, so that increased speeds go hand in hand with
increased security.
How will individuals and companies use cloud services for distributed storage and computation?
What network properties are required to enable efficient provision and use of such services?
29. Cloud services offer a great service for consumers to store and access their files and
information; they also are a significant opportunity for rights holders for commercial
licensing of innovative services. However, cloud services also offer a significant threat
to lawful sale of content through the opportunities they offer for copyright
infringement through the uploading of music and sharing of links. The case of
Megaupload has shown the difficulties with the oversight and operations of cloud
locker services.
30. The Government is currently consulting in its copyright consultation on measures that
will weaken the ability of UK content industries to license and police cloud services.
Through making it clear that the uploading of music to cloud services is subject to
license, the Government could ensure that consumers have absolute clarity that the
services that they are using are legitimate and properly secured.
31. A vibrant economy of cloud services would not distinguish, as the Government is
proposing in its consultation, between value added services and cloud services that are
purely for storage. BPI believes that they are broad substitutes, and the price of
innovative services that are being licensed by BPI members would be constrained if
there were another category of services that the Government had explicitly opted out
of licensing arrangements. There would undoubtedly be harm if Government pursues
such a twin track approach of a clearly licensed market and a grey market for cloud
service storage of content.
32. BPI recommends that the Government does not extend a format shifting
exception to cloud services, and makes it clear that cloud services should
seek licences for storage and access to copyrighted material.
To what extent will the advent of superfast broadband affect the ways in which people view, listen
to and use media content? Will the broadband networks have the capacity to meet demand for new
media services such as interactive TV, HD TV and 3D content? How will superfast broadband
change e-commerce and the provision of Government services?
34

British Recorded Music (BPI) – written evidence
33. The UK has the most competitive and the most advanced market for digital music
services in the world. There are more legal digital music services in the UK
than in any other country, including the United States, with over 70 available
to UK consumers. There are as many as 20 million recorded music tracks available on
the larger of these services, covering almost the entirety of the catalogue of music
commercially released in the UK.
34. Digital has transformed the music landscape in the UK. The Official Charts Company
began measuring its impact at the start of 2004, when MyCokeMusic launched in the
UK. By the end of the year – during which time the iconic iTunes store had opened –
almost 5.8m songs had been legally downloaded, equivalent to 17.9% of all singles sold.
35. By the end of 2011, the singles market has been completely revitalised, with sales now
at highest ever levels (175.1m in 2011) and over 750m digital singles bought since
2004. The digital album is also making impressive headway, with more than 80m sales
since 2006 when sales were first recorded. In 2011 they accounted for 23.5% of all
albums sold in the UK.
Sales of Digital Downloads in the UK (units millions)
Single Track
Downloads
Albums
2004 5.8 N/A
2005 26.4 N/A
2006 52.5 2.8
2007 77.5 6.2
2008 109.8 10.3
2009 148.8 16.1
2010 158.6 21.0
2011 175.1 26.6
Source: Official Charts Company
36. This has had a large impact on record company revenues which have diversified
enormously. By the end of 2010 all digital income streams accounted for 27.4% of
industry income and year end data from 2011 will show a further increase.
Trade Income from Digital Music 2004 – 2011 (£ millions)
Tracks &
Albums
Other* Total
2004 2.7
2005 12.4
2006 25.2
2007 71.6 71.6
2008 101.1 17.8 117.9
2009 162.6 26.2 188.8
2010 193.5 32.3 225.8
2011
Source: BPI Surveys.
241.1 40.6 281.7
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British Recorded Music (BPI) – written evidence
* Other includes ringtones, subscriptions, ad-supported income and other digital music income.
37. The legal digital music landscape in the UK has evolved at breathtaking speed, entirely
based on current licensing practices. The most significant landmarks in the history of
digital music have been:
• The licensing of digital “a la carte” services with the unbundling of album
products into constituent parts (tracks): from 2004 onwards major stores such as
iTunes, Amazon mp3 and 7Digital have offered catalogues of many millions of
tracks; but there are also smaller “niche” stores specialising in certain genres or
particular business models, e.g. Juno Records 4 ; Trackitdown 5 , Boomkat 6 ,
Fairsharemusic 7 ;
• The removal of all digital rights management technology around download to
own;
• The development of “all you can eat” subscription models models e.g.
Napster 8 from 2004 with millions of tracks available on-demand on the
consumer’s computer and mobile devices;
• The launch of free to user, ad-funded, unlimited streaming models e.g. We7 9
from 2007 as a direct competitor to piracy, and massive scale platforms for
professional and user generated content like YouTube and professional music
video content such as Vevo 10 , launched in the UK in 2011;
• The bundling of music services with other products e.g. Virgin Media
broadband 11 and Spotify; and
• Launch of iTunes iCloud and iMatch in 2011. iCloud allows a user to
download all the songs they have purchased from iTunes onto any mobile device;
iMatch extends this functionality to any song in a user’s collection, even if not
purchased from iTunes, for a modest annual fee 12 .
38. The use of music produced by UK labels goes beyond use for music services, into
cross-media offerings, games and brands and the UK has been at the forefront of
innovative digital service launches.
How might superfast broadband change the relationship between providers and consumers in other
sectors such as content? What aspects of this relationship are key to enabling future innovations
that will benefit society?
4 http://www.juno.co.uk/
5 http://www.trackitdown.net/
6 http://boomkat.com/
7 http://www.fairsharemusic.com/
8 http://www.napster.co.uk/
9 http://www.we7.com/
10 http://www.vevo.com
11 http://shop.virginmedia.com/broadband/broadband-extras/spotify.html
12 http://www.apple.com/uk/icloud/features/
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British Recorded Music (BPI) – written evidence
39. As described above, the UK has a very vibrant digital music market with the highest
number of legal digital services in the world, with nearly 80 services. Consumers
will consume music digitally in many different ways, and will have much more power as
a consumer as to what they buy and how they build up their collection. However, it is
important that Government helps educate consumers of the importance of paying for
content for future investment in new music. Innovation requires risk, but it also
requires the ability to make a return.
40. The BPI set up a digital innovation panel in the autumn of 2010 to help foster
innovation in the provision of digital services using music. The panel was put together
to promote partnership in creating and developing digital music services, primarily
through shared customer insight and to ensure early label input into proposed
consumer propositions. The panel consists of influential executives from within various
record label and publisher business functions - digital, commercial and insight &
strategy. It has commissioned and managed a comprehensive programme of consumer
research and digital market mapping, which has revealed a plethora of potential
opportunities for digital music services.
41. The panel has held a series of 'Open Session' brainstorms involving a range of service
providers including Tesco, We7, MFlow, eMusic and BT. Its members have also
experimented with digital partners via API's, hack days and 'sandbox' developments -
such as EMI Open and Universal Open - where the labels open up parts of the
catalogue to developers via API's for better music discovery apps and other new
services. One example of such an app is Discovermusic 13 .
42. Innovation is very vibrant in technology that uses copyright, but there are many factors
that cause problems with investment in the UK, not least problems of access to
finance for small businesses.
What impact will enhanced broadband provision have on the media and creative industries in the
UK, not least in light of the increased danger of online piracy? What is the role of the Government in
assuring internet security, and how should intellectual property (IP) best be protected, taking into
account the benefits of openness and security?
43. One significant problem with the current internet model is that many of the major
companies take a neutral view of illegal activity. Consumers are taken across networks
by reputable companies, pointed by search engines that have global recognition to sites
that have advertising by established brands and offer payment by world renowned
payment providers. Yet the content they could be consuming on that journey is
entirely illegal, and the money passing through advertising, payment and search is going
to people profiting from business models built on infringement of copyright.
44. At the moment the companies involved – ISPs, search engines and payment companies,
do not take enough responsibility for their role in the illegal online economy. The
resulting system is bad for consumers and bad for legitimate content businesses. UK
jobs, growth and content production will suffer. BPI has asked for the industries
involved to take simple steps to help consumers online, including:
13 http://www.discovermusic.com/
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British Recorded Music (BPI) – written evidence
• search engines ranking legal services above illegal services – at the moment
Google, the most used search engine, tends to serve almost wholly infringing sites
on its first page of results;
• ending the financial support for illegal sites by not placing advertising on them,
or profiting from infringement by selling key words associated with piracy or by
selling mobile applications which facilitate infringement; and
• not to allow payment to infringing sites from credit cards and payment
services.
45. Whilst it has been shown now in court that sites that are facilitating illegal distribution
of content may be blocked through the Copyright, Designs and Patents Act 1988
(through the Newzbin II case) the process is still too slow and expensive for rights
holders. BPI believes a court process is important but it should be done in the
applications court or another procedure which can be cheaper and quicker (i.e. less
than the 6 months to a year) than the current process.
46. BPI recommends that Ofcom be given both a general duty to tackle
infringing content online to ensure customers have confidence in safety and
legality online, particularly when using trusted brands. BPI also
recommends that the Ofcom media literacy duty includes a duty to
educate about copyright and the importance of using legal sites.
47. The UK content industries are world class, but the influence of non UK technology
companies in Government is clouding the debate over the importance of property
rights. The overall agency with responsibility for IP in the UK Government, the
Intellectual Property Office, has a weak understanding of the digital business models of
the creative industries and their reliance on the copyright framework; and is pursuing
policies that consist primarily of weakening creators’ rights to benefit third parties (in
particular technology companies) at the expense of UK creative industries. The future
health of our world class content industries requires co-ordinated effective and
supportive measures across Government.
48. BPI recommends that the Intellectual Property Office is re-established as a
body to champion the UK copyright industries, with clear statutory duties
to protect and promote the interests of UK intellectual property in the UK
and overseas and to co-ordinate effective enforcement of UK rights
domestically and internationally. The Intellectual Property Office should
also have a duty to educate consumers on the value of ideas and intellectual
property and the importance of respecting intellectual property rights.
2 March 2012
38

Broadband Stakeholder Group (BSG) – written evidence
Broadband Stakeholder Group (BSG) – written evidence
Overview
• BSG welcomes the opportunity to input to this timely inquiry.
• UK consumers are amongst the heaviest users of the Internet and e-commerce
globally, driven by one of the highest levels of broadband take-up in the EU.
• The UK communications market is highly competitive, and is going through a period
of investment in both fixed and mobile services – to meet rising demand/use of
bandwidth, and to provide new and improved services to end users.
• This is being complemented by a programme of activity by government to ensure
that those households that are not served by market investment have access to the
best range of services possible.
o This includes a subsidy available for ensuring that superfast broadband is
available to 90% of all households, as well as a coverage obligation for the
next generation of mobile broadband services to ensure coverage of up to
98% of the UK.
o BSG has expressed its concerns over how the subsidy is being made available
through the BDUK procurement process and the policy environment facing
investors, and ultimately whether the current approach will achieve the
optimal outcome.
o Increasing take-up of broadband, regardless of speed, will generate most
economic and social value in the short to medium term. Therefore, it is
important that a focus is maintained on ensuring that all households have
access to a minimum level of broadband service, and that government
continues efforts to get more and more households online.
• The market for superfast broadband is still at a nascent stage. Superfast services have
only been made available to consumers relatively recently and it is difficult to predict
what the level of demand for these services will be. Evidence from other countries
where superfast broadband was made available earlier suggests that the adoption rate
for superfast tends be slower than it was for first generation broadband. The reason
for this may be that first generation services are currently sufficient to meet most
consumers’ needs at this time. However, continued innovation in content, services
and applications will drive consumer demand for higher speed access services over
time.
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Broadband Stakeholder Group (BSG) – written evidence
• . It is important that policymakers have realistic expectations of the likely levels of
take-up that superfast broadband will achieve in the UK in the short-medium term,
and draw appropriate lessons and comparisons with other markets across the world.
Specific questions
• What is being done to prevent a greater digital divide occurring between
people who can access superfast broadband and people in areas where the
rollout of superfast broadband may not be commercially attractive? How
does the UK communications market vary regionally and what is the best
way to connect the areas that the market alone cannot reach? Is a
universal service obligation necessary to avoid widening the digital divide?
The government has established a programme to ensure that superfast services are made
available to a minimum of 90% of households within each county or nation in the UK. This
policy is addressing most of the new divide between those with access to superfast and
those without.
However, more important is resolving the continued old divide between those with access
to basic broadband and those without. The government’s programme also plans to ensure
that the remaining 10% of homes receive the best broadband possible for the funding
available, with a minimum service of 2Mbps being available. It is unlikely that these homes will
receive fibre-based superfast broadband, as these services are too expensive for operators
even with the subsidy that is available. Therefore, it is crucial that sufficient consideration is
given to the solutions deployed to these homes by successful bidders in the current BDUK
procurement process. Meanwhile it is also important that the efforts of both government
and industry continue to encourage the take-up of broadband by non-adopting households.
There are regional and, particularly, national differences in the UK communications market –
in particular in terms of take-up. However, the key difference in service provision is between
urban and rural areas, rather than between distinct geographic regions. More dense areas
improve the economics of service provision for operators, and are therefore more likely to
see increased competition, through investment in exchange unbundling by ISPs, cable service
availability, and investment in fibre-delivered superfast broadband by the incumbent (or in
some instances a new entrant).
40

Broadband Stakeholder Group (BSG) – written evidence
• The government have committed £530m to help stimulate private
investment – is this enough and is it being effectively applied to develop
maximum social and economic benefit?
The government investment is likely to be sufficient to enable the market to deliver
superfast broadband to 90% of households, though it is likely that this level of funding was
based on the deployment of a fibre to the cabinet (FTTC) solution, which uses the existing
copper network from the cabinet to the home, rather than delivering fibre to the home
(FTTH).
However, the question of whether it is being effectively applied raises many issues, including
the policy and regulatory environment, and procurement design; BSG has raised a number of
concerns with DCMS and BDUK at various stages of the programme’s process.
At this time, a number of public policy issues remain outstanding that, if resolved, would
enable the funding to go further by reducing the costs of deployment and operation to
industry. In particular:
• there remains a lack of clarity regarding the application of business rates to
subsidised fibre-based networks (an issue the BSG continues to work on with the
Valuation Office Agency);
• government is in the process of establishing revised regulations regarding the
deployment of overhead cables, but which are not yet final and about which industry
still have some issues to be addressed;
• infrastructure sharing discussions with utility infrastructure operators have yet to
come to a conclusion; a positive outcome could lead to reduced deployment costs
There also remain industry concerns regarding some aspects of the regulatory landscape.
Alternative operators consider that the sub-loop unbundling product (SLU) from Openreach
is not sufficiently usable at scale to allow for investment by operators in their own fibre in
the access network. This issue has been highlighted by Digital Region Limited, a regional
FTTC network in South Yorkshire, and despite reviews by both Openreach and Ofcom has
not been resolved to the satisfaction of alternative operators.
Alternative operators have also raised concerns about the pricing of, application of, and
processes involved in using Openreach’s passive infrastructure access (PIA) product, which
enables the sharing of BT’s ducts and poles. PIA is still in the early stages of development,
and further trials with alternative operators are required in order to develop the product
further. However, PIA is likely to be an important enabler of competition for BDUK
projects; until such time as alternative operators consider it to be fit for purpose, a lack of
commercially viable infrastructure sharing options will remain an obstacle for competitors
wishing to investment in rural superfast broadband.
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Broadband Stakeholder Group (BSG) – written evidence
Industry has also raised issues with the procurement approach. BDUK, the DCMS unit
leading on the procurement, has taken an approach that focuses on local authority areas as
individual project areas, and uses the local authorities themselves as the lead procurement
bodies. This approach was heavily influenced by the government’s localism agenda. In the
view of the BSG, these projects are of too small a scale for the sector, resulting in too many
procurements and insufficient network sizes to be sustainable. Paradoxically, by attempting
to create local projects for local communities, government has created too many projects in
total, which carries too high a cost to bid in the view of smaller players, resulting in limited
competition across all projects.
The local approach also has implications for consumers in terms of their choice of service
provider. Currently, the major ISPs that account for nearly 90% of the broadband market
(BT, VM, TalkTalk and Sky) either provide services over Openreach’s access network or, in
the case of VM, over their own access network. Non-national networks, such as KCom in
Kingston-Upon-Hull, do not benefit from the presence of the major national ISPs due to the
costs to those ISPs of integrating with a different network, and so consumers miss out on
the benefits of choice and competition. Digital Region also faces this problem in its FTTC
network in South Yorkshire, on which none of the major ISPs provide service. By breaking
up the procurement in to small, local networks, there is a risk that islands of connectivitywill
be created that fail to provide consumers with the choice of ISP found in the rest of the
market. Ultimately, this reduces take-up of services which in turn would undermine the
commercial sustainability of these networks.
In terms of achieving maximum social and economic benefit from broadband, in the short
and medium term the biggest prize is not in achieving widespread superfast broadband
availability, but in ensuring everyone has access to basic broadband as a minimum, and that
we continue to push for non-adopting households to adopt broadband services. In the
longer term, achieving value from this intervention will require high levels of availability and
adoption of superfast broadband on the networks that are funded; this will be best achieved
through competition between service providers, which leads to lower prices, higher take-up,
and sufficient penetration in order that innovation in Internet-based services will be
stimulated.
The government’s current programme recognises the importance of the demand-side, and
requires local authorities to undertake demand stimulation. Government should also
continue to focus on moving public services to digital delivery, aligning this with policies and
programmes that encourage non-adopters, some of whom are heavy users of public
services, to adopt broadband services.
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Broadband Stakeholder Group (BSG) – written evidence
• Will the government’s targets be met, and are they ambitious enough?
What speed of broadband do we need and what drives demand for
superfast broadband?
The government target of having the best broadband in Europe in 2015 is very challenging,
and in our view will be difficult to meet on all of the indicators that the government has said
form the ‘best’ broadband: the UK leads in some areas (such as usage and take-up of first
generation broadband), but not in others (such as speed, based on available metrics). The
most important part of the target, however, is take-up and usage, for this is how value is
generated (a fibre network with few users produces little value, however extensive its
coverage); the UK is generally considered strong in these areas compared to European
peers.
The target is sufficient, though a more suitable target would be one based on the UK’s
needs, rather than a relative target based on the performance of all other EU markets. For
example, there may be good reasons why we are not number one in the EU for some
particular metric, but as long as the infrastructure meets the needs of the UK then this is
not an issue to be concerned with. Similarly, the UK’s target is more sensible than the target
set by the European Commission, which is for all homes in Europe to have access to 30Mbps
and above by 2020, with half subscribing to 100Mbps services.
This target is unlikely to be met. Of most concern, however, is that the targets are
technology-specific, with the 100Mbps target intended to require investment in FTTH
technology, while the 30Mbps target is intended to discount any services delivered via ADSL
over existing copper (such services have a theoretical top speed of 24Mbps). In the view of
the BSG, it is likely that a range of technologies will provide the connectivity required by
consumers in the future, and to discount technologies through a target like this risks losing
the benefits and advantages of technologies other than fibre. Decisions on technology are
best left to the market, not policymakers; public policy should be technology-neutral.
Demand for superfast broadband at present is driven predominantly by the multiple-user
household; at this point there is no ‘killer app’. It is worth noting that the major innovations
in first generation broadband began to occur when take-up had achieved 30-40%. It is
possible that innovative services that require superfast broadband will be developed only
once penetration has reach a level that provides a large enough audience; this may be
penetration within the UK for UK-specific services, or it could be global
penetration/penetration across the English-speaking markets for international services. .
Indeed, increasingly existing high-bandwidth services (such as IPTV) are finding ways to work
effectively at lower speeds and within the constraints of the existing broadband network.
However, it is true that entertainment services, particularly video, are increasingly available,
and used, online: new entrant IPTV services such as BT Vision and, later this year, YouView;
TV catch-up services such as iPlayer and ITV Player; over-the-top services such as Amazon’s
LoveFilm; and content from existing Pay-TV providers, such as via SkyGo. Such a content
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Broadband Stakeholder Group (BSG) – written evidence
rich and bandwidth intensive, mix of services may well drive take-up of superfast services for
heavy user households.
• In fact, are there other targets the government should set; are there
other indicators which should be used to monitor that health of the digital
economy? What communications infrastructure does the UK ultimately
need to remain competitive and meet consumer demand over the next 20
years?
As well as measuring supply-side targets such as availability/coverage, government needs to
measure take-up and, particularly, usage. Usage is how economic and social value is created
by the network. However, very little data is captured regarding the usage of services. Given
the importance and increasingly central role the digital economy is playing in the UK, the
government should develop metrics and gather data to understand the use of the Internet
and Internet-based services by consumers and businesses, and the value this generates in the
UK economy. It would be helpful if this was also built in to the government’s proposed
scorecard, to assess whether the UK has the best broadband in the EU.
The competitive market is on the whole delivering the infrastructure that consumers will
need and are willing to pay for; it remains the best judge for investing in communications
infrastructure. In order to ensure industry continues to invest in the future, government and
regulator should ensure that the levels of competition in the market are maintained and,
where sustainable, strengthened.
• To what extent will the advent of superfast broadband affect the ways in
which people view, listen to and use media content? Will the broadband
networks have the capacity to meet demand for new media services such
as interactive TV, HD TV and 3D content? How will superfast broadband
change e-commerce and the provision of government services?
The way consumers consume media content has changed significantly over the last decade of
broadband availability. It is likely that this transformation will continue to accelerate over
time: new services and devices will emerge and consumer behaviour will continue to shift.
Superfast broadband services have the capacity to deliver HD services; however, it is worth
noting that so can first generation broadband services: content services are continuously
evolving so as to be delivered over ever-lower bitrates, in order that they are as widely
accessible as possible. As stated previously, it may well be that a proliferation of video
service users within a household will require a superfast service to support them. However,
existing content services can also be supported by first generation broadband for the vast
majority of customers.
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Broadband Stakeholder Group (BSG) – written evidence
In the long term, superfast broadband may have the potential to enable a radical
transformation of public service delivery. However, the priority for government should
remain moving all services to digital delivery and striving for 100% adoption of broadband:
accessibility is a key aim for public services, and until such time as superfast broadband
services achieve widespread take-up government should focus on services that can operate
over existing broadband services. Government should continue to work with connectivity
providers and other suppliers in order to develop digital services and over time transform
service delivery across government.
• How might superfast broadband change the relationship between
providers and consumers in other sectors such as content? What aspects
of this relationship are key to enabling future innovations that will benefit
society?
Increased bandwidth through wider availability of superfast broadband is likely to bring
increased opportunities to consumers and society as well as across the broadband value
chain; however what those opportunities might be is difficult and dangerous to predict.
There is a view that superfast broadband can more easily support bandwidth intensive
applications and that these will form a part of the attraction to consumers in driving demand
for superfast services. Another view is that however much capacity you have, pipes will
always “fill” and that managing network congestion will continue into a superfast world. This
opens up the possibility of delivering what have been termed “managed services” in the net
neutrality debate, whereby prioritised delivery is offered with a guaranteed quality of service,
either to consumers direct or to content and service providers. This has been cited by some
as a useful development in the context of securing investment in networks
It is too early to say with any certainty how superfast broadband will change relationships
across the broadband value chain, however, it would seem likely that superfast broadband
provides opportunities for innovation to the benefit of consumers and society.
• What role could or should the different methods of delivery play in
ensuring the superfast broadband network is fit for purpose and is as
widely available as possible? How does the expected demand for superfast
broadband influence investment to enhance the capacity of the broadband
network?
Both fixed and wireless services will be required in order to ensure the greatest connectivity
is available to the greatest number of people. It is likely that superfast fixed-line broadband
will be complemented by 4G mobile broadband coverage in many areas, while 4G will
provide an alternative method for delivering broadband in areas where it is too expensive to
deploy fibre and the copper cannot support sufficient speeds to the consumer. Ultimately, it
is important that the market is given the opportunity to deploy the technologies that it sees
as most appropriate for delivering the services that consumers want.
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Broadband Stakeholder Group (BSG) – written evidence
Demand is crucial in the business case for investment in superfast broadband. The high fixed
costs mean that the higher the take-up the lower the deployment cost per home is. This
means that where demand has been stimulated and operators can expect higher levels of
take-up, the investment case is more attractive and, ultimately, that investment will go
further and cover more homes than it otherwise might have done. The BDUK process has
recognised the importance of demand to the business case for rural investment; BSG
encourages local authorities to share approaches to demand stimulation, in order that best
practices can be identified and that the most effective demand stimulation techniques are
applied as widely as possible. However, this is a difficult issue, with genuinely effective
demand stimulation approaches from governments few and far between.
• Does the UK, for example, have a properly competitive market in
wholesale fibre connectivity? What benefits could such a market provide,
and what actions could the Government take to ensure such a market?
The UK has one of the most competitive consumer broadband retail markets in the world,
which has been the key driver of the high levels of adoption and usage seen in the UK. This
has been enabled particularly through a successful local loop unbundling regime.
Competition in superfast broadband services today is based on wholesale broadband access
products. Other remedies for creating competition, however, have not seen widespread use
and have not achieved the same impact: sub-loop bundling, as discussed earlier, has faced
challenges when used at scale, while industry continues to have unresolved concerns over
the pricing, processes and uses for PIA (on which work continues).
At present there is a limited provision of dark fibre between communications providers. The
investment in superfast broadband being made by BT is predominantly FTTC, so it is unlikely
that dark fibre will be available for retailers of consumer broadband products; even where
FTTH is available, it is likely to be deployed using GPON technology, which cannot be
physically unbundled. The use of wholesale fibre for the delivery of business connectivity is
an issue that would need to be addressed in Ofcom’s upcoming Business Connectivity
Market Review.
BSG considers that Ofcom must remain vigilant that the competition remedies in place on
both fibre- and copper-based services deliver the benefits that we have seen competition
deliver over the last decade, and explore alternative remedies in the future should existing
remedies fail to sustain the level of competition that the market is capable of supporting.
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Broadband Stakeholder Group (BSG) – written evidence
• What impact will enhanced broadband provision have on the media and
creative industries in the UK, not least in light of the increased danger of
online piracy? What is the role of the Government in assuring internet
security, and how should intellectual property (IP) best be protected,
taking into account the benefits of openness and security?
It is not clear what the relationship might be between piracy and superfast broadband; one
view is that improved infrastructure may better support attractive legal services that would
entice the consumer away from illegal services; another is that more bandwidth will purely
support more piracy.
In any event it is probably not helpful to link the two issues too closely and instead focus on
the current remedies being pursued now in relation to the protection of IP online.
About the Broadband Stakeholder Group (BSG)
The BSG is the UK government’s advisory group on broadband. It provides a neutral forum
for organisations across the converging broadband value-chain to discuss and resolve key
policy, regulatory and commercial issues, with the ultimate aim of helping to create a strong
and competitive UK knowledge economy. Further information about the BSG can be found
at: www.broadbanduk.org
March 2012
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Broadband Stakeholder Group – oral evidence (QQ 550-622)
Broadband Stakeholder Group – oral evidence (QQ 550-622)
Evidence Session No. 8. Heard in Public. Questions 550-649
WEDNESDAY 13 JUNE 2012
Members present
Lord Inglewood (Chairman)
Baroness Bakewell
Lord Bragg
Lord Clement-Jones
Baroness Deech
Lord Dubs
Baroness Fookes
Lord Gordon of Strathblane
Earl of Selborne
Lord Skelmersdale
________________
Examination of Witnesses
Mr Richard Hooper CBE, Chairman, Mr Antony Walker, CEO, and Ms Pamela
Learmonth, CEO designate, Broadband Stakeholder Group
Q550 The Chairman: A warm welcome to both of you from the Broadband Stakeholder
Group. Richard Hooper, you are the chairman, and Antony Walker, you are the chief
executive.
Antony Walker: That is correct.
Richard Hooper: Behind me is the chief executive designate. Antony Walker is demob
happy—he is going to become the deputy director of Intellect, so he is in his last couple of
weeks.
The Chairman: Would the chief executive designate like to come and get into practice?
Come up to the front. You are rather lonesome back there.
Richard Hooper: We will basically delegate difficult questions to Antony and very difficult
ones to the chief executive designate, Pamela Learmonth.
The Chairman: Obviously we are most grateful to you for coming. Thank you. The
meeting is being broadcast so, before we formally start, could you just each say who you
are? If you would like to make a brief opening statement, please feel free to do so.
Richard Hooper: I am Richard Hooper, chairman of the Broadband Stakeholder Group,
known to some of your members for the work on the Royal Mail, which I am not going to
talk about today.
The Chairman: And digital copyright.
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Broadband Stakeholder Group – oral evidence (QQ 550-622)
Richard Hooper: And digital copyright, but I gather you are going to do something on
intellectual property, so I should be delighted to come back for that, because there are some
exciting things in that area—sometimes as exciting as broadband. Briefly, the BSG is an
industry body. It is a critical friend, we hope, of the Government and Ofcom, and it is made
up of telcos, fixed and mobile, content providers—BBC, ITV—and also equipment
manufacturers like Cisco and Ericsson. That is the BSG.
Antony Walker: I am Antony Walker. I have been chief executive of the Broadband
Stakeholder Group since about 2001, so pretty much through the whole course of the
deployment of broadband in the UK, so I have a fairly long background in the evolution of
the broadband market.
Pamela Learmonth: As Richard said, my name is Pamela Learmonth. I have been working at
the Broadband Stakeholder Group for a number of years and, on Antony’s departure, I am
due to take on his role in a number of weeks.
Q551 The Chairman: Just as a matter of interest, within your decision-making structure,
is it one man, one vote? How do your decisions evolve?
Richard Hooper: We do not tend to vote; it is more an industry body. What makes it
interesting from your point of view is that actually we reflect a wide diversity of interests.
For example, we have those who are very keen on local community networks—Malcolm
Corbett at INCA. I do not know whether they have appeared before you, but they are at
that end. Then we have the big industry end, with BT and Virgin Media.
Q552 The Chairman: Is it fair to say that you tend to find ways of reaching a degree of
consensus in what you say?
Richard Hooper: Yes, I think so. The style of the group is to foment disagreement if
possible, because then we can actually find out what people really think, but yes.
Q553 The Chairman: That is fine. I am just trying to find out, from this very wide range
of people who are behind you, how you get to the conclusions you reach.
Richard Hooper: On the whole, we get some good consensus. Something that Pam is
working on at the moment is a code of conduct for the open internet. One of her jobs is to
get that, and I think we are getting that.
Antony Walker: I would also add to that. We have always been very clear about the BSG.
The BSG’s role is not to be a trade association; it is not there to represent members. It is
really there as a forum to bring people together to try to discuss and resolve complex
issues. We have never seen ourselves as a representative organisation. We are much more a
forum to discuss and, hopefully, provide insight into some of the various complex areas of
broadband policy.
Q554 The Chairman: Let me just get the ball rolling with a very general question. The
Government have told us that they intend that this country should “have the best superfast
broadband network in Europe by 2015”. Do you think this is a sensible way of describing
what they ought to be trying to do? If it is, what do you think the characteristics should be
of what emerges?
Richard Hooper: What constitutes “good” or “best” is probably the most important
question. Let me just start by saying, first of all, it is multi-dimensional. It is not a single thing.
One of the issues is that people can be obsessed by speed: “It is only good if it is
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Broadband Stakeholder Group – oral evidence (QQ 550-622)
100 megabits.” That is not a view that we share. In terms of importance in what is good,
coverage is extremely important—that is to say the number of homes passed. Clearly the
take-up of services from the homes passed is extremely important. Speed is clearly
important, but so is the quality of the service. If it drops out the whole time or the speed,
because of contention ratios, is going up and down, that is no good. Perhaps most important
above all—my background is in media, which is shared by some people around this table like
Lord Gordon—it is about services. We are in the business of developing a technology not
because it is fun but because it will provide services that are useful to people. The
extraordinary thing about the UK, which gets quite a lot of criticism on broadband, is that
actually we are number one in the league worldwide for applications of the internet, use of
the internet, online shopping and e-fulfilment, according to Boston Consulting. You could
perhaps talk about that.
Antony Walker: It has been a paradox over the last 10 years that, while the UK has never
been at the top of any league table in terms of broadband speed, it has consistently been at
the forefront of countries that have made really full and productive use of the internet,
through all of the stages of the evolution of the internet. This idea that there is a strict
correlation between available speeds, productive use and the value to the economy I just do
not think is the case. There is a correlation, but it is a weak one. In terms of what “good”
looks like, I would summarise it as a network that provides a step change in performance
but that is widely available and widely used, with usage being absolutely fundamental. That
does not necessarily mean having the best or the fastest network, but it means one that is
certainly good enough for the requirements of the time and is quickly and widely available. I
actually think that is the trajectory we are on, in the UK.
Q555 Lord Gordon of Strathblane: BT was giving evidence yesterday, and pointed out
that it faces plenty of competition for the BDUK funding, which originally had nine people in.
The remarkable thing is that all but two appear to have dropped out. There have been some
witnesses who have suggested that the way the thing has been set up benefits BT. Why do
you think it is that BT is able to compete where others, including Fujitsu, have dropped out?
Richard Hooper: First of all, I think it is fair to say, Lord Gordon, that we do not actually
know the results of the franchises yet. It is speculation, so we have to be a little bit careful,
but I think your speculation is widely shared in the industry—that BT will win many, if not
all, and Fujitsu might win a couple. There is a curious paradox about this because, when this
initiative was launched by the Government, it was launched on the back of localism—local
community networks. It certainly reminded me of the famous years of the early 1990s,
which a number of you will remember, with the famous cable television saga, when large
numbers of very small networks were franchised and we spent the next 20 years ruing that
decision as they were all swept up by Virgin Media. One of our answers is that this is,
whether one likes it or not, an industry of scale. This is about scale.
Q556 Lord Gordon of Strathblane: That leads me on to the second point. It has been
suggested to us that, since the areas franchised have been council areas, rather than larger
areas, that has benefited BT, which has already built in-scale.
Antony Walker: It should not be surprising that BT remains in the process. They are the
one existing operator that operates nationally, has a national presence and an existing
network. That means they have advantages in terms of access to their existing network, but
it also means they have an ability to absorb risk that perhaps some of the other new
entrants find more difficult. Having said that, there is some justification behind the critique of
the size of the project areas. Some are very, very small-scale but, generally, opting for fairly
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small-scale project areas has rather worked against the economics of network build. It has
meant that, for a new entrant coming into this, they face a real risk of perhaps only winning
one or two essentially sub-scale projects, which could be very difficult to turn into long-term
profitable businesses. The risk of only coming away with one or two wins is actually quite
significant.
Q557 Lord Gordon of Strathblane: If I could add in a supplementary question on that,
since there are some areas that are hopelessly uneconomic, whatever the size of the region,
you are perhaps more likely, are you not, to get somebody to take them on if they are part
of a larger franchise than a smaller one?
Antony Walker: Yes, and certainly that was some of the input that we gave back to DCMS
and BDUK at an early stage. That was that larger franchise areas, at a sub-regional level,
would have been more attractive to larger, broader consortia, which might then have been
able to take on a higher level of risk in bidding to win those projects.
Richard Hooper: I have done advisory work in New Zealand and Singapore, and know
Australia extremely well, and what is very striking about those three is that they are basically
the first-mile local loop. Superfast broadband is one provider, the same provider across the
whole country, and it is significantly subsidised to do it. It is not as if we are out of step.
Q558 The Chairman: Do you think then that Defra’s approach through the Rural
Community Broadband Fund is, in a sense, misplaced, because it is encouraging small
communities to come forward, which are proposing pretty small “parish pump” type
networks? Are they ever going to manage to look after them and do it properly?
Antony Walker: There are some quite serious challenges around being very small, not least
the challenge of getting larger-scale service providers on to your network. If you are very
small and local, it may well be that the local population is not too concerned about that,
because they are happy to work with a small local ISP that is locally known. In a sense, if the
Defra fund is, in a way, used to mop up the remaining areas that are perhaps left un-served
post the BDUK process, that could actually be quite useful and effective. One thing that has
been very clear to me over the last 10 years has been the extraordinary level of interest and
commitment that you get at the local level. Broadband is something that local communities
care hugely about, and they are willing to put a lot of effort and work into ensuring their
communities are served. Harnessing that is something that could produce benefits, but they
are likely to be individual isolated solutions. I do not think it is a blanket solution for the
whole final third.
Q559 Lord Gordon of Strathblane: The final point of criticism of the method for
distributing public funding that has been put to us is that going for the gap-funding model also
favours BT, because they have better knowledge of the market and have been an incumbent
operator. Is there any validity in that?
Antony Walker: I think that is a challenging one. Partly the NYnet pilot project was
designed to test out the gap-funding model versus other models. NYnet eventually went for
the gap-funding model. If at the outset your objective is to get the most efficient use of
public funds to deliver a network for the needs of that local area, gap funding is probably the
most efficient way to go forward. If you had another objective, for example trying to really
encourage a new entrant into that part of the market, you might have gone for something
different. From the pure perspective of an efficient route to procurement, I think gap funding
is probably the right way to go.
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Richard Hooper: One of our concerns about procurement is the speed of it; it has been a
very slow process. One of our messages from BSG would be that speed is very important in
this. It is about economies of scale, network effects, driving usage and driving penetration. I
gather now that we have another round of concern about state aid involvement. If BT were
to win all those franchises, there is another state aid issue. In the city areas—and we will
perhaps talk about connected cities—you have more state aid issues, which is slowing it
down yet again.
Q560 Lord Gordon of Strathblane: Do you in fact agree with the observation that has
been put to us that the real benefits of the internet only come about when you have 100%
penetration?
Richard Hooper: I do not think it is 100%, but clearly the network effect is vital for the
Facebooks, Googles and big service providers, because your costs are spread out among
large numbers of users.
Antony Walker: If you look at the history of the first generation of broadband, all the big
innovations in services and applications took place once the market had hit about 30%, 40%
or 50% penetration. There are very few markets anywhere in the world that have hit 100%
penetration. It is when you hit mass-market numbers that you have the scale there that
enables people to invest in innovation in services and applications.
Q561 Earl of Selborne: We heard from BT how they favour point-to-multipoint
cabinets, which serve an area rather than individual premises. The complication appears to
be that they use a technology called gigabit passive optical network—GPON—which
effectively makes it difficult to unbundle. There is therefore a competitive disadvantage for
servers like TalkTalk, which gave evidence to us. Is it inevitable that this GPON technology
should be used, given its limitations? Incidentally, it makes it incompatible with the
requirements of state aid obligation to provide open access to publicly funded fibre access
networks.
Richard Hooper: Let us just take, first of all, fibre to the cabinet—FTTC—which is what
you are talking about. The problem with unbundling at the cabinet level, which is the
sub-loop unbundling idea, is that, by its very nature, you have a smaller number of potential
customers than when you unbundle at the exchange, as we have done historically, because
that is a much larger area. There is a really serious business difficulty about unbundling at the
cabinet level, irrespective of the technology. As you rightly say, TalkTalk, which is a member
of BSG, is really quite critical of that notion of sub-loop unbundling and is finding it quite
difficult to justify. In terms of the technology, what about point to point? Do you want to
talk about that and its advantages?
Antony Walker: Yes. We have done a lot of detailed cost modelling around various
different technologies. In fact, it was our cost modelling that came up with the concept of
the final third and so on. In terms of all the modelling we have done, it makes strong
commercial sense. If you have existing networks, ducts, and copper and fibre in those ducts,
a point-to-multipoint deployment makes sense from both a cost and practical perspective.
BT has behaved in an entirely logical way in terms of the investment that it has made, and
actually that is what has happened in many countries elsewhere in the world. This was an
issue that everybody was aware of right from the outset, when we started talking about
fibre, and it was something that Ofcom was very aware of—hence the focus by Ofcom on
other routes to wholesale competition, including active line access and so on. The active
wholesale products that have been developed with Ofcom, and then with the industry, have
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really been designed to overcome that challenge as much as possible. I think it would be
wrong to characterise it as something that BT has deliberately pursued in order to restrict
avenues for competition; it was always going to be a problem. Actually, the UK market is, in
many ways, the most advanced in developing active wholesale products to compensate for
that issue.
Q562 Earl of Selborne: Given that the cabinets do have obvious commercial
practicalities and advantages but they have this serious handicap—that they are difficult to
unbundle and therefore there is a reduction in competitive advantage—is there any prospect
over the horizon of a new technology that would improve the ability to unbundle?
Antony Walker: There is the potential for wavelength unbundling. WDM-PON already
exists, which enables you to unbundle individual wavelengths across a fibre. That could
potentially open up a route to unbundling in future that would enable quite a lot of
differentiation. The technology is not quite there yet, but it is entirely possible.
Q563 The Chairman: In your experience, do you think this technology is likely both to
come soon and at a sensible economic cost?
Antony Walker: It rather depends on the global market, because the technology companies
that develop those kinds of products develop them to global, not just national, scale. It
rather depends on the extent to which there will be demand for the product globally. That
then asks questions about what regulatory policy and requirements might happen in other
markets. There are some uncertainties about that, I would agree.
Q564 Baroness Bakewell: Can I stay with this issue of BT’s use of passive optical
networks? Could that bring about a situation in which a fibre local-access market would have
less differentiation than currently exists in the copper market?
Antony Walker: Possibly, yes. In this next period, that is going to be one of the most
important questions that Ofcom has to be focused on. There is no doubt in my mind at all
that the real success of the UK market over the last few years has been the level of
competition across the market. It has been extremely positive. Any lessening of that
competition would probably be a negative outcome for the UK as a whole. It is something
that Ofcom is going to have to pay close attention to. If it is apparent that there is an
insufficient level of competition, then it will have to look to other remedies to try to address
that.
Q565 Baroness Bakewell: Do you get the feeling that Ofcom is prepared to
countenance that?
Antony Walker: Yes, I think that it is very much minded to ensure that.
Q566 Baroness Bakewell: To the disadvantage of the market.
Antony Walker: I do not see it as being to the disadvantage of the market.
Richard Hooper: What I always say is that local loop unbundling at the exchange level in
the copper era has been very successful. I was there when we set it up in Ofcom, so I have a
vested interest in that. I think it is beginning to run out of road, as we move to the world of
more fibre that you are describing. I do not think the answers are quite as simple as they
were in the exchange. Unbundling fibre is quite complicated and, as Antony said, that
technology is not fully there yet. This leads one to think in a policy sense—and we all have
to face up to this—is this, yet again, dare I say it, a natural monopoly? Do we really think
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that we want resources to go into providers of fibre to your and my home? Is there not
logic in saying that this is probably more of a natural monopoly and to take the policy
consequences of that? That is what has happened in Singapore and Australia, and is
happening in New Zealand. That is the issue.
Antony Walker: From my perspective, I think it is too early to pre-judge what the outcome
will be. There is a range of wholesale products that have been developed to try to address
this problem. We know from the history of when regulated wholesale products are
developed it is an iterative process; they take time to get right. It is a process of negotiation
between BT, other operators and the regulator. Previous experience has shown that they
can be tweaked and got right. You can potentially have a strong level of competition in the
market. The other thing I would say is do not forget the competitive pressure in the market
that comes from cable and also from mobile going forward. LTE technology delivered by
mobile is going to put additional significant pressure on the markets. It will certainly compete
with the low end of fixed services. When you add up all of that competitive pressure, the
UK starts to look like a relatively competitive market compared with almost any other
market you will see in Europe.
Q567 Lord Dubs: Is not the difficulty that the competition will be in the large urban areas
and there will not be that competition you are talking about in the smaller towns and in the
countryside? It will be a bit unbalanced and, therefore, BT will be an enormous beneficiary
from this.
Richard Hooper: No, because you are surely going to require, in any world, a sensible
workable interface from any network to the TalkTalks and the Skys of this world. That is
something that BSG has been working on to make sure that, where you have a network, it
can interface easily with competing service providers. That is not just in the city; that can be
across the country. It actually comes back again to the question of scale. That is easier to
achieve if you have a lot of reasonably sized networks than if you have a large number of
very small and fragmented networks. There is no question: service provider competition is
possible in the countryside, but infrastructure competition will not happen in the
countryside, except via mobile and so on.
Q568 Lord Dubs: Will not the fact that there will not be infrastructure competition
work to the detriment of competition generally, because the provider of the infrastructure is
under no pressure to keep down prices?
Antony Walker: First of all, pricing tends to happen at a national level anyway. Yes, you have
decreasing levels of competition as you move out from the most urban areas to the
periphery. It is a reality in every market. Having said that, in the UK market competition
does go quite a long way out. I am not sure that there is any single remedy that can address
that, but I would say that active wholesale products are the cheapest way to allow new or
other entrants into the market. It seems to me that, the further you get out, the more
dependent you will be on those active line access—ALA—type products.
Q569 The Chairman: Can I just ask one quick point? Ofcom has divided the market up
and has suggested that the fixed and mobile markets are different markets. Do you think
that is realistic in the sort of world we are moving into?
Richard Hooper: Market definition in competition authorities is a highly specialised world.
In a commonsense sense, sitting around this table with you, it does not seem like it to me. In
the US, 27% of households no longer have a fixed line.
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The Chairman: You have answered my question; that is fine.
Q570 Lord Clement-Jones: This brings me on to the next question, because we are on
to LTE and so on, despite all the auction delays and so forth. A lot of people seem either to
hope or assert that mobile can actually fill the gaps in broadband coverage, on the basis that
we may not reach the full 100% by 2015 with fixed-line broadband. In the light of the
Government’s current approach, policy and so forth, how effective a backstop do you think
3G or 4G could be?
Richard Hooper: Let me just start by making the point that one of our critiques of this
business—and it is not just in this country—is that everybody says we are technology
neutral, but actually we then spend the next five hours discussing fibre to the home, which
of course is not technology neutral. There is a very strong view from BSG that, if you are
serious about technology neutral, then okay, fibre to the home is one of the issues, so is
mobile, as you say, but also fixed wireless, which tends to get forgotten. Actually, we would
see it having quite a major role in certain rural areas. I think it is important. If you look at
some of the material coming out of Brussels at the moment on state aid guidelines for
broadband, it is very fixed-oriented. Indeed, the next-generation network—NGN—is still
defined as a fixed wired service. I do think that is an important issue.
Q571 Lord Clement-Jones: By the way, are you making that point to government
yourself?
Richard Hooper: Yes, we are.
Antony Walker: Mobile, yes, but wireless technologies more broadly certainly have a key
role to play. Actually, you can use the same technology and indeed the same spectrum but, if
you are going point to point rather than mobile, you start to deliver a service to the
consumer that looks and feels a bit more like a fixed-line service. The reality is that, in
certain areas, the costs mean that wireless will be the only way that you will deliver a
service. That is not to say that it is necessarily a cheap way of doing it, but it will be more
cost-effective than trying to get fibre closer to some of those premises.
Q572 Lord Clement-Jones: Are we really addressing that currently in terms of the
technology that is just around the corner? Are we pursuing fibre as the only goal?
Antony Walker: BT and others are trialling various wireless technologies, looking at using
some of the broadcast white space spectrum and different ways of using LTE technology on
a point-to-point basis and so on. There is a lot of innovation taking place and actually LTE
technology is evolving remarkably quickly. I know colleagues in Sweden are seeing some
quite impressive speeds that can be delivered using LTE. It is not an absolute substitute; it
does not do everything that a fibre does. In many ways, we see mobile being entirely
complementary with fixed but, in certain areas, it will be the best solution.
Q573 Lord Clement-Jones: If that is the case, what do you make of the level of coordination
among BDUK, the Mobile Infrastructure Project, Defra’s Rural Community
Broadband Fund and so on? Do those bodies understand that is the case?
Antony Walker: We have been quite involved in the Mobile Infrastructure Project, and,
while the objective of that was really around filling those voice not-spots, right from the
outset we asked how we can make sure that what we do to address that problem is also
useful from a BDUK broadband perspective. Yes, the co-ordination there has been good. I
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do not think the co-ordination is always generally good; some of the policymaking has been a
bit fragmented. Actually, the Mobile Infrastructure Project has been one of the better ones.
Q574 Lord Clement-Jones: Does that mean that the bids that are being put forward are
quite often mixed technology? They are not just purely concentrating necessarily on fibre.
Antony Walker: When you get into the last 10%, you are looking at wireless solutions as
well.
Richard Hooper: The curious thing about the driver of this is consumer behaviour. Those
of us around this table who have children in their 20s, 30s and 40s know that they spend
most of their time on mobile phones with dongles doing broadband. They do not spend a lot
of their time at fixed sites, so the generation that is actually driving the technology is
incredibly mobile. If you go into a wine bar in London, you will see it at work. It is a mobile
world.
Lord Clement-Jones: We had better get the auctions off the ground pretty quickly.
Richard Hooper: Some of us are probably a bit fixed in our ways.
Q575 Baroness Deech: The background to what I am asking now is that I got the
impression from listening to you that Mr Walker thought the competition was very
successful in this area and Mr Hooper perhaps less so. I am not so sure myself about
competition as opposed to government intervention. Do you think there is justification for
government intervention to bring about super-connected cities, or could this have been left
to the market?
Richard Hooper: The fundamental idea of super-connected cities is to go for the less wellsupplied
parts of the city. This is a sort of equivalent to the final third that we talk about in
the BDUK programme in the city. A concern I have is that you could easily have policy drift
away from that objective more into wiring up cities and getting 100 Mbps. The purpose of
that programme is to make sure that undersupplied parts of the city are supplied. That is
where the programme should be.
Antony Walker: There are clearly urban areas that would not otherwise be served.
Therefore, there is a clear rationale for subsidy in parts of those areas. There is also an issue
with SMEs. Very often, SMEs tend to cluster in areas where there is a low density of
residential properties. Because those residential connections make that area attractive to a
commercial investment, they end up in a bit of a desert for connectivity. There are two
market failures there that need to be addressed. The challenge is, if you are going in there as
an operator, you would naturally want to join things up. Then you have the risk of
over-building where other people have already made investments, and then you get into all
the state aid issues. It is a lot harder to fix and the state aid issues are complex. There are
some genuine problems there.
Q576 The Chairman: Do you think that the way in which the super-connected cities are
going to roll out is going to deliver what you said you thought it ought to? Are the suburbs
and the really bad bits of these cities, in reality, going to be beneficiaries of this?
Antony Walker: It may vary by project.
Richard Hooper: These are very early days in that programme. It should, but I still worry
about policy drift sideways.
Q577 Lord Clement-Jones: Are those projects let?
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Antony Walker: They are in the process of being let.
Q578 Lord Gordon of Strathblane: Taking Ruth’s question of leaving it to the market,
arguably a city contains good bits and bad bits. Surely the profit they will make out of the
good bits should be enough to cross-subsidise the bad bits, if you make it an obligation that
they have to cover everything.
Antony Walker: The difference is that you are dealing with areas where there are already
established deployments. Manchester is quite a good example. In east Manchester and the
Trafford area, there is a big part that has been unserved and is likely to remain unserved
without some additional subsidy to go into that area, because there is not the density of
connections in the area to make it efficient or rational for a private investor to go in and
invest. I do think there are areas where there is a clear rationale to do something.
Q579 Baroness Deech: Would you say that that applies a fortiori to cities versus rural
areas? I get depressed when I hear about the difference. Surely there is a case for the
strongest government intervention from the centre and less emphasis on the market and
competition.
Richard Hooper: Do you mean rurally?
Q580 Baroness Deech: Right throughout the country. I just do not see how we are ever
going to get there if we leave communities to go out and try to sort things for themselves, if
we keep relying on partial government subsidies and so on.
Antony Walker: I do not think that quite characterises what is happening. Just after 2015,
we should be at the point where there are plans in place to address at least 90% of premises
in the UK. There will be some areas that will still need to be addressed and may need
further measures after that, but I think the whole point of the BDUK process has been to
try to have a concerted approach to addressing this market failure. I come back to the
earlier point, which is that we do take the view that telecoms remains a scale business, and it
is easier to address this issue at scale rather than do it in very small projects. Our
preference would probably have been for a number of sub-regional projects that made sure
you covered everything.
Richard Hooper: I think it is right for the Government to press on still and address the
market failure. I think it is very difficult to know what that boundary condition is. In an area
of Lord Bragg’s specialisation, public service broadcasting, where market failure begins and
ends is immensely difficult. It is a very porous part of the world, but I still think it is the
sensible way forward. If we come back to competition, in the two-thirds where the market
clearly is not failing, there is vigorous competition in this country, both services and
infrastructure based. As far as we are concerned, long may that be the case.
Q581 Lord Gordon of Strathblane: Is it not a case for mimicking the creation of the
original telephone network? Admittedly when the telephones were publicly owned, we did
not count the cost of covering rural areas, any more than we did with television
transmission.
Richard Hooper: Do you mean by cross-subsidy?
Lord Gordon of Strathblane: Yes.
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Richard Hooper: I think that world has gone. I fear that you have to split it up. There is a
local loop; there is a long-distance loop. There are services, and they behave in very different
ways in different markets. I suspect that world has gone.
Lord Gordon of Strathblane: So we can forget about any universal service commitment,
let alone obligation.
Richard Hooper: In the 1990s, when I regulated you in Glasgow and Edinburgh, the first
conversation we ever had was on the matter that if I, as the regulator, introduced too much
competition into Glasgow and Edinburgh, you would have to reduce your public service
broadcasting commitments.
Lord Gordon of Strathblane: And I have been proved right.
Richard Hooper: I have a long memory.
Q582 Earl of Selborne: I continue on the regulatory theme. In your written evidence,
you refer to some regulatory concerns. You write: “Alternative operators consider that the
sub-loop unbundling product from Openreach is not sufficiently usable at scale to allow for
investment by operators in their own fibre in the access network.” You go on to refer to
some of the difficulties in South Yorkshire with Digital Region Limited, which have not been
resolved. The second area you refer to is also the passive infrastructure access and concerns
about sharing BT’s ducts and poles. You say there is concern that is not as accessible as it
should be. Would you like to elaborate on both those regulatory concerns?
Antony Walker: As I said earlier, the process of developing regulated wholesale products is
always an iterative process. It takes time to get it right and there will always be parties to
that process who feel that more should be done. In fact, I cannot think of any regulated
product ever where there has been consensus that it was all perfect. I think there is more
work to be done in developing some of those products and making them fit for purpose.
However, I would also say that there are a couple of other elements to that. When we look
at duct access for example, one of the biggest constraints that potential new entrants face is
the fact that they are unable to use duct access if they want to provide business services,
fibre to a telecoms mast or something like that. That is an issue that Ofcom will have to look
at in its business connectivity market review, which is happening this year. There are some
regulatory restrictions on what duct access can be used for. This comes back to this issue of
market definitions. This is why you are getting a blurring between residential and business
markets. Ofcom is going to have to make a determination about the extent to which those
markets are becoming less defined.
Q583 The Chairman: You are telling us that you think that, essentially, those markets
are morphing together.
Antony Walker: Yes, and that has real implications for a product like PIA, which need to be
addressed. The other thing I would say is we have done a lot of work looking at the use of
overheads—poles and so on—and one of the biggest barriers to the use of poles is the
planning system. The consultation processes that are required if you want to utilise poles or
put up new ones are pretty onerous and off-putting to investors.
Q584 Earl of Selborne: What should be done to sort that out?
Antony Walker: It is a challenging one. If you really wanted to encourage more use of ducts
and poles, you would make it a lot easier for people to get permission to use those ducts
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and poles. You would make that much more predictable and low cost for operators. Of
course, the challenge to that is you get local opposition to the use of that infrastructure.
Q585 Lord Skelmersdale: Are you saying that is a regulatory issue?
Antony Walker: Yes, it is a planning issue.
Richard Hooper: It is a planning issue. One of the reasons why the United States of
America absolutely powered ahead on cable television, compared with Europe and the UK,
was poles. In a perfectly normal urban environment, everything is strung on poles. The coax
cable was strung on poles. That was a reason for incredibly quick penetration of cable
television compared with the UK, where poles are environmentally problematic.
Antony Walker: It is the same if you go to Japan. You will see all the fibre is overground; it
is all on poles, which makes it an awful lot cheaper to deploy.
Q586 Lord Skelmersdale: Is there logic in that because, after all, there are already wires
on poles?
Antony Walker: The concern is that you get a proliferation of more of that infrastructure. If
you go to Asian countries, in particular, you will see huge numbers of cables on poles, with a
real visual impact.
Q587 Earl of Selborne: The CPRE is not keen.
Antony Walker: Yes. As a society, we have to make trade-offs. If we decide that we do not
want lots of things strung over poles, then we have to accept that has an impact on our
broadband deployment.
Q588 Baroness Bakewell: It would be hard to find any kind of consensus on that,
because you have small groups resisting it wherever it is.
Antony Walker: Exactly, but what I am saying is that is a real constraint on the ability of
new entrants to be able to make use of existing poles or put up new poles.
Richard Hooper: One of the drivers in the city of Amsterdam for cable television was the
exact opposite: it was to get rid of terrestrial antennas on top of buildings. From
Amsterdam’s point of view, that would obviously destroy the look of the city. By having a
strong cable television underground network, they actually got rid of all those.
Q589 The Chairman: In this general area, are there problems in practice posed by
wayleaves? We heard from Virgin that, if they want to join up a house, they have to pay £60
for the right to go through the kerb, while BT already has a right to put in a cable. It does
not seem to get in their way.
Antony Walker: I am not quite sure.
Richard Hooper: I think, as President Obama said, that is above my pay grade. It is a very
complicated issue, but there is a serious point.
Q590 The Chairman: The crucial point is that there are some serious issues to do with
wayleaves. Is there a degree of inherent distortion of a free and fair competition as a result?
Richard Hooper: Somebody kindly said they thought there was a discrepancy of view
between us, and there probably is, because we do have diverse views on the BSG. I still
come back to not putting out of your minds the possibility that the last bit in an all-fibre
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environment may have to be, dare we say it, a monopoly. A lot of other countries have
come to that conclusion and, from that, have actually structurally separated their telco. The
irony in Australia is that, having spent years privatising Telstra, it is now taking it back into
public ownership through the local loop. That is a very interesting story—a circular one.
Q591 Lord Clement-Jones: That may well have to be the case, but nevertheless there is
another issue involving BT technology that affects the competitive environment and the
smaller competitors’ ability to compete in that landscape. Could you explain why you think
BT has not adopted the ALA standards? We heard in evidence from Chi Onwurah that
Fujitsu has done so in its submissions.
Antony Walker: ALA was a regulatory solution that was developed by Ofcom as a model
for what it thought a wholesale product could look like. BT then went away and developed
GEA through working with NICC, so with all of the commercial players. It worked with the
industry to develop GEA.
Q592 Lord Gordon of Strathblane: Sorry to interrupt, but BT told us that GEA
antedated ALA.
Antony Walker: Yes, in some ways. It started earlier but finished later, if you know what I
mean, but all of the players were there. As I said, we are still in this iterative process and
there is further reconciliation that is happening within the NICC that may seek to address
some of those outstanding problems.
Q593 Lord Clement-Jones: You do agree, though, that GEA is not as encouraging, if
you like, to competitors as ALA has been.
Antony Walker: I am not close enough to some of that detail to be absolutely sure of that.
Richard Hooper: It is said to be less differentiating.
Antony Walker: Again, I would say that, if you look at the history of any regulated
wholesale products, it is an iterative process; they take time to get right. I am not surprised
that there are some players who are saying it is not quite right at the moment. For me, that
is a fairly normal state of affairs in an evolving market.
Q594 Lord Clement-Jones: What pressure is there to evolve, in that sense?
Antony Walker: There is pressure from BT’s Openreach customers. Also part of Ofcom’s
job is to maintain that regulatory pressure.
Q595 The Chairman: You have got your commercial operational technical standards
work going on. Is that intended to address some of these points?
Antony Walker: That work was intended to address this issue of what happens in a
situation when BT does not win one of these local projects. It is based on this experience of
what happened in South Yorkshire with Digital Region. It was a very early stage intervention,
where a network was built and then the operator really struggled, in fact failed, to get any
big national ISPs to provide service on its network. It became apparent that the reason for
that was that to interface into it, to connect into that network, the ISPs—Sky, TalkTalk and
others—would have faced really significant additional costs just to get the interface right.
What those ISPs were saying is they would expect a small local network to pretty much
replicate the kind of interface that BT provides. We did a lot of work asking what the
requirements would be for an ISP or a small network provider, and if we could resolve this
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problem. At the end of the day, it is not a technical or technology problem; it is actually a
commercial problem. The question is: who bears the cost of developing that service stack?
The problem is, first of all, that you do not know whether you are going to win a project,
and then you do not really know how many customers you are going to have, so you are
reticent to go ahead and make that investment. That therefore means that there is
uncertainty about whether you will be able to attract big ISPs. That then leads to uncertainty
about how many customers you will attract to your network. That leads to uncertainty
about whether you will be commercially sustainable. It is a chicken-and-egg problem in terms
of who makes the investment when. If you do have a situation where you have only one or
two non-BT providers at relatively small scale, it is a good example of the way in which
small-scale procurements go against the natural scale of telecoms.
Q596 The Chairman: Do you think it is something that should be mandated by the
regulatory authorities—that you have to be able to get the bulk of generally available
services?
Antony Walker: We talked to BDUK about whether it should mandate a COTS solution,
and it felt that went beyond its remit. It has simply required that there should be active and
passive wholesale access. We remain concerned about how that is going to work in practice.
South Yorkshire is a salutary lesson in the fact that, if you get that wrong, if you fail to
address that problem, it really challenges long-term sustainability.
Q597 The Chairman: How did the South Yorkshire problem arise? Do you know?
Antony Walker: I think it was over-optimism about how easy it would be to attract
operators on to the network. In the early days, people just did not think it was going to be a
problem.
Q598 The Chairman: It was almost naivety.
Antony Walker: In the very early days, there was naivety and then, over time, it became
apparent that this was quite a big intractable problem.
Q599 Earl of Selborne: You say TalkTalk and Sky cannot afford to participate in that
regional network.
Antony Walker: It does not make commercial sense.
Q600 Earl of Selborne: Why is it more expensive to participate in that regional
network?
Antony Walker: It is all about the investment required to create the service stack that
provides the interface into the network. If you are Sky, you do not want it to be more
expensive than it is to plug into BT’s network. You just want to have the same interface. Sky
reckoned, I think, that it would need about 500,000 customers to justify making changes to
its service stack in order to make the interface.
Q601 Earl of Selborne: Was therefore the original mistake not to use a common
specification?
Antony Walker: We flagged this issue very early on and we tried to drive some work to
resolve it. I think it probably should have been specified as a requirement: to be clear about
how you were going to address this. Too often, it has been left to the end: “We will worry
about how we get service providers once we have built the network.” Actually, you need to
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worry about how you are going to get service providers right at the outset, because that
drives your demand profile on your network.
Richard Hooper: We should never go away from the promotion of competition in service
provision. The thing is that is a separate business through some of the pipes, or can be
separate, but service provision should always be, and must be, strongly competitive.
Q602 The Chairman: The problem for the consumer is that, if you happen to live on a
network that does not have the appropriate characteristics, you are going to be severely
disadvantaged in terms of what you can get. You are going to risk having, shall we call them,
“digital ghettos”.
Richard Hooper: I do not think it is politically and socially acceptable, and I do not think it is
acceptable business-wise, because you will probably have less take-up as a result.
Q603 The Chairman: The logic of that is then surely Ofcom should do something about
it, is it not?
Richard Hooper: Ofcom does a lot about it in relation to BT.
Antony Walker: Ofcom’s view was that, if a network is built and this becomes a problem,
they will look at it.
Q604 The Chairman: It has in Yorkshire. It is scale perhaps.
Antony Walker: Yes. I agree. As I said, it is an issue that we flagged up a long time ago. We
are concerned that it still has not been resolved.
Q605 Baroness Fookes: If we could stay with BT in a slightly different way, we have had
quite a lot of evidence about the relationship between BT Openreach and BT Retail, with
some suggestions that this is not altogether satisfactory. What is your take on this
relationship?
Richard Hooper: It is at the heart of the topic. The whole point of operational separation,
which was set up in 2005, was that Openreach had to treat all service providers,
competitors to BT Retail, equivalently. That is at the heart of it. The notion of equivalence
was a British invention, I think, which has since gone into other parts of the world. That was
absolutely the central issue, and therefore the argument is to what extent Openreach does
that. Certainly from where I sit, but it is a judgment, Openreach has worked extremely hard
on that and done a great deal, but you do immediately get the question of whether
operational separation is sufficient in a telecom and whether you move to the next stage,
which is structural separation. Whereas that was barely debated around the world five or
six years ago, today it is debated quite rigorously, because then suddenly there is no
connection between the two companies. Telecom New Zealand has just split. Its Openreach
equivalent is called Chorus, and Chorus is now a separate listed company alongside Telecom
New Zealand. They have no relationship—they are separate companies—and therefore that
enforces that discipline even further.
Q606 Baroness Fookes: Would you like to tell us whether you think that is the route
we should take?
Richard Hooper: It is not for me or for BSG to say that. BT is an important member of
BSG. I am just saying that, if you look around the world, that has become a serious part of
the debate, particularly as we develop all-fibre solutions.
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Antony Walker: It is clearly there as a solution, if you reach the situation where there is a
real sense that there is a genuine lack of competition in the market. It is important that
everybody remembers that you have that in your back pocket as a solution. To my mind, at
the moment I do not think there is sufficient evidence that suggests that there is a lack of
competition. Actually, we have a situation where we have a number of commercial players
investing at scale and pace. Now would be the wrong time to come to that conclusion.
However, I would say that the interesting thing is that we now have a number of live
examples around the world. If I were in government, I would want to pay close attention to
what is happening in those markets and to learn from them, so that, if I was in a situation
where I thought that was the right route to pursue, I was very well informed about the pros
and cons of doing so. Do not underestimate the level of disruption that you would cause by
going down that route. Since Australia has gone down that route, for four or five years now,
actual network deployment or take-up has been extremely limited. It is a very slow way of
changing course. Do not underestimate the level of disruption that would cause.
Q607 Baroness Fookes: Do I infer then that the problem is not great enough, or
scarcely there at all, to warrant such interference?
Antony Walker: That is right for now. There is a very good question, which I am sure is
central to all of you, which is this issue of the choice between fibre to the cabinet or fibre to
the home. There is a question at a certain stage that says: is there a point at which you need
to move to fibre to the home? Our view at the moment is that current investment plans will
deliver the kind of connectivity that the UK needs in order to stay at the forefront of use
and exploitation of the internet. That is what really matters.
More to the point, deploying fibre to the cabinet is much faster than deploying fibre to the
home. Therefore, I think we get to that point of a step change more quickly, which will be of
broad benefit to the UK economy. If I am wrong and we get to a point where you have to
change course and go to fibre to the home, then one of the ways you might seek to do that
is through structural separation. There is another policy option that you have there, which is
switching off terrestrial television or at least setting a target to switch off terrestrial
television, even if it was 15 years out, because that then gives a very strong demand driver. It
would essentially mean that television would have to be delivered over broadband at some
point in the future.
Q608 Lord Clement-Jones: You would switch off Freeview or something, would you?
Antony Walker: Yes, you would switch off terrestrial TV.
Q609 Lord Gordon of Strathblane: Could we be absolutely clear? If you switch off
terrestrial television, then you would have to have 100% access.
Antony Walker: Absolutely, that is exactly the point. That is a very strong signal to the
market that says universal very high-speed broadband will be essential. That gives some
investor confidence.
Richard Hooper: The paradox of the broadcasting world is that it is effectively a fixed
technology. Most people watch their television in fixed locations from fixed sets. Actually,
spectrum’s great wonder is its ability for mobility.
Q610 Baroness Fookes: Is this a likely scenario over the next 15 years? Should we be
thinking about this?
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Broadband Stakeholder Group – oral evidence (QQ 550-622)
Antony Walker: One of my biggest critiques of governments over the last 10 years, while I
have been involved in these issues, has really been the insufficient attention paid to very
long-term thinking. We wrote a big report in 2007 called Pipe Dreams?, which raised this
whole issue of next-generation access. At the time, that was an issue that very few people
were thinking about. What has happened is we have gone from denying there was a problem
to everybody suddenly agreeing there is a problem, and then suddenly we are immediately
into implementing solutions. What was missing was that period when we were really
thinking about what the long-term strategic options were and then how you would
implement them. As I leave this role, I would say to government: invest in some long-term
policy thinking, look at those long-term policy issues, and understand the extent to which
some strong signals could actually lead to some market-driven outcomes, rather than having
to spend public money on doings that could actually be delivered by the market.
Q611 The Chairman: I want to go back to talking about the complete separation
between the infrastructure and the service provider. Are there good reasons for the current
arrangements we have, as opposed to reasons why they might change? It was put to us
yesterday by Openreach that they did not matter to BT, which had the confidence its own
retail service was going to be able to run out through the network, if it was extended. The
impression was that that relationship was important to them.
Richard Hooper: It clearly is. Every telco would come into the room and say the same
thing: that it is extremely important to the relationship between the retail arm and the
wholesale arm. Some telcos are now saying that the world has changed fundamentally. I can
remember a day when the director of wholesale at BT sat below the salt in directors’
meetings, because he had wholesale customers, which was not terribly proper. The real
customers were retail customers. Historically, that has always been a very strong driver of
telecoms companies around the world, but I think that is changing. The irony is the reason
why the director of wholesale suddenly found himself—and it was a he—above the salt was
that he was getting very large sums of money from mobile operators for interconnections.
He was actually doing extremely nicely, thank you. The world has fundamentally changed.
Wholesale is acceptable and retail is important.
Q612 The Chairman: Does the Chinese wall really exist then?
Richard Hooper: It certainly does under BT under Ofcom supervision, because it was very
strictly governed, and it happens today. I think Openreach, very fairly, has worked extremely
hard on that. Would they make different decisions if they were separate companies? That is
an interesting question you might have asked them yesterday.
Q613 Lord Dubs: Having a Chinese wall goes against what you said about the possibility
that that infrastructure might have to be provided on a monopoly basis, does it not?
Richard Hooper: If you go down that route, it goes from a Chinese wall to a wall.
Q614 Lord Dubs: Mr Walker, you talked about keeping things in our back pocket,
meaning it is a possibility. As a Committee, we have to produce a report and we cannot
keep things in our back pocket.
Richard Hooper: If you remove all broadcasting that will certainly be in the headlines.
Antony Walker: My recommendation would be that we have long-term options to change
course if we need to—if there is compelling evidence that you need to change course. My
take on the market at the moment is that now is not the time to change course. In 2007, we
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Broadband Stakeholder Group – oral evidence (QQ 550-622)
set out a very clear critique of where we were, when we looked at the policy framework,
the regulatory framework and the commercial conditions. None of the foundations was in
place that would enable a transition to next-generation broadband.
If I look at the market today, I would say that, from a regulatory, policy, and market or
commercial perspective, all those building blocks are in place, and we are now making
progress towards what I think will be a positive outcome. This is not the point to disrupt the
broad regulatory and policy landscape. It is a point at which you give confidence to investors
that they are making safe investments. If I am proved wrong, and if we reach somewhere
that is less positive, that is when you revert to those options. In economics, there is this
term “option value”, and it is real value. It is the value of being able to change course to do
things differently. The option value should not be dismissed here.
Q615 Lord Dubs: I understand that, from BSG’s point of view after all you have a variety
of members with different, and sometimes somewhat conflicting, interests. When you say
this is not the right time, I wonder whether any time would be the right time. It seems to
me that we have a chance now to say something, and say something quite fundamental, if we
wish to.
Richard Hooper: I think you should say things like “speed up”. You should say, “Service
competition is extremely important and should be continued.” There are lots of big
messages that need to be said. I also do not think we should indulge in UK bashing. I would
end where I started. If UK broadband and government policy is so bad, how come we are at
the top of the league in the world for usage of the internet and e-services? Looking at Lord
Clement-Jones, there are more digital music services in the UK than any other country in
the world.
Q616 Lord Dubs: Nobody is saying it is bad. All we are saying is, as a Committee, we
have to look forward and listen to what you have been saying.
Richard Hooper: And be technology neutral. Really be fair to mobile, fixed wireless and
under-the-ground fixed. Do not be obsessed with it all being about fibre to the home and
nothing else. That would be very helpful.
Q617 Baroness Bakewell: I want to take up what you were saying about long-term
planning, because it is not possible to know the future. We are talking about boxes and
cabinets, all sorts of fibres and this, that and the other. Let us talk about people. What
confidence do you have in the expectation that the market is going to consistently increase,
in the short term very steeply, and from then on retain a plateau that will keep the whole
system changing and facilitate all these developments that you promise?
Antony Walker: In terms of the UK market, BT is rolling out its Infinity product at a rate
that is almost faster than any other operator anywhere else in the world at the moment.
There is a massive investment taking place—a very rapid increase in the capability and
capacity of broadband networks that are going to be available to UK consumers at a
relatively small premium to existing services. What we are seeing is that there are two types
of customer that are taking that product quite quickly. There are those who already take the
best that is available and are keen to immediately take the next best thing available. There
are also those who are on very poor connections already and who see big additional value in
upgrading to the new service. Beyond that, it is unclear.
The bulk of consumers at the moment seem relatively happy with the broadband that they
have, so we think that they will possibly migrate a little more slowly to the new services as
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Broadband Stakeholder Group – oral evidence (QQ 550-622)
they are rolled out. But do not underestimate how quickly a new level of capability is being
deployed into the UK market that will stand the UK market in good stead for the short to
medium term. As to the longer term, if there is a need to go beyond the capability of this
existing infrastructure, there are possibilities in commercial and technical routes that would
enable the market to make that investment. If it did not, that is when you can potentially
resort to your other regulatory options.
Q618 Baroness Bakewell: Could the market reach saturation point?
Antony Walker: Demand for bandwidth will continue to increase. It is exponential, as more
devices come along. These days, people may have five or six devices in their home that
download things without them even knowing—that are upgrading some of their software
overnight without them being aware. We are an ever increasingly connected society that
makes more and more use of this connectivity.
Q619 Baroness Bakewell: I think that is very important and it is just wonderful.
However, we have an ageing population. We have a population increasingly in
single-occupancy homes. Whereas an old person might welcome being connected, and we
know about telehealth and all that kind of thing—excellent—the households that are
multi-use, which young people are very excited about, are actually on the decrease, rather
than on the increase.
Antony Walker: That is true and it is a challenge for operators, in terms of having these
varying levels of demand. They have to configure their networks in order to be able to cope
with those varying levels of demand in an efficient way. The other thing I would say, talking
about what “good” looks like, is it is about everybody being connected. It is about reaching
the most socially excluded groups in the country. It is about technology that enables those
people to connect easily without any technical knowledge. All of those things must not be
overlooked as we focus on this issue of broadband speed. Those things are just as, or
perhaps even more, important.
Q620 Baroness Bakewell: Do you think they should be part of the criteria that drive
forward all of this activity?
Antony Walker: In terms of the metrics for success, the metrics for best in Europe are
around speed, coverage, price and choice. To me, the most important thing is usage, and I
really think that should be expressed as an additional metric. It is very hard to measure. It is
very hard to find things that you can use to measure that, but usage is absolutely the most
important thing.
Q621 The Chairman: We have already overshot our allocated time, so I fear I ought to
draw the hearing to an end, but it has been an appropriate conclusion we have got to in the
way that our debate has developed. Thank you both very much, but is there anything else
absolutely burning you want to say to us that you have not? If that is the case, now is the
chance.
Richard Hooper: I would just stress that final point about coverage. I think coverage is a
terribly important issue. If you had a choice between an elite having lots of 100 Mbps and
lots of people having 2 or 10 Mbps, I know where my choice would lie.
Q622 The Chairman: Is that a real choice?
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Broadband Stakeholder Group – oral evidence (QQ 550-622)
Richard Hooper: I think public policy is driving in that correct direction. We are talking
about 90% having access to superfast and the other 10% having at least 2 Mbps. People are
now beginning to say 2 Mbps is too slow and could be quicker. I think that 100% coverage of
the country is where we should be heading and we should go for it aggressively.
Antony Walker: My final point would be: beware of getting drawn into picking technologies
and winners. In the 1960s, people thought that the future of civil aviation was in superfast,
supersonic, so we built an aircraft that was essentially designed to provide ultra-fast travel
for the ultra-rich, which was Concorde. The thing that changed the world was the jumbo jet.
It was not as flashy, it was not as fast, but it was the thing that changed the world. Be careful
of being drawn into picking winners.
The Chairman: Thank you both.
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Broadway Partners – written evidence
Broadway Partners – written evidence
A Modest Proposal To Unleash Increased Investment and Higher Returns For
All 14
Summary
The UK is an acknowledged leader in the global knowledge, media and creative
industries, both old and new. Yet with regards to the local broadband infrastructure that
supports these and other information-intensive industries, the UK is lagging behind many
competitor countries. And within towns and cities, but most particularly in the countryside,
the digital divide is only getting wider, given the ever-increasing richness of Internet
content.
This has direct economic and social policy implications, none of which are positive.
This paper’s focus is principally ‘the final third’, although the core proposal has equal
applicability throughout the UK. Rather than dwell on the issues, the paper proposes
constructive solutions which will, the author believes, deliver multiple benefits, including:
• Increased investment in the final third;
• A more dynamic regulatory, competitive and financing model; and
• Empowerment of local communities and Local Government.
At a stroke, the UK could be transformed from laggard to leader in global telecoms,
unleashing a wave of infrastructure investment, stimulating the information and creative
industries, promoting social cohesion, and enhancing the UK’s status as a destination for
inward investment.
Introduction
While this paper’s main purpose is to present constructive ways forward, some
acknowledgment of current shortcomings is necessary to provide context.
1. The rural broadband initiative is not delivering the desired results, with only one
serious bidder emerging from an 18-month framework negotiation process, and very
little in the form of genuinely ‘new’ investment.
2. Local network upgrade is concentrated on incremental upgrades to the existing
network – serving the incumbent’s purpose, but not that of wider stakeholders. It is
widely recognised that the current proposed technological solution, fibre-to-thecabinet
(FTTC), is but a temporary ‘fix’, and will require further rounds of investment
within a few years.
3. Meanwhile, demand remains unsatisfied throughout large swathes of the ‘final third’
and, nationally, there seems little likelihood that the UK will meet its European Digital
Agenda Next Generation Access (NGA) targets 15 .
14 The opinions expressed herein are those of the author, Michael Armitage.
15 100% coverage of 30 Mbps broadband, and 50% subscribed to over 100 Mbps, by 2020
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Broadway Partners – written evidence
Why is investment not happening?
Numerous reasons are cited for industry’s failure to invest more proactively, of which the
most significant are:
• Demand uncertainty;
• Assumed inadequate returns; and
• A shortage of financing 16 .
However valid a justification for under-investment in today’s regulatory and competitive
environment, it does not have to be like this. After all, similar demand, return and
financing conditions prevail in other countries, where substantial investment is nevertheless
taking place - so why not in the UK?
Indeed, our proposals address substantially all of these issues and concerns.
First, the risk is not that of demand – which is clearly substantial - but that demand might
be diluted through competing networks; the ‘prisoner’s dilemma’ ensures that neither
incumbent nor entrant feels able to invest for fear of the other duplicating that investment.
Second, returns are likely to be inadequate on a ‘build it and they will come’ model; but can
be made to be substantially worthwhile if stakeholders’ interests are properly aligned, if
demand is actively stimulated, if return horizons are sufficiently extended, and if the ‘nonmonetary’
benefits of fibre are also factored in.
Third, while the financing environment is unquestionably challenging, and near-impossible
from the incumbent’s perspective of a required 2-year payback, it is not that challenging.
There exists a multitude of savers and investors, local, national and international, which can
be tapped for long-term capital - if only an appropriate investment vehicle were available to
them.
The fact that there exists significant demand, as well as the financial capacity to support that
demand, and yet there is a delivery gap, demonstrates that it is rather a failure of policy that
lies at the heart of market failure in UK broadband. Three reasons:
1. Infrastructure competition – At the heart of the problem lies the fact that telecoms
consumers’ interests have for decades been sacrificed on the ideological altar of
infrastructure-based competition. In the local distribution environment, where economies
of density are predominant, and where well established regulatory models actively separate
network elements into ‘passive’, ‘active’ and ‘service’ layers, allowing different competitive
models in each, the bottleneck nature of the passive local access network argues for a
more enlightened approach that recognises its essentially utility nature.
2. Vertical integration – Allowing the incumbent to remain vertically integrated has had
two consequences – first, the regulatory requirement to conduct regular and detailed
market reviews to define, areas of significant market power (SMP); and second, the
16 See the European ‘Digital Agenda’ at:
http://ec.europa.eu/information_society/digital-agenda/documents/digital-agenda-communication-en.pdf
See also, ‘2020 Vision, Financing UK NGA’ by Brian Condon on behalf of INCA
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Broadway Partners – written evidence
consequent need to develop detailed and prescriptive ‘ex ante’ regulatory remedies, the
effect of both of which is to create uncertainty and to discourage long-term
investment.
3. Institutional blockage - The coalition Government’s well intentioned Localism agenda
reverses decades of centralisation, and it is little wonder that many local authorities feel
under-resourced to carry out many of the tasks expected of them. This manifests itself in
numerous ways – an excessive fear of legal challenge by the incumbent regarding the
interpretation of State aid and public procurement rules; an inability or reluctance to
engage meaningfully with local communities, and therefore an inability to draw up
coherent local broadband plans; and a lack of experience of financial markets as a
source of alternative financing.
Perversely, this institutional tendency to do too little is exacerbated by a Central
Government tendency to intervene too readily: while the ground-rules remain flawed,
no amount of tinkering will make them appreciably better. And direct Government
intervention, albeit with the best of intentions, but nevertheless seemingly random, simply
throws an already fractured industry into paroxysms of redundant activity – of which the
only beneficiaries are industry consultants – while confusing and deterring long-term
investors.
So, the answer is…..?
For the UK’s broadband problem to be resolved, policy makers need to accept only two
basic premises – from which much good will flow.
First, that fibre represents the future of telecommunications, and is worth investing in;
and
Second, that in the local access network, only one physical network needs to be and should
be built, and that the passive elements of this network – duct and cable – do not need to be
owned by any one operator. Indeed, ownership should be open to all stakeholders –
including the community which, at least in rural areas, will necessarily be putting up a
significant part of its financing.
The co-investment model is well described elsewhere 17 , both in concept and detailed
practice, and follows well established precedent across Europe 18 . Just as with the longestablished
practice of mast-sharing in the mobile industry, the conceptual logic underpinning
the co-investment approach is clear: to share, or pool, investment in that part of the value
chain where there is least benefit to be derived from competitive tension or duplication.
And it is the local, passive access network, typically comprising more than 80% civil
work, which offers the least benefit from competitive duplication, and the greatest benefit
from investment pooling.
17 See ‘How a co-investment model could boost investment in NGA networks’, by Oxera consultants
http://www.oxera.com/main.aspx?id=10068
18 See:
http://www.broadbandeurope.eu/Lists/Competences/EU%20Guide%20on%20Broadband%20investment%20models.pdf
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Broadway Partners – written evidence
The author suggests the following approach: the government should terminate the current
‘competitive dialogue’ process, reallocate the original £530m BDUK money to the new
‘NetCo Fund’ (plus the £150m allocated to rural mobile), and invite industry and financial
institutions to invest alongside, at least on a ‘matched’ basis, for proportionate ownership of
the ensuing passive network.
The invitation to co-invest should appeal to a broad swathe of industrial players –
equipment suppliers, construction companies, Internet Service Providers (ISPs), content
providers, utility companies and telecom network operators – who stand to benefit from
the creation of what would essentially be a wholly new market, as well as from the minimum
return assured by the investment. The creation of a central infrastructure fund, of significant
scale, will also attract to a wide variety of additional funding sources, attracted by the
very long-term and predictable returns as well as by the solid asset backing: both private and
public sector pension funds, dedicated infrastructure funds, multinational financing
institutions such as the European Investment Bank (EIB), corporate and municipal bond
investors, as well as private and public equity investors and foreign sovereign wealth funds.
Communities or projects would then be invited to apply to the NetCo Fund for long-term
finance, with the onus on the community to raise whatever was required to complete the
project, from a range of sources: local investors, EIS and others; businesses, with a clear
economic interest at stake; and Local Authority funding bodies and municipal bonds, of a
‘straight’, Tax Increment Finance 19 , or Social Impact Bond nature. This obligation would act
as a crucial and effective acid test of the community’s commitment to the project,
representing its own ‘skin in the game’. The particular merit of this approach is that it is
the community, both private and public sector, rather than Central Government, that
essentially provides the ‘gap funding’.
The details of such a vehicle will require close devising and scrutiny – for example, how will
its scope of activity be defined: ‘white areas’ only, or progressively throughout the UK? Will
rural mobile be included? What degree of regulatory assurance or visibility of returns is
required to ensure the participation of long-term investors? Indeed, what is the proper role
of the regulator for this Open Access segment of the industry? And what level of return
should be reasonably assured to the Co-investment Fund, and on what basis will surplus
returns be shared with individual communities? Clearly, governance will be key, given the
participation of multiple players.
But these detailed considerations are beyond the scope of this paper, and none are
particularly challenging: one of the great attractions of the co-investment model is
precisely the extent to which it opens up possibilities, rather than closes them down, as
the current incremental, gap-funding approach does.
At a stroke, government will achieve a host of desirable outcomes:
Stimulus to increased investment
• Maximises the benefits of scale and density, by avoiding network duplication;
• Minimises demand risk, also by avoiding network duplication;
• Provides a future-proof, one-time solution;
19 TIF - whereby the local authority pledges the projected income from local taxes and/or business (including the
fibre tax), to the servicing of long-term infrastructure bonds.
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Broadway Partners – written evidence
• Maximises take-up (100%, with local authority support for a universal service
commitment, to deliver public services, in the interests of cost efficiency and
social inclusion);
• Ensures high levels of local engagement, with local communities encouraged
or required to ‘match fund’ the Co-investment Fund element via, say, taxefficient
EIS share offers; and
• Provides an efficient financing structure for attracting long-term savings such
as pension funds, as well as for attracting EU Development Funds.
New, more pro-competitive regulatory model
• Offers increased regulatory transparency, following the utility principle;
• Offers, as a result, far great investor certainty;
• A co-investment structure would require very high standards of governance
and transparency, to the benefit of all market participants;
• Provides a mechanism to harness Government support, within State Aid
rules;
• Conforms to EU regulatory Open Access principles; and
• Opens the door to a new competitive/collaborative model.
A new dynamic, for industry and communities
• Full diversity of competition at the service level;
• A commitment to fibre in the access network would enable industry to move
away from commodity pricing principles, and to re-establish service and
pricing differentials;
• A co-ownership position would encourage Local Authorities to engage more
meaningfully with communities, as co-funders;
• Co-ownership could also open Local Authorities to new funding streams,
such as a revived municipal bond market, or Tax Increment Financing, or
public sector pension funds;
• A commitment to fibre upgrade would represent a powerful signal to
prospective inward investment that the UK was serious.
What is the downside?
The current regime is broken, and requires fixing. The co-investment approach offers the
industry and its consumers a means to put things right, and in so doing, to achieve great
things. The author does not anticipate there being any material State aid issues, given how
closely the Co-investment approach follows EU recommended principles, as long as proper
public procurement rules are followed. Similarly, while this move might initially not be
welcomed by certain elements in industry, it is very unlikely that their ongoing commitment
to invest will be jeopardised, and the door to their subsequent participation will
always remain open.
The Author
Michael Armitage has worked in the telecoms industry since joining BT as a graduate trainee
in 1980. He entered the City in 1982, before joining James Capel in 1983, ahead of BT’s
privatisation in 1984. Joining Morgan Stanley in 1987, he was made Managing Director in
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Broadway Partners – written evidence
1997, and led the European Telecoms research effort and latterly headed the Global
Telecoms team. During this time, he was lead analyst on many of the major telco
privatisations in Europe, as well as on numerous private sector IPOs. Since leaving Morgan
Stanley in 2002, he has been advising and raising money for technology companies. In the last
two years he has been devoted to the development of the UK broadband opportunity, and
in 2011 co-founded Broadway Partners, a business dedicated to bringing communities,
operators and investors together. He was educated at The Edinburgh Academy, Université
de la Sorbonne, and Reading University, has a BA (Honours) degree in English, and an MSc
(Sloan) from London Business School.
29 February 2012
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BT Group plc – written evidence
BT Group plc – written evidence
Introduction
1. BT is pleased to respond to this Inquiry. This issue is at the heart of our business as
well as being an important focus for government policy. We have already committed
£2.5bn of our own funds to roll out the fibre optic cable required for superfast
broadband (defined as broadband at speeds in excess of 24 megabytes per seconds or
Mbps). This network will deliver superfast broadband at speeds of up to 80 Mbps to
two-thirds of UK premises by the end of 2014, with speeds of up to 300 Mbps available
on demand. We are bidding for public funds and working with local authorities to
extend that roll-out into areas where the commercial case for investment is more
challenging. If successful in most of these bids, we believe we can get superfast
broadband to more than 90% of UK premises. We are working on other solutions to
improve speeds for remaining properties.
2. It should be noted that 99% of UK premises currently have access to some sort of
broadband connection. For broadband availability, the UK already leads Europe. 90% of
premises already have access to speeds of more than 2 Mbps, enough to stream
standard quality television or video pictures. The challenge is to increase speeds and
take up to drive economic activity. Work on this is well under way.
3. The commercial roll-out of fibre is proceeding well, with more than seven million of the
UK’s 28 million premises now passed by a BT fibre optic connection. We are deploying
the fibre network very rapidly, passing more than one million premises a quarter. The
number of homes passed should reach 10 million later this year, with two-thirds of UK
properties being passed by BT fibre by the end of 2014.
4. BT’s fibre network is available to all communications providers to access on an open
wholesale basis – providing consumer choice in service provider and choice wherever
BT deploys its network. BT’s is the only fibre network deployment in the world that
proactively seeks to offer wholesale access to encourage plurality and competition in
retail provision of superfast broadband.
5. Our fibre deployment is primarily by means of “fibre to the cabinet” (FTTC), with the
broadband signal travelling over copper wire from the local cabinet to the home.
Currently, this enables speeds of up to 40 Mbps downstream and up to 10 Mbps
upstream. These speeds will roughly double from April 2012 to 80 Mbps downstream
and 20 Mbps upstream as a result of technical innovations which we are introducing. In
some areas, particularly greenfield sites, we deploy “fibre to the premises” (FTTP),
enabling speeds of up to 110 Mbps downstream and 10-15 Mbps (depending on service
taken) upstream. FTTP will offer downstream speeds up to 330 Mbps from April 2012.
We have also recently announced plans under which FTTP will be available “on
demand”. This means that all premises in our commercial deployment in two thirds of
the country will be able to receive FTTP by spring 2013. This will be a premium product
offering very fast speeds and will be aimed primarily at SMEs. Businesses which want
especially high speeds will be able to request that fibre be installed from the cabinet to
their premises.
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BT Group plc – written evidence
6. It is important to understand the basic economics of network deployment. The
infrastructure investment case has many variables, but two of the key variables,
population density and distance to existing network capacity, are particularly important
in driving the costs of network build. This means that in some parts of the country,
where population is dispersed, the investment case for deploying a fibre network is
challenging.
7. Issues of demand and expected take-up are also important. A superfast connection
enables easier use of multiple broadband devices in a single property – for example, in
the domestic environment, different household members can each use their own
computer or mobile device simultaneously without seeing any degradation of speed and
service. Superfast speeds are also, of course, advantageous for businesses running
websites, trading online at volume, using multiple devices and sending large files over the
internet. Large businesses already use very fast “Ethernet” broadband designed for
larger enterprises; extending superfast broadband more widely will be especially
important for SMEs and households.
8. In some countries, pay TV has driven demand for superfast broadband, as householders
access pay TV services over fibre connections. This is an important issue in the UK. UK
pay TV markets are dominated by BSkyB, which uses satellite technology to distribute
pay TV channels and has a monopoly over key content rights. This means that investors
in fibre deployment in the UK, and retailers of superfast broadband are denied a very
important means of paying for their networks and driving take-up through pay TV
services. BT and others have pressed for regulatory action to address this and these
matters are subject to current investigation. Opening the market for pay TV is an
important step in driving fibre investment and take up in the UK.
Specific Questions in the call for evidence
What is being done to prevent a greater digital divide occurring between people
who can access superfast broadband and people in areas where the roll-out of
superfast broadband may not be commercially attractive?
BT is bidding for central government funds being made available through BDUK, and also working
with local councils to ensure fibre is deployed beyond the two-thirds of the UK where we see a
commercial case for fibre investment. If our bids are mainly successful, we envisage being able to
reach over 90% of UK properties with superfast speeds, and we are trialling alternative solutions to
lift speeds for remaining properties.
9. The UK has a good track record of broadband adoption and use, regularly
outperforming other EU and OECD countries on a wide range of measures. For
example, the UK scores well on EU measures of broadband coverage and take-up, rural
coverage, on-line government services, on-line commerce and measures that track the
number of very slow lines.
(http://scoreboard.lod2.eu/index.php?scenario=4&indicators%5B%5D=allIndicators&year
=2011&countries%5B%5D=UK)
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BT Group plc – written evidence
10. McKinsey’s “Internet matters” report of May 2011 named the UK and Sweden as
“leveraging very strong internet usage across the board.” More recently still, the Boston
Consulting Group reported that for the UK, the internet economy was worth £121bn
in 2010, or more than £2,000 per person - the largest value in the G20 group of nations.
11. Although the UK scores well in these reports and on the EU measures above, there is
no dispute that more can be done to help people, especially the socially and
economically disadvantaged, to get online. BT has been helping people get online since
2002. Our digital inclusion campaign, Get IT Together, is designed to get 100,000
people online in 2012. We work with a broad range of partners, such as schools,
community groups and other companies to reach those who need help, and we are a
leading partner of Race Online 2012. BT is leading on Get IT Together, a pilot
partnership with Citizens Advice to help their often marginalised clients to get online.
12. As fibre optic cable is rolled out across the UK to enable superfast broadband, the main
mechanism for limiting any digital divide is central government funds. A total of £530m is
being made available by central government this parliament, disbursed through BDUK to
help connect the so-called “final third” – the parts of the UK where no company
currently sees a commercial case for deployment, given population density and
topographical factors.
13. This funding is to a large extent being matched by local authorities, further enhancing
the ability to deliver superfast broadband to rural areas. If this central and local
authority money is spent effectively, we estimate that fibre optic connections can be
made available to more than 90% of UK premises.
14. We are testing technical solutions that will enable us, with suitable funds, to deliver
improved broadband to the remaining properties, which lie mainly in very rural areas.
Wherever possible, we shall examine innovative ways to work with local communities
on delivering fibre based solutions. However, rolling out fibre optic cable may not be
viable in some of these areas, even with the BDUK funding. Alternatives are likely to
involve radio based solutions.
15. In Bute, we are testing a solution in which broadband signals are carried over unused
parts of the TV airwaves spectrum. Households receive a broadband signal through the
TV aerial. This trial of broadband over TV “white space” is delivering enhanced
broadband speeds to areas of the island that were previously broadband “slow spots.”
The speeds may be sufficient to enable households to, for example, stream high
definition TV over broadband. We intend to trial the “white space” solution in Cornwall
as a next step.
16. In Cornwall, we are already trialling a solution which envisages delivering enhanced
broadband speeds over mobile telephone frequencies. This trial of the use of LTE
wireless technology (so called 4 th generation wireless) is in partnership with Everything
Everywhere. The trial has successfully connected areas which were previously
broadband “slow spots”. When trials are complete, we can compare the effectiveness of
“white space” against LTE solutions.
17. There are regulatory issues to be resolved around use of these radio based options.
Decisions would be required from Ofcom before these solutions could be deployed
more widely, but our trials are showing they have the potential to deliver improved
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broadband speeds in very remote/rural areas beyond the reach of even our current
broadband services. They could help resolve existing sub-2 Mbps “slow-spots” and
upgrade them to higher speeds.
18. We are also developing our existing satellite broadband services, primarily for rural
business use, into a product suitable for residential customers. Satellite connections may
well be an option for places where “white space” and LTE do not work. Using satellite is
more expensive and unlikely to deliver the same speeds as “white space” or LTE, but
could still be a solution to connect the most isolated parts of the UK.
19. If BT were successful in securing funds to deliver these services in the “final third”, then
they would be delivered primarily via BT’s Openreach infrastructure. The Openreach
network is made available on equivalent terms to all communications service providers
in the UK. We strongly believe that this is the best way to ensure that customers in the
“final third” receive all the benefits of retail competition that are available elsewhere in
the UK. We believe it is important to guard against the creation of local monopolies by
funding organisations that then fail to provide consumers with a choice of service
providers.
20. BT is already working to overcome the digital divide in Cornwall and Northern Ireland
– two parts of the UK which have secured public funds and pioneered early rollout of
superfast broadband. In Cornwall, for example, a £132m partnership funded by the EU,
BT and Cornwall Council, and managed by Cornwall Development Company, is bringing
superfast broadband throughout Cornwall and the Isles of Scilly, making it one of the
best connected places in the world by 2014. Over 10,000 businesses will be connected
to superfast broadband and the investment programme will create 4,000 jobs, safeguard
a further 2,000 and help attract new businesses to the area.
How does the UK communications market vary regionally and what is the best
way to connect the areas that the market alone cannot reach? Is a universal
service obligation necessary to avoid widening the digital divide?
There are regional variations that impact the ability to deliver broadband services – for example,
variations in topography and population density. In our view, the issues can best be addressed
through a combination of private and public funding to ensure roll-out of better broadband speed
across the UK.
21. The communications challenges in very rural areas are different from those in very
urban areas or indeed those in semi urban areas. Roll-out prospects are affected by the
UK’s geography and social history. For example, there is a tendency for English villages
to be “clustered” around a central point with relatively dense population centres within
the village boundary. This means they are often better suited to deployment of fibre
optic cable than, say, more dispersed rural communities in some other parts of the UK,
where rural populations are often more dispersed, with housing centred on individual
land holdings across a rural area.
22. These regional variations impact the commercial viability of broadband solutions. This is
illustrated clearly in the work of the Broadband Stakeholder Group on costs of
deploying fibre broadband in the UK. Its September 2008 report “The costs of deploying
fibre-based next-generation broadband infrastructure” highlighted the significant uplift in
expected deployment costs for the “final third”, where population density and other
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factors influencing the civil engineering costs of deployment start to increase
significantly.
(http://www.broadbanduk.org/component/option,com_docman/task,doc_view/gid,1036/)
This report also highlighted the dramatic cost difference between delivering FTTP and
FTTC solutions, with the former forecast to cost in excess of £30bn i.e. well beyond the
current commercial or public budgets allocated to address this issue.
23. The UK already has a Universal Service commitment to broadband at a minimum
2Mbps, and this is reflected in the requirements of BDUK in their current procurement
plans and in the local broadband plans of all local councils and devolved administrations.
The idea of a Universal Service Obligation to cover broadband delivery has been
considered a number of times before, most recently in the EU’s review of universal
service in November 2011. This concluded that it would not be appropriate to include
broadband as part of the universal service obligation.
(http://ec.europa.eu/information_society/policy/ecomm/doc/library/communications_rep
orts/universal_service/comm_us_en.pdf). There would be complex issues to be
considered, not least how such an obligation might be funded. However, given current
private sector deployment and Government plans, any suggestion that an obligation
might be needed appears to be outdated.
The Government have committed £530 million to help stimulate private
investment – is this enough and is it being effectively applied to develop
maximum social and economic benefit?
The £530m committed by the Government through BDUK is stimulating further local government
investment and private investment. In total, they have the potential to deliver superfast broadband
services to over 90% of the UK if the money is spent effectively.
24. There are different potential sources of funds for assisting private investment in the
“final third” – including BDUK money and resource from local government. Discussions
are taking place which should see the private sector committing additional money to
supplement those public funds in order to reach the “final third”. BT estimates that
more than 90% of the UK can be reached with superfast broadband if this public money
is used effectively and unlocks additional private sector investment on the scale we
believe possible.
25. The social and economic benefit to be derived from broadband depends on issues of
affordability, literacy, computer skills and the recognition by potential users of the
benefits to them in accessing and using the broadband network and services. The high
level of service competition inherent in the UK regulatory framework, underpinned by
access to the Openreach network, is an essential element of ensuring an affordable and
effective service. It is important that government continues to focus on the demand side
aspects of its broadband policy, including the full availability of Government services
online.
Will the Government’s targets be met and are they ambitious enough?
The combination of central, local and private sector funds, if properly invested, makes achievable the
Government’s target of delivering the best superfast broadband network in Europe by 2015. The
inclusion of a wide range of measures in the UK target (as opposed to focusing exclusively on one
metric such as speed) is a sensible approach and makes the target both ambitious and relevant.
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26. BT believes that the Government’s target is capable of being achieved if public funds
being made available from BDUK and local authorities are used effectively.
27. In measuring progress against the headline target, the Government proposes to take
into account a wide mix of important factors such as availability, rural coverage, take-up
and usage, and affordability. These elements make the UK targets both ambitious and
relevant. Both central and local government can play active roles in enhancing the UK’s
performance by ensuring government services are designed to actively encourage take
up and usage.
What speed of broadband do we need and what drives demand for superfast
broadband?
The advent of Internet Protocol Television (IPTV) and Video on Demand (VoD) services to the TV
(e.g. YouView) as well as the proliferation of mobile internet devices means households increasingly
have more than one individual accessing the internet at any one time, and this will increase demand
for faster speeds. Small businesses will increasingly want faster speeds so that they can trade online,
advertise via rich internet pages and send/receive “heavy” volumes of internet traffic.
28. One of the main current drivers for domestic superfast broadband is the advent of the
multi-device household, where several individuals “log on” at once and require a reliable
connection for activities ranging from emailing and creating documents through to social
media, movie-streaming and gaming.
29. Small businesses will benefit from superfast broadband as they increasingly advertise and
offer services through interactive web pages; trade online; and exchange heavy amounts
of data online. Fibre networks also provide greater upload speeds which can be
particularly beneficial to SMEs needing to send high data intensive content.
30. Having said all that, it is impossible to give a specific answer to the question: what
broadband speeds are required now? The private sector is having to promote the
advantages of speeds above 24 Mbps while at the same time ensuring networks can run
speeds of 80-100 Mbps and faster, in order to future-proof the UK’s broadband
services. It is worth noting that in markets such as Singapore, Scandinavia and Japan, the
actual take-up by customers of high speed services has been slow to materialise and is
typically around 20% of users. It is also worth highlighting that larger businesses tend to
have their own dedicated private circuits, delivering high speeds to match their
requirements.
In fact, are there other targets the Government should set; are there other
indicators which should be used to monitor the health of the digital economy?
What communications infrastructure does the UK ultimately need to remain
competitive and meet consumer demand over the next 20 years?
The open access network and high levels of competition at the retail level that underpin the current
broadband network have been instrumental in the high levels of take up, use and commercial value
seen in the current UK broadband market. Maintaining this is a key element in continuing to
provide consumer choice and low prices and should be reflected in the targets set by the
Government.
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31. The Government’s proposed broadband scorecard is intended to track a relatively wide
range of measures and targets over and above speed. Factors such as usage, take up,
coverage and affordability etc., are all key to ensuring that the wider economic benefits
to the UK are realised, rather than achieving a simple position on an international speed
comparison chart.
32. An approach that measures both supply and demand side targets is appropriate and
necessary. Usage is how economic and social value is created by the network. It is also
the key factor in ensuring an economic return to the network provider and thus
sustainability of the economic case for the network and affordability for the customer.
In BT’s view, competition and choice have played a huge part in driving down broadband
costs in the UK (they are now far lower than, for example the USA) and driving up use.
Competition needs to be maintained. That means ensuring that broadband networks
operated by any individual company are opened to others on a wholesale basis.
33. The Government needs to consider how best to develop and track metrics to
understand the use of the internet by consumers and businesses; the effectiveness of the
competitive market in delivering value and choice to end users; and the value this
generates in the UK economy. Reflecting these, the Government’s proposed scorecard
to determine whether the UK has the best broadband in the EU seems a sensible
approach.
How will individuals and companies use cloud services for distributed storage
and computation? What network properties are required to enable efficient
provision and use of such services?
An increase in the use of cloud services by individuals and companies will put increasing reliance on
the broadband network and particularly the access elements of that network, increasing the need
for upstream as well as downstream data. The ability for cloud service providers to effectively access
such networks, offer their services consistently and cost effectively across the UK and in competition
with other service providers, will be key to their success.
34. Cloud computing allows an organisation or user to change the way they buy and use
computing and network hardware and software services. Instead of a company having its
own servers and data storage facilities, these would be held centrally and cost effectively
by scale providers, then accessed via broadband.
35. Cloud computing brings all the “intelligence” and complexity of modern computer
systems into virtual centres where they can be managed and maintained by specialist
providers and made accessible to users as and when they are needed. Underpinning the
entire Cloud concept is the need for a ubiquitous, reliable and scalable communications
network that will link users to the Cloud.
36. The separation and virtualisation of the software and data that underpins a user’s
service (e.g. locating their software or user data centrally in the network) will mean
greater demand for fast upstream speeds, as well as faster downstream speeds.
Companies will want to send data to their remote storage facilities just as much as they
wish to download data from the internet. A shift to these higher upstream data flows
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would further accelerate the business need and policy justification for fibre-based access
networks. This trend is already anticipated in the new fibre based products BT is
deploying, which have increased the upstream data rate significantly compared with
current broadband networks.
To what extent will the advent of superfast broadband affect the ways in which
people view, listen to and use media content? Will the broadband networks have
the capacity to meet demand for new media services such as interactive TV, HD
TV and 3D content? How will superfast broadband change e-commerce and the
provision of Government services?
The extra speed of superfast networks will help enable business models that have been applied to
audio content e.g. i-Tunes to be potentially extended to video content including High Definition
services. The real economic advantage to government services is likely to be through increased takeup
and use of the networks, particularly by the socially and economically excluded.
37. The impact on consumer use of media content is the most obvious current shift in
behaviour brought about by higher speed broadband networks. The way users consume
media content has, changed significantly over the last decade due to current generation
broadband speeds, underpinned by very high levels of availability of broadband in the
UK.
38. It is likely that this transformation will continue to accelerate. The advent of YouView,
two-way services and communication (especially potential interest for Government
interaction with citizens) and growing concurrency of usage will require higher
bandwidth. We would also expect other services to develop and evolve that will utilise
higher bandwidth once the capability is widely available.
39. In terms of e-commerce and government services, superfast broadband has potential to
create new service opportunities and accelerate the transition to truly on-line
applications in the areas of tele-health and tele-presence etc. The biggest transition and
impact on Government services is still likely to be found through increasing take-up of
broadband, whatever the speed. Providing users with the skills and opportunity to
access and utilise those services online will, therefore, be at least as influential as the
speed of the connection they use to do it.
Will the UK's infrastructure provide effective, affordable access to the 'internet
of things', and what new opportunities could this enable?
Any move towards an “internet of things” will be facilitated if the UK is connected by an open-access
broadband network or networks – so that a range of companies can buy access to broadband
connectivity on a wholesale basis.
40. The “internet of things” is a term coined to sum up the idea of properties and devices
being connected over the internet, enabling – for example – boilers to switch on and off
in order to exploit off-peak energy supply.
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41. A ubiquitous UK broadband infrastructure, providing access for competing service
providers on fair and equal terms, will help in the fulfilment of this vision. Such a
network would encourage innovation and experimentation in a similar manner to that
experienced on the wider internet.
42. The “internet of things” will need broadband connections which are reliable, secure and
ubiquitous, to enable innovative providers to compete and flourish regardless of scale.
All of these features are possible via the Openreach platform and would continue to be
delivered if Government funds are invested in this platform.
How might superfast broadband change the relationship between providers and
consumers in other sectors such as content? What aspects of this relationship
are key to enabling future innovations that will benefit society?
The way superfast broadband networks impact this relationship is likely to be shaped by the ability
of those networks to support and enable effective competition. It is important that any Government
investment in superfast networks maintains the competitive choice and effective service provider
engagement that has driven change on current broadband networks.
43. The way users consume media content has changed significantly over the last decade
due to the emergence of broadband networks as an effective delivery medium. This has
driven changes to the relationship between consumers and content providers in a
number of ways. For example, we have seen the changed business models for content
distribution as a result of services such as i-Tunes; the growth of user-generated
content through sites such as YouTube; and a marked shift to non-linear TV with
services such as i-Player. In the UK, these changes have been brought about by current
generation broadband speeds, underpinned by very high levels of broadband availability
and the high degree of supplier choice offered by the competitive market.
44. Superfast broadband offers the potential for these changes to continue to accelerate –
for example, seeing changes that have impacted audio content evolve so that video
content can also be distributed online and at high definition rates.
45. This view assumes, however, the open access broadband network(s) continue to
predominate in the UK, so that rival communications providers compete to offer
affordable superfast broadband services.
What role could or should the different methods of delivery play in ensuring the
superfast broadband network is fit for purpose and is as widely available as
possible? How does the expected demand for superfast broadband influence
investment to enhance the capacity of the broadband network?
Superfast broadband is unlikely to be effectively delivered without the extensive use of fibre in the
access network. Other technologies are unlikely to be able to deliver the current and future
demands for higher speeds and increased data volume across all users. Deploying fibre will require
significant investment, particularly in rural areas or areas of dispersed population. In these areas,
costs have to be effectively shared across all network users and service providers by providing
effective wholesale access to the network. A flexible and expandable approach to deploying this
accessible fibre or other technology network will enable it to respond to demand for superfast
services as they materialise.
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BT Group plc – written evidence
46. We believe that an approach that focuses on getting fibre to as many businesses and
consumers as possible is the right one for the UK. This approach underpins the
deployment of telecoms networks across the globe - fixed fibre based networks are
widely seen as the best way of delivering customers’ current and future service
requirements.
47. Ensuring that such a fibre network is also available to service providers to use on
equivalent terms and in a manner that does not require them to make extensive
duplicate investments is also important.
48. Other technologies have a role to play. In particular, radio based services will be
important in the most remote areas, where the business case for fibre services is most
challenging.
49. The rapid growth of data capabilities on smart phones and other mobile devices means
that “data on the move” is a key part of the solution for the future. Most of these radio
based solutions however, ultimately come back to a point in the network where a high
speed fibre based link is needed – most mobile calls and data requests spend most of
their time travelling over a landline network. So effective broadband coverage will
require upgrades both to landline “backhaul” capacity and to the “base stations” which
enable the use of mobile handsets and tablets. Base stations for mobile traffic are
becoming smaller and more localised, in order to enable the re-use of scarce spectrum.
They need localised availability of fibre based high speed links to connect them back into
the main network of the mobile provider.
50. In very rural areas, particularly where the population is widely dispersed, radio based
solutions may be the only effective way to deliver relatively high broadband speeds, due
to the economics of deploying fibre based solutions. As part of our plans to extend our
high speed broadband services out to these communities we have been trialling a
number of different approaches, including trials of “4G” wireless in Cornwall and also
“TV White space” spectrum solutions in Scotland. Both of these radio based options are
designed to deliver relatively high speed broadband to very rural communities cost
effectively. In addition, the option of deploying a satellite broadband service in those
areas which are simply not economically accessible to other technologies is possible.
Does the UK, for example, have a properly competitive market in wholesale
fibre connectivity? What benefits could such a market provide, and what actions
could the Government take to ensure such a market?
The UK has a very competitive broadband market that scores very highly on a range of international
comparators. There are no legal or regulatory bars on any company investing in its own network
infrastructure. The retail market in the UK is the most competitive in the world and is based on
wholesale fibre connectivity from Openreach, but not from all other providers. Ensuring that
wholesale access to fibre is delivered by those who benefit from public funding is critical to ensure
the maintenance of a competitive broadband market.
51. Openreach has created world leading prices for access to its ducts and poles for others
to use. Prices were approved by the regulator and benchmarked as internationally
competitive. There are no legal or regulatory obstacles preventing any company
investing in their own networks either entirely on their own or by making use of BT’s
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ducts and poles. Nor is there any bar on them making such networks available to
others on a wholesale basis.
52. The UK has the most competitive broadband retail market in the world. The
commitments to equivalent wholesale access from Openreach and the presence of
alternative network providers in key commercial areas together provide the platform
enabling hundreds of communications providers to offer services to homes and
business. There are 6 large providers of broadband services across the UK, with no
single provider having more than 30% of the market. This level of competition has
delivered genuine competitive choice to UK consumers, along with some of the lowest
prices and greatest take up rates for broadband in the world. This market context has
delivered benefits across the entire economy. In particular:-
- The UK broadband price is virtually the lowest monthly price of all major
developed countries according to Ofcom.
- The UK has the highest level of broadband penetration amongst OECD major
nations at 75%.
- More than twice as many UK users buy content online than other major EU
countries, according to Eurostat figures.
- Significantly higher % of UK employees with ICT skills than major EU competitors.
- The UK is expected to show the biggest increase in NGA coverage, to over two
thirds by 2014, of any major nation, even without government intervention.
- The UK scores highest of all major EU nations on the EU Broadband Performance
Index.
- According to McKinsey this contributed 5.9% to UK GDP in 2009, higher than the
US, South Korea, Japan, Germany, France, India and China.
53. BT believes replicating this competitive market in the future fibre broadband world
is
critical. The Government needs to ensure that effective wholesale access is maintained
wherever public funding is available. It should not allow islands of single operator
monopolies to develop. Without such a focus, consumers can be effectively locked into
one retail provider or compelled to go through complex network changes and risk of
service losses to make such a change.
What impact will enhanced broadband provision have on the media and creative
industries in the UK, not least in light of the increased danger of online piracy?
What is the role of the Government
in assuring internet security, and how
should
intellectual property (IP) best be protected, taking into account the
benefits of openness and security?
54. Widespread availability of broadband has been and will continue to be one of the key
enablers of growth for the media and creative sector. In particular, it stimulates market
entry by fresh, new micro-enterprises which are well -attuned to the demands of “digital
native” consumers. Greater bandwidth
provides this sector with opportunities to
develop new and exciting products and services, and allows it to distribute these quickly
and to the widest possible audience.
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55. Services such as i-Tunes and other innovations from outside the traditional media and
content sectors have shown that effective and easy to use legal services for content are
attractive to consumers. Surveys conducted by industry and consumer/citizen groups
consistently indicate that the majority of people wish to consume content through
legitimate services and that those characterised as doing the most “pirating” are also the
biggest paying customers of legitimate services. It is important, therefore, for the media
and content sector to focus on developing new and innovative ways of providing
products and services to customers in ways that meet the ever-changing demands
of
those customers in terms of providing timely access to what they want to consume and
how they want to do so. Business models will need to change and adapt. Copyright
rules and the consequences of infringement need to be explained in ways digital
entrepreneurs and consumers can understand. Breach of copyright is wrong but action
to curb infringement needs to follow due process and be proportionate.
56. The Government’s recent approach through its adoption of the recommendations of
the Hargreaves Review signalled a greater emphasis on tackling barriers to
growth and
innovation
arising from the IP system, to stimulate creativity and to foster a better
understanding of, and respect for, IP. This approach was not dominated by the issue of
stronger IP enforcement. We support a continuation of that approach.
57. We support and are working hard to help create a fully-digital
Britain in which every
citizen has the opportunity and ability to enjoy the benefits of being online. Competition
and technological developments will enable consumers to choose how they connect,
what services they receive and how they access content.
58. Superfast broadband networks offer huge potential for enhanced economic growth
and
competitiveness in the digital age. If the full benefits of investment in high speed
infrastructure are to be realised, all sectors using superfast networks will need to adapt
and bring innovation to their business models. Successful businesses adapt to the
changing environment in which they work and those who fail to do so will eventually see
their positions eroded as competitors and the consumers of their products advance in
other directions. It would be unfortunate if significant investment in critical
national
infrastructure were to be adversely impacted by worries about potential threats
to current business
models in any one sector, despite the obvious benefits of that
investment
to the economy as a whole.
23 March 2012
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BT Group plc – oral evidence (QQ 466-549)
BT Group plc – oral evidence (QQ 466-549)
Evidence Session No. 7. Heard in Public. Questions 430 - 549
TUESDAY 12 JUNE 2012
Members present
Lord Inglewood (Chairman)
Baroness Bakewell
Lord Bragg
Lord Clement-Jones
Baroness Deech
Lord Dubs
Baroness Fookes
Lord Gordon of Strathblane
Lord Razzall
Lord St John of Bletso
Earl of Selborne
Lord Skelmersdale
________________
Examination of Witnesses
Mr Sean Williams, Group Strategy Director, BT
Q466 The Chairman: Welcome to Sean Williams, who is the Group Director of
Strategy, Policy and Portfolio for the BT Group. We are very grateful to you for coming. A
lot of us have met you before. If you would like to make some kind of opening statement,
please do so, and then we can get into the hearing proper.
Sean Williams: Thank you very much, Lord Inglewood. I just have five broad points to make
by way of introduction. The first is that BT is the largest commercial investor in fibre access
networks in Europe. We have already spent £1 billion on fibre access networks, and we will
spend £2.5 billion to get across two-thirds of premises in the UK, 18.5 million premises.
The second is that it is not only the largest in Europe, but it is also the fastest deployment in
Europe and possibly in the world. We have deployed our fibre network passed 10 million
premises so far, and in fact in the first four months of this year we passed 3 million premises
in that single period.
The third is that BT’s is the only fibre network deployment in the world that is designed to
provide wholesale access on a voluntary basis and on a fully equivalent basis, which is to say
that we provide exactly the same thing to BT’s retail operations as to everybody else, every
other ISP in the country. In fact, we have over 60 wholesale customers, ISPs, buying our
products from Openreach and BT wholesale.
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The fourth is that it is very important to understand that investing in fibre access networks
is a high-risk investment. Our fibre business case has a pay-back period of about 12 years.
That is to say we do not get our money back for 12 years, and that is on the assumption
that we achieve the volumes of customers we hope to achieve in our business case. That is a
long-term investment that most commercial organisations would not tolerate, and many of
the choices we have made and some of the things that have been called into question in your
inquiry are really about making sure that what we do delivers a really good customer
experience and makes the business case stack up.
The fifth and final point is that we are committed to supporting the Government’s objectives
to have the best superfast broadband network in Europe by 2015, and indeed to uplift
everybody’s broadband lines to at least two megabits or more. We are willing to spend a
further £1 billion or so of BT’s capital to match Government funding to do that, to roll it out
into the final third, and to get as far as we possibly can into the final third, and we will do
that in a way that brings the entirety of the retail market and brings that all to be available to
all households, so that what we are delivering here is an identical service at an identical price
to all parts of the country, which will be available to every ISP and every end user.
I think these points are a matter of great pride for BT and, I hope, will provide the context
for this discussion.
The Chairman: That is very helpful and wide-ranging introduction, so thank you very
much for that. Perhaps Lord Razzall would like to start.
Q467 Lord Razzall: I think I am going to start with probably the most aggressive
question, and indeed the fact that I have to leave after your answer is not because I know
what you are going to say, so I should say that straight away so you do not think I am leaving
because of what you have said.
I want to ask a question about the whole broadband delivery UK procurement process. As
far as we are aware, there are only really two people who are bidding for here. There is you
and there is Fujitsu, and Fujitsu does not bid for very much. We have had quite a lot of
evidence that the whole process does really benefit BT, and that is what I would like to ask
you. You may not be willing to answer the first bit, which is: in how many of the broadband
delivery UK procurement processes has Openreach bidding been uncontested? If you do not
want to answer that, I understand, but I think it would be quite useful for us because we
have had evidence that only Fujitsu had a few and all the rest is you. How do you explain
your ability to bid for all these funds when the majority of your competitor suppliers have
found themselves unable to do so? Do you think that the targeting of funds at councils
rather than larger franchise areas raises barriers to competition in this area? How do you
respond to the view that we have had expressed to us that the adoption of the gap funding
model has given Openreach a competitive advantage? It is quite a difficult question, I
understand. It is a rather controversial question.
Sean Williams: No, I am very happy to tackle it. None of our bids is uncontested. It is
important to understand that, at a level of the BDUK framework, all of the prices and
proposals that we put forward in the BDUK process have been the subject of a tough
competitive tendering process. There were nine bidders to start with, three were taken
through to the final evaluation, and as you say, two ended up qualifying—ourselves and
Fujitsu—and all of the prices and proposals that we have put in are on the basis of that
competition.
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Q468 The Chairman: Just so that we are absolutely clear—not that I am disputing
that—what you are saying is that in every instance when you come out at the front of the
queue, that is because other people in the queue have not been as good as you have been?
Sean Williams: I will just come to that in relation to specific contracts as well, because what
I am saying is that at the framework level it is a highly contested process--competitive prices-
-and then when you get to the individual contracts under the framework, or even outside
the framework, in all cases the tender has been contested at the outset, typically with three
or four competitors, and of course during the course of negotiations the number of
competitors diminishes until a sole supplier is left.
Before the BDUK process was devised, there were four fibre access network tenders. We
lost two of them, in North Wales and in South Yorkshire, and we won two of them, in
Cornwall and in Northern Ireland. Within the BDUK process there have been four pilot
projects: in Highlands and Islands, Hereford and Gloucester, Cumbria, which you heard a lot
about just now, and North Yorkshire. All were contested at the outset, and three are still
contested. We are the sole remaining bidder in the Highlands and Islands, which of course is
one of the most challenging areas.
There are four current contracts initiated via local authorities outside the BDUK
framework, in Wales, Lancashire, Rutland and Surrey. We have completed two of those, in
Lancashire and Rutland, but only after competitive bidding. Surrey is still contested and in
Wales, which was contested not just by Fujitsu but also by Balfour Beatty, we are the last
bidder. So, there is no contract in which we have not had to compete vigorously for our
opportunity to supply.
We find ourselves in the position we are in at the moment for two reasons. One is that we
are willing to take a long-term view of the investments and of the risks. The 12-year business
case payback is one that many companies would not tolerate. You would have to ask Fujitsu
how it feels about that. The second is that we have already deployed passed 10 million
premises and in that process we have learnt a lot about how you do this in the most costefficient
fashion. The costs to deploy passed premises at the moment for us is considerably
below where it started at the outset, so we have learnt a lot along the way.
You asked about the franchise areas question.
Lord Razzall: Yes, does that benefit you?
Sean Williams: The general theory of franchise areas at the outset was that the smaller the
tendering areas, the larger the number of providers who could compete to supply.
Lord Razzall: Well, that is what we have been told.
Sean Williams: It is not so much that the areas should be bigger. The question, I think, is
whether they should be smaller, and therefore more competitors could supply to smaller
ones. The second point to remember is that some of these areas are much larger than just
council areas. You have the whole of Wales, for example, the whole of Northern Ireland.
We have Gloucester doing the—
Lord Razzall: Highlands and Islands.
Sean Williams: Highlands and Islands is a very big area. These large franchise areas have
emerged from the right way to do the tendering process. From our point of view, we do not
think that gives us any particular advantage. We are very supportive, actually, of the
Government’s approach in trying to focus the tendering at this level, partly because you get
a lot of ancillary benefits that are not related to tendering. In particular, it is very important
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to get local buy-in and local money and local broadband plans, and it is that sense of local
buy-in and support with planning processes and suchlike that is a very important ancillary
benefit to the way the tenders are done. It is a lot of work to run so many tenders.
Q469 Lord Razzall: What about the gap funding model?
Sean Williams: Again, we are generally supportive of the Government’s approach to using
the gap funding model. Generally speaking, it means that you are facilitating competitive
bidding. It minimises the risk of duplicating with public money what is available in the private
sector already. It maximises, therefore, the benefits in terms of speed, coverage and
competition. Alternative approaches in which the public sector ends up owning the resulting
infrastructure will tend to be more expensive for the public purse and more expensive
operationally to run.
Q470 Lord Razzall: Can you explain that?
Sean Williams: In terms of more expensive for the public purse, they are going to have to
pay for the whole of the asset that is bought, whereas in the gap funding model they do not.
We end up owning the asset and so our shareholders have paid for it--at least that part that
is not subject to gap funding.
In terms of operationally, going back to my opening remark, I think it is really important to
understand that what we are delivering here is a mass-market solution that everybody can
use and works from a customer experience point of view for end users, and works from a
customer experience point of view for other communications providers. It is actually quite
challenging to operate a heterogeneous network. Having lots of different network solutions
is not an industrialised mass-market solution for the UK. Quite a lot of what we are doing is
about making sure that the single Openreach network, which is available for all retail
competitors to use, is operationally robust, we can mend it, it works in a consistent way,
and we do not have to have different systems and processes in different parts of the
network. So, if you get a very much more fragmented solution with different ways of doing it
in different localities, it will be more expensive to operate.
Q471 Lord Razzall: In fact, one of the comments that we have had that the gap funding
model favours incumbents with reliable existing revenues rather goes to the answer that you
gave, that the reason you think you are winning more than anybody else is that you are
prepared to take a much longer term view, which was your answer. The gap funding model
rather favours people who are prepared to take a long view because, by definition, they have
existing revenues.
Sean Williams: Well, we do not have any existing revenues in relation to superfast
broadband in these areas at all, so it is a challenging business case. We have to recruit all the
subscribers, we have to get them to subscribe at the prices we are expecting, so none of this
is certain. None of that is available to us at the moment.
What we have at risk is all of our existing broadband revenues and all of our existing
business connectivity revenues, which is a diseconomy of scope in the sense that we are
already earning those revenues in these areas. They are put at risk by the development of
the superfast broadband network. So, I do not think it is relevant to the gap funding
question. I think the gap funding question is really a matter of public policy and procurement.
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Q472 The Chairman: When you were using the word “we” in that sense, were you
talking about BT Retail as well as yourselves, or were you just talking about yourself as
Openreach? Sorry, I was not clear.
Sean Williams: Both. No, when I speak of “we”, it is not always going to be entirely
obvious; I could be speaking for BT Group, BT Retail, BT in the Openreach level. But at both
the Openreach and at the retail level we have revenues at the moment in these areas that
will be put at risk to some extent by the deployment of an Openreach fibre access network.
That is one of the things we have to factor into our business case.
Q473 Earl of Selborne: You heard in the earlier session how we were discussing some
of the issues that arise when local communities seek to extend the services which, quite
frankly, are not commercial for BT and others to provide, with self-build and extending local
access networks. I think we all understand that BT would be reluctant to take over a local
access network on which it was not sure of the standards of construction and technology.
You would not wish to take over something that was an unknown liability. Equally, you have
explained to us very fairly that you are operating on a 12-year payback, and some of these
remote areas are clearly not even going to deliver that, so something that would help to
extend the network to an acceptable standard for BT would be desirable. Is there an
opportunity to harness the evident enthusiasm in local networks by ensuring that BT can lay
down very clear criteria as to what would be acceptable and what would not be acceptable,
and indeed how many people would have to be connected to those networks in order to
make it desirable either for BT to take it over completely ultimately or simply to use it to
sell its services over that same network without ever acquiring ownership?
Sean Williams: Sure. We are very supportive of trying to find a range of community
broadband solutions to get to these hard-to-reach communities which have a willingness to
share in the risks and the investment. There are a number of ways we can do that, all of
which we are actively trialling and seeking to pilot. We can, for instance, ask communities
for self-dig, where essentially they do the digging but we do the rest of the installation. We
can provide communities with a set of standards for duct, fibre and electronics that they
could seek to fulfil to those standards and do some of the installation themselves. Or we
could simply provide them, in a sense, with a kit of parts, “This is the fibre we use, this is the
duct we use, go and install it”. We could do all of the work ourselves, but in response to
community subscription; in a sense, the local community gets together to provide the
necessary further gap funding in order for us to do the installation. We are totally open to
any or all of the above solutions, and I think what we are finding at the moment is that we
are making some progress with this.
As you have heard from Rory, we have made some progress in the pilot projects we have
had in Cumbria, but there is more to do to find a solution that works in a consistent way
across the country. We are totally open and positive about trying to do this. We are just
working on it with communities.
Q474 Earl of Selborne: You may be aware that we had a number of people giving
evidence, not just today, to say that in fact in practice it have proved difficult sometimes to
interact with BT. After all, if the farmers can dig a trench, if the community can buy fibreoptic,
which is not in itself expensive, and then of course leave the cabinet or others to BT’s
specification, you would have thought that would be quite simple, but as I understand it, it is
very difficult for a farmer to be even allowed to dig the trench.
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Sean Williams: I think there have been a number of hurdles we have had to get over in
order to make this part of the whole programme work effectively. We need to have clarity
about our various different solutions, we need to have clarity around the funding solutions,
and we need to have clarity about the state-aid solutions. All of these things need to be lined
up to get this thing going well.
I cannot say that it has been without its obstacles along the way. Indeed, I cannot hand on
heart declare that this has been at the top of our list of priorities, either. We are keen to do
this, we are willing to work with local communities, but at the same time we are trying to
roll out our fibre network to as many people as is possible. Again, going back to the main
point, we are trying to deliver here an industrial-scale, mass-market solution to as many
people as possible as quickly as possible, and while we are very keen to engage with local
communities and getting local solutions is part of that, I think there is a timing issue about
when that is going to come to fruition relative to the main project.
Q475 Earl of Selborne: We are impressed, or certainly I am impressed, by the number
of residences that you have been able to connect, but even with the 10 million residences
that you referred to--perhaps I should declare an interest as somebody who lives at the end
of a lot of copper wire: there is no way that I can see that you are going to be able to afford
to connect me--we are going to have to think of our own solutions, as indeed we have had
in Cumbria.
It is a matter of some social importance to rural communities. If they cannot operate a
business and they have to drive to a nearby town in order to get connectivity, that is
effectively dooming those rural communities. There is a responsibility. There is no
competition. BT is in the position, effectively, of a monopoly in this area in the
infrastructure. Is it not incumbent on BT to demonstrate that it is open to as many of these
flexible options as possible? Are you satisfied that you have indeed given that impression to
the community at large?
Sean Williams: I cannot speak for the impression, but I can speak for our willingness to
embrace all kinds of solutions. We are considering not just the community solutions that I
previously described, but also finding new ways to re-engineer our own networks so that
our fibre cabinet solution can be made as widely available as possible. We are also trialling
wireless solutions as well. You heard Rory speak a moment ago about the TV white-space
solution that he has. We have a trial of TV white space operating on the Isle of Bute and in
Cornwall, so we are looking for wireless solutions as well. We also have an LTE trial running
in partnership with Everything Everywhere in Cornwall. I am clearly of the view that wireless
is part of the solution to get the uplifted broadband speeds across the universality of
premises. To get it everywhere, we are going to have to have some wireless solutions. We
are very actively trialling wireless solutions. Again, we want to make sure that they are built
into the network in such a way that it is a seamless experience for our communications
provider customers, other ISPs, so that they can access this network if it has a wireless tail
just as easily as they can if it has fibre all the way to the end user premises. We are trying all
of these different solutions in the field. We are actively pursuing and trialling to give us the
best possibility of getting to every single premise with at least 2 Mbps broadband and, I hope,
quite a bit better.
Q476 Baroness Bakewell: We are confronted with conflicting information here. Your
clear statement about your open willingness to work in every possible, conceivable way to
bring broadband to the British public is at odds with the evidence we hear that really you
are not flexible enough and that there are “if”s that you put in the way of people trying to
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do this. You hear them, you listen, and in the end there are too many hurdles over a period
of time. I just wonder how you feel we should sort out that contradiction.
Sean Williams: I think there are basically two issues there. One is about timescale and the
other is about size-scale. We are delivering a mass-market, industrialised solution for as
many premises as possible so that every household will be able to access every single ISP
which wants to provide them with a broadband service. That requires not just a network
but systems, interfaces, operational processes, connections between networks and systems
for other providers. There is a lot of complexity that goes into delivering that kind of
industrial-scale solution.
The second issue around timescales is that I believe we can find a very plausible range of
solutions for local communities to integrate that appetite in the community within this
industrial-scale solution that we are building, but it is a matter of time. We have to develop
these things with communities, we have to get funding sorted out, we have to get state aid
sorted out. There are obstacles along the way. We are not always an easy organisation to
deal with because we are flat out delivering as many premises as we can.
Q477 Baroness Bakewell: But, you see, you use the phrase “industrial-scale”. It may be
incompatible. I mean, it is not sausages out of a machine, is it? It has to be tailored to the
market out there. Laudable though your objective is—every home in the country—the
systems available at the moment are not yielding that possibility. I acknowledge that you are
working at it, but others are working at it and coming up with other solutions that they feel
perhaps you are blocking.
Sean Williams: I think an industrial, universal solution is possible. We deliver it already in
telephony, in copper access lines, and in the copper broadband solution. We basically cover
almost all households with the copper broadband solution, and all retail ISPs are able to
deliver over the entirety of the country off the back of the Openreach network. So an
industrial solution is possible, and we can do the same in a fibre world.
That ability to bring the whole of the broadband value chain to every single premise in the
country is the unique thing that we can bring to this. We can at the same time integrate local
solutions to get the network to every last place in the country. It will take a bit of time to
innovate with those solutions, as it took a little bit of time to get fibre broadband out as far
as it has gone.
Q478 The Chairman: Before I go on, I will ask you one or two slightly more detailed
technical questions. It sounds a silly question, but it may be relevant. If the Government
produced more money, could you roll it out quicker and better?
Sean Williams: Do they need to be—if they did—
The Chairman: No. If you had more resources, could you go quicker and better than you
are now, or is it effectively rolling out as fast as is reasonably appropriate?
Sean Williams: As far as our commercial deployment is concerned, we are rolling out as
fast as we operationally and financially can. As for the final third, which is effectively that part
of the country that is beyond the commercial footprint, we do not really know yet because
the money is not widely available. We have to complete the BDUK framework. We have to
complete state aid. None of these things is yet finalised.
Q479 The Chairman: How close do you think you are?
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Sean Williams: I think we are very close to a final framework. We are still a way off getting
state aid clearance.
Q480 The Chairman: Is that going to be a serious blockage to the progress of this
rollout, do you think?
Sean Williams: It has that potential, but we are hoping we can come up with some solutions
to resolve the state aid questions as well.
Q481 Lord Clement-Jones: Is that a macro question about the whole scheme, the
whole programme?
Sean Williams: Beyond the ones that are already being deployed—namely, the four that
pre-date the BDUK framework--all others are dependent on clearance for state aid, and we
do not have that yet. It is delayed. We had been hoping that it would be available by now
and we are working very hard with the Department for Culture, Media and Sport and with
BDUK to get that resolution as soon as we can.
Q482 The Chairman: The Commission is obviously—
Sean Williams: The Commission is very focused on it as well, at all levels, but it is not
resolved yet. I think those are the items on the critical path, rather than whether the cash is
available. Our view of the situation is that, given our expectations about funding from
BDUK, funding from local authorities, funding at the European level, plus private sector
investment, ours and by our competitor Fujitsu, there is enough money on the table to get
to 90% of the country with a superfast broadband network.
Q483 The Chairman: One more thing, before we go on to these more technical ones.
The problems posed by the BT pension fund deficits are quite widely described in the media
and so on. Is that in practice having any impact on your ability to roll this all out?
Sean Williams: No, it is not. BT is one of the largest infrastructure investors in the UK. We
invest £2.6 billion a year in our networks, systems, platforms and products, and about £2
billion of that probably is in the UK every year. There are clearly some competing choices in
how the organisation deploys its resources between the pension scheme, investing in the
business, dividends, debt repayments, but the business is performing well. We had our
results not that long ago and we are content that our capital expenditure programme is
sufficient for all the investment we want to put into business. That includes all of our fibre
investment and the likely future fibre investment to match public funding. I do not think that
is a constraint.
Q484 The Chairman: Thank you very much. Ofcom’s Virtual Unbundled Local Access
standard is not the same as your GEA, Generic Ethernet Access. Can you explain why they
are not the same?
Sean Williams: Yes. The Virtual Unbundled Local Access, or VULA, is a regulatory
obligation and Generic Ethernet Access is an access product. The GEA product fully
complies with and fulfils our regulatory obligation to provide Virtual Unbundled Local
Access, so it is kind of apples and pears. VULA is a regulation; GEA is a product. GEA fulfils
the regulations.
Q485 The Chairman: So GEA fits VULA, full stop?
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Sean Williams: Yes. It fully complies with the regulation, VULA. I think it is important to
understand, given that we have got to this point, that Openreach is a unique creation in the
UK--this operational separation of the access business. It is subject to the most extreme
regulation of any telecoms company in the world, which is called equivalence of input, which
means that Openreach has to sell exactly the same thing at exactly the same price by exactly
the same systems and processes to everybody, whether they are BT Retail or TalkTalk or
Sky or Virgin Media. That is important to understand, because that is the foundation of fully
effective competition in the retail broadband market and for industrial-scale deployment
across the UK.
Q486 The Chairman: We have heard about active line access. GEA departs from the
ALA standard, does it not?
Sean Williams: Yes. Again, it is important to understand the difference. ALA is a set of
technical standards. GEA is a product. GEA predates ALA, so one of the reasons it does not
comply with ALA is that GEA was out in the market before ALA was finalised.
Q487 The Chairman: ALA was finalised by Ofcom, or was it the industry?
Sean Williams: The technical standards of ALA are agreed in the NICC, the national
industry body for technical standards. We are very supportive of ALA. We are active in
supporting the development of ALA standards. We are involved with the working groups in
which they continue to be developed, so we do not have a problem with ALA. GEA happens
to predate ALA. The point about GEA is that we have to deliver a product that really works
well for end users. It has to be robust and it has to be a good customer experience. It has to
be completely compatible with the regulation, which means it has to be available to all
downstream retail communications providers. Thirdly, it has to be cost-efficient and support
a very challenging and ambitious business case. GEA does all of those things.
Whether there are other product developments that our customers would like, whether
they are within the ALA development standards or whether they are outside them, is
something that we continuously talk about with our wholesale customers in the Trialist
Working Group and in the various industry fora. Openreach makes its product choices very
much in consultation with its customers. If some of those are further applications of the
ALA standard to the GEA product set, that is absolutely fine with us. But I think it is
important also to remember that those need to be positive and supportive for a very
challenging business case. We are not going to come along and do some things that basically
undermine the business case for fibre investment.
Q488 The Chairman: You deployed GEA in advance of the ALA standard being agreed
by the industry body?
Sean Williams: Yes.
Q489 The Chairman: Why, then, did the industry body decide on a standard that was
different from the one being deployed by you?
Sean Williams: To be honest, we often get this. In the history of BT, BT has often been out
in the market and the standard has come afterwards.
Q490 The Chairman: Fujitsu, I think, does offer a product that meets the ALA standard,
does it not?
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Sean Williams: May be, but Fujitsu does not have a fibre access network in the UK, so it is
difficult. It no doubt will do when it wins a BDUK bid.
The Chairman: If and when it does, yes.
Sean Williams: When it does, no doubt that will be compliant with ALA standards, and that
is all fine. But Openreach is subject to a different set of rules and regulations. We have
obligations around how we consult our customers on the products that they want us to put
in the market, so we will have to develop the GEA product set in line with our regulatory
obligations and our industry processes.
Q491 Lord Clement-Jones: So you are saying that you will have to?
Sean Williams: Yes, we will have to consult with our customers in the development of
GEA, and they may bring GEA more into line with other aspects of ALA. GEA, by the way, is
obviously an ethernet product. Ethernet is about the most generic standard in telecoms
networks that you could point to, so it is not as if it is a radically different thing. It is a
mainstream solution.
Q492 The Chairman: Yes, I appreciate that. If you could just go back and talk about
VULA for a moment, you have virtual unbundling there. Under the European Commission
state aid rules, if I understand the position correctly, the conditions in the EU state aid rules
on the granting of public funds ensure that only pro-competitive interventions take place.
Under VULA the active infrastructure aspects that are put on to your network have to be
basically yours. Is that correct? I am not a scientist. I am finding difficult to be clear that I am
asking the right question.
Sean Williams: Let me step back one step; just to note that in addition to VULA we are
also obliged to provide PIA, Passive Infrastructure Access.
The Chairman: That means the ducts and everything. You have to allow people to—
Sean Williams: Ducts and poles. We do have in the market Passive Infrastructure Access
products, and a price list agreed with Ofcom has to be costs-orientated. It is available to
everybody on exactly the same terms. So, wherever anybody goes in the country they are
perfectly entitled to ask for access to our ducts and poles and to put their own fibres in and
do whatever they like. But as far as an active product is concerned, like our ethernet
product, GEA, that clearly has to comply with Ofcom’s VULA regulations. If somebody
else—Fujitsu—comes along and develops an alternative active line access product, they are
not subject to our VULA regulations so they can do what they like.
Q493 The Chairman: I think I am right in saying, am I not, that VULA has become the
child of derogation at European level? Is that not correct?
Sean Williams: No, that is not correct. I do not think that is correct. The way this works is
that—
Q494 The Chairman: Is VULA a temporary phenomenon or a long-term phenomenon?
Sean Williams: No, it is a long-term phenomenon.
Q495 Lord Gordon of Strathblane: Does Europe not say that it should only be
temporary?
Sean Williams: The matter is for the national regulatory authority to determine. The
European Commission sets the framework for regulation of electronic communications—I
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can see I have caused a bit of a stir with this one. But essentially Europe determines the
framework and it says there must be remedies in this market. Ofcom has to do its market
assessment and it will have to come up with the remedies that it thinks are appropriate in
the wholesale line access market. It chose VULA as the remedy for fibre access and also
Passive Infrastructure Access particularly with the view that Passive Infrastructure Access
would be very relevant where BT is not itself rolling out fibre networks.
So, Passive Infrastructure Access is very much designed to support competitive bidding in
the BDUK process. But it is ultimately for Ofcom to determine its regulatory policy in
relation to promoting competition. The UK is unusual, as I have already mentioned, in the
creation of Openreach as an operationally separate access business that has to provide the
same thing to absolutely everybody. That represents Ofcom’s strategy that it wants to
promote competition as deep into the network so far as it is likely to be effective and
sustainable and that that focuses them on exchange-based services, like VULA, to promote
competition.
Q496 The Chairman: Is it not the case—I may have misunderstood it—that the
European Commission has accepted that VULA implements its requirements in this country,
not least because we were probably ahead of it making the decisions because it was the
practical thing to do? Do you see that this virtual unbundling is going to be a long-term
characteristic of the UK network, or do you think as far as this part of it is concerned we
are going to move into a world where perhaps there will be more physical unbundling?
Sean Williams: I think that as a matter of regulation VULA is a long-term solution. Ofcom
has to do its market reviews every three years, and it is shortly going to have to do another
wholesale local access market review. Ofcom, at the time of the last market review, made
some quite strong statements that it was not minded to intervene to regulate the prices of
VULA, for example, and that it was supportive of VULA as its main strategic remedy for
wholesale local access in NGA markets.
At the same time, it did mandate PIA. It did mandate Passive Infrastructure Access, and we
think that that remedy will also have a long-term future here. The question is then a matter
of which one of those will get used in the market? Our expectation and our experience from
the networks we have already deployed, such as in Cornwall, is that there is strong demand
for VULA and there is no demand for PIA. There has in fact been no demand for it in
Cornwall.
Q497 The Chairman: Is that a function of the generality of the UK system, being that
the characteristic of virtual unbundling is that every internet service provider basically has to
do roughly what you do, so that is how they configure their businesses? Is the country
missing a trick, do you think, because it does not give the ISPs perhaps the flexibility they
might have under slightly different systems?
Sean Williams: No, I do not think so. Anybody who wishes to deploy their own fibre
network is able to do so on the basis of BT’s passive infrastructure access products. The
reason that they do not particularly want to do so is that it goes to the matter of Ofcom’s
basic strategy for promoting competition and its assessment of the basic economics of
networks, which is that it is very unlikely you are going to get much competition in terms of
competing access networks. You are much more likely to promote sustainable competition
by making sure that everybody gets exactly the same access to the single access network.
Q498 The Chairman: Is that not the crux of it: that the form of access can determine
what you can do?
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Sean Williams: No, I do not think so, because we have basically provided access at the very
deepest level, right down to the ducts and poles, as well as access at the active product in
the wholesale market level, so it is really a matter of the fundamental economics of the
networks. As you get further and further out into the network, the possibility of having
competing infrastructures is smaller and smaller because you are dividing an increasingly
small number of customers—
Q499 The Chairman: Basically what you are saying, then—and I am not agreeing or
disagreeing, just trying to understand—is that the further you get away from the centre of
the network, the greater and greater is the economic characteristic that the competition will
be between the brands, using exactly the same sort of applications on the infrastructure?
Sean Williams: Yes. Essentially, the more concentrated the economic activity, the more
space you have for competitors.
The Chairman: Exactly.
Sean Williams: As you get further out into the network, there are fewer sustainable
backhaul networks, there are fewer sustainable access networks. It is just a fact of life of
networks. So, Ofcom has a clear strategy developed at the time when I was at Ofcom and—
The Chairman: We are now talking to someone who has been on every side of the fence.
Sean Williams: We want to promote infrastructure competition as far into the network as
would be effective and sustainable, but there is a point beyond that where you are not
promoting the competition, you are promoting monopolies. That is why it is better to focus
on VULA, and that is why VULA is Ofcom’s strategic solution.
Q500 The Chairman: Some competitors have suggested to us that they would like
access to dark-fibre local-loop unbundling.
Sean Williams: A few points on that. The first is that we have a very challenging business
case, so we are not content to support remedies that would undermine the business case.
Q501 The Chairman: Which business case is that?
Sean Williams: The business case for fibre.
The Chairman: No, there is no mention here of BT Retail; you are talking entirely about
Openreach.
Sean Williams: About fibre deployment. We are committed to providing the two remedies
that we have, which are VULA, the wholesale product, and Passive Infrastructure Access to
ducts and poles, which is the very root of the value chain. But if you continue to salami-slice
the value chain with a whole load of different remedies, you destroy the business case for
the deployment of fibre. Essentially, you are taking a whole lot of revenues out of
Openreach so it cannot afford to make the same investments in the electronics that deliver
VULA and all the rest.
Q502 The Chairman: So, in terms of looking at this, the regulator has to take an
overview?
Sean Williams: Yes. The regulator has to decide what the regulatory strategy for the
promotion of competition is, and the answer to that is VULA is the primary remedy and PIA
is particularly relevant where BT is not rolling out its fibre network, so that others can do so
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instead. That is on the face of its wholesale local access market review document, which it
published last year.
Q503 The Chairman: Yes. So in deciding about the national interest in the context of
your network, you have to recognise if you are Ofcom—we may want to talk to Ofcom
about this—that the person who rolls the network out can make a return on it.
Sean Williams: Yes. I think it is extremely important we do not lose sight of that. We need
to be able to make a return on these investments, otherwise the investments will not get
made.
Q504 The Chairman: What follows from that, as I think someone said earlier, is that if
you the incumbent with a lot of the network, you are rather well-placed.
Sean Williams: People have access to the physical infrastructure that is there in the ground.
We do not have fibre there. I think there was a conversation a little earlier about, “If only
we could get access to the fibre in Cumbria, then we could plug things into it”. There is not
any fibre there because that is what we are in the business of deploying now. We are
deploying fibre now. We have an equal opportunity to deploy fibre if Fujitsu can deploy fibre
in the same ducts. It is not there yet.
Q505 The Chairman: Do you have any other plans in mind for the way in which these
kinds of things--the technical standards on your network--might develop in the future? Do
you think that VULA is probably the basis for the foreseeable future?
Sean Williams: VULA is the basis, I believe, of the regulatory obligation. We will continue
to work with all of the standards bodies, including NICC, to develop technical standards so
the product continues to get better. A good example of that is the innovation we achieved
at the end of last year in NICC for a change in the access network frequency plan, which
allowed us to double the speeds of our fibre access product from 40 Mbps downstream to
80 Mbps. That is a good example of how we promoted the development of technical
standards that improved the performance of the product. We will continue to do that. We
have a strong belief that our fibre to cabinet solution is a long-term solution for this market.
We are confident that further technical innovations, further technical standards, will allow
that product to deliver even more speed in going forward, and we will obviously be
promoting that very actively.
Q506 Baroness Bakewell: Can I hone in on this rigorous business plan for fibre, of
which you have spoken and on which you were so eloquent? Could you describe your
investment policy and whether there have been any internal challenges within BT to that
opportunity of going as far as you want to and as far as is possible?
Sean Williams: As I mentioned, we invest £2.6 billion in capital investment each year, and
there is a choice to be made within the organisation about how that money is deployed.
That choice is made by the senior committee of the organisation called the Design Council,
which it happens that I chair, and we review on a monthly basis exactly where our capital
expenditure is going each month and each quarter and each year, and we make the choice as
to the balance of the investment between superfast broadband, copper broadband, business
connectivity products, overseas products, our TV network, and our ordinary copper access
lines. So we make a very visible choice about exactly where we are deploying the investment
across each of these different competing priorities. But, as I said before, we do not currently
have a problem with finding enough capital investment resource for our superfast broadband
project. In a sense, the amount of money that we can afford to put into our superfast
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broadband project is really determined by the business case. We take a 20-year view of how
many subscribers we are going to get, what kind of timescales, the cost of deployment, what
that means in terms of payback periods, rates of return, net present value, and we provide in
a sense as much capital for that as we plausibly can to take the network as far as we can.
Q507 Baroness Bakewell: So, when you sit around this table, with the people from
retail, the people from wholesale, and so on, they do not begrudge you a penny of your
investment? They feel that you must have as much as you want?
Sean Williams: There is quite a debate, as I am sure you can imagine, among competing
priorities. We invest a certain amount of money in Openreach, we invest a certain amount
of money in BT Wholesale, in Retail, in Global Services, in our networks division, in BT
Operate and BT Innovate and Design. We have to make sure the whole network is
sustainable and performing well. There are lots of competing priorities. All I am saying is that
it is a very visible choice that we make as between whether the extra £10 million is going to
go on to more superfast broadband or on to something else.
Q508 Baroness Bakewell: Is there an overlap? Does retail overlap with your Openreach
programme?
Sean Williams: No, Openreach is completely separate, but it is a visible part of the overall
capital expenditure envelope that we manage across the whole group. But Openreach has a
very distinct capital expenditure budget. So does retail, so does wholesale, so does global
services. It is just a very visible choice. It is not without competing tensions, but we do not
think that that is a barrier in this instance.
Q509 Lord St John of Bletso: You have mentioned about the large amounts you have
spent on the rollout of your fibre-optic, and you have also mentioned the high risk of fibreoptic
in terms of the business case. More to the specifics of the impediments to your rollout,
can you elaborate on the obstacles? Here I am talking about planning, wayleaves and other
factors that you think adversely affect your ability to roll out fibre-optic efficiently.
Sean Williams: Yes. I have four areas in which we could do with support. The first area is
about the set of obstacles to local deployment: planning, wayleaves, traffic management and
things like that. Under that heading I have three particular items. One is that the street work
guidance for permit schemes can result in councils designating the putting up of the street
cabinet as a major work, and if it does that then it causes all sorts of costs and delays, so we
could have that streamlined.
The second point—
Q510 The Chairman: Sorry, can you explain why?
Sean Williams: Why do they do that?
The Chairman: Why the costs suddenly go shooting up.
Sean Williams: It just takes a lot more time, we have to engage with the council, we have to
do various different surveys.
The Chairman: It is what you might call admin, bureaucracy and procedure.
Sean Williams: Yes. We ultimately end up with the same solution.
Q511 Lord Clement-Jones: It is not the physical works of doing it the cabinet?
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Sean Williams: No, I do not think so, although we might have to do some ancillary works
around surveys and whatever else in order to get the various permissions.
The second is around wayleaves. This is particularly important for multi-occupancy dwellings,
whether they are blocks of flats or retail centres with businesses in them, where it is very
often difficult and costly to negotiate wayleaves, and indeed there is no effective mechanism
for resolving wayleave disputes. We could very readily do with some support in that area, to
get a dispute mechanism, and also to put some obligations on landlords to make this
possible, as I think they do in other countries.
Q512 The Chairman: Can I ask one detailed question about that? If you have a wayleave
enabling you to put a telephone cable in, does that enable you to fibre it up if you want to?
Sean Williams: I do not believe so. One of the merits of our fibre to cabinet deployment is
that we are using that telephone cable so we do not have to go back and ask for new
wayleaves.
Q513 The Chairman: So you are wrapping it around?
Sean Williams: Basically, we are using the copper from the cabinet to the end user
premises—
The Chairman: Yes, but if you wanted to go on a fibre path—
Sean Williams: If you wanted to do all the way through the premises, then you need to
renegotiate the wayleaves. Yes.
Q514 The Chairman: Even under an existing duct?
Sean Williams: Not the existing ducts, no. It is only where you have to do additional works
to put in—
Q515 The Chairman: So you can use the duct that was put in for the telephone cables
without incurring any extra costs to put in the fibre?
Sean Williams: Yes, on the assumption that there are ducts all the way to the end user.
The Chairman: Yes, I appreciate that.
Sean Williams: We do not have to negotiate wayleaves to put them up on telephone poles,
either, but where it comes to digging through somebody’s garden or whatever it may be, or
across somebody’s field, we would.
The third area is around the telecoms code, which requires fibre, in some instances, to be
installed underground rather than overhead, and easing some of those requirements would
help speed deployment and reduce costs of deployment. There are several practical that we
could do to streamline processes, and we have put these to the department.
The second area out of my four is about pay TV. We need proper ex-ante regulation of pay
TV in the UK. In most countries in the world where fibre is deployed and being sold what is
actually driving the business case is the sale of pay TV. If you go to America and you see
what AT&T and Verizon are selling, they are not selling fibre; they are selling pay TV. If we
want to go further with fibre in this country, we have to find ways to monetise the
investment in fibre that we are making. By far the leading candidate for increasing the
monetisation opportunities in fibre is by selling pay TV. The problem we have in this country
is that the monopolisation of pay TV by BSkyB is a serious impediment to fibre deployment.
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It has 60% of the retail market. It has between 80% and 100% of the wholesale channel
market. It is not regulated and it is not giving access to its content. That is an issue that
needs to be solved.
Q516 Lord Clement-Jones: Surely that matter has just been addressed by Ofcom, and
as a result of the representation by Netflix it has decided that this is not any longer going to
be considered. Is that not so?
Sean Williams: Ofcom made an intervention requiring wholesale access to two of the
sports channels only, so that is a very small proportion out of the many dozens of channels
that Sky supplies. That is subject to appeal to the Competition Appeal Tribunal, and we
should hear the result of that in the next month or so.
The second process is around access to the movie content, which is being examined by the
Competition Commission. The Competition Commission has found that there is a problem
in competition in pay TV in the UK and is proposing to ask for a wider reference so that it
can look at the thing properly. It feels that it has not been given a sufficiently wide reference
so that it is able to take action right now.
Q517 Lord Gordon of Strathblane: Did it not factor in that there was already
intervention in the market by people like Netflix?
Mr Sean Williams: Yes, it did, that was one of the factors that it looked at during the
course of its inquiry. We have to remember that Netflix and LOVEFiLM are not competing
in the same market as Sky, and that was the Competition Commission’s finding.
The third broad area of support we could do with is around access to physical infrastructure
of non-BT networks, particularly the Virgin Media network. The final third is often used in
currency and it is defined by reference to the two-thirds deployment that BT will make. We
have to be aware that Virgin Media has a network in the final third, and in that Virgin
footprint in the final third there will not be any public money available. What you will have is
two-thirds BT network and every single communications provider can get access to that.
Then there will be a slice of Virgin Media where Virgin Media will be the only provider, the
monopoly provider of superfast broadband, and then there will be another section of the
final third, which will be competed for either by BT or Fujitsu, and you will get open access
and multiple providers. What we need to have is access to Virgin Media’s ducts so that
everybody can deploy their network across the Virgin Media footprint, because it refuses to
give any wholesale access to the network at the present time, and Ofcom does have the
power to do this with its article 12 procedure under the new framework.
Q518 The Chairman: You believe that it should use its power to achieve that?
Sean Williams: It should. The fourth area goes back to a remark you made about whether
VULA is a long-term solution. One of the most supportive things that Ofcom could do is
make a long-term commitment to its regulatory policy towards fibre networks. At the time
when we made our fibre investments, we had a conversation with Ofcom about how it was
seeking to regulate this risk investment that we were making. It made some very supportive
remarks but it did not feel the need to regulate this investment. In fact, it was so uncertain
that it would be very difficult to regulate, and we completely agree with that. But every
three years it has to make that choice again. That is a very difficult environment for us to
make a 20-year-view investment with a 12-year payback if the regulatory regime can change
every three years. It would be highly desirable if Ofcom could make a long-term
commitment to how it will regulate this investment, because it is a one-sided bet for BT. If
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we do not make the money, the shareholders will lose money. If we make more money, the
regulator will get hold of it. That is not an environment conducive to risk investment, so we
need Ofcom to make a long-term commitment to how it is going to regulate the sector.
Those four things are practical things we could do about local deployment. Monetising
opportunities for fibre deployment through pay TV regulation and access to other people’s
infrastructure. We are not asking anything we do not give ourselves. We give access to our
infrastructure. Fourthly, can we have a long-term regulatory regime to support the
investment?
Q519 The Chairman: Do you have any particular suggestions as to what the generality
of that long-term regulatory regime might be?
Sean Williams: Yes. It is not to regulate the price over an extended period of time, so that
there is a balance of risk between ourselves and the regulator, and not to intervene in the
product specification but allow market forces to determine what the right wholesale
product is for other communication providers to use.
Q520 Lord Gordon of Strathblane: You say not to regulate price. Are you looking for
differential pricing in different areas—
Sean Williams: No, I am not.
Lord Gordon of Strathblane:—in other words, you would be charged less in London
than you would in—
Sean Williams: No. We are obliged to provide the same product at the same price to
everybody. At the Openreach level that means we will charge the same price for fibre access
everywhere in the country, wherever it is, even if we have some public subsidy for that, even
if it is in the remotest part—
Q521 The Chairman: What you are saying is not, “Do not regulate the price”, but “Do
not change existing regulations as they relate to price”? Is that right?
Sean Williams: Both. We would like something more specific as well as the general.
Q522 The Chairman: What you are really saying is that you want the status quo in that
regard rolled forward for a period?
Sean Williams: Yes, because I think that would be highly supportive to a bunch of
shareholders who are making a very long-term bet here.
The Chairman: I can entirely understand where you are coming from; I am not saying that
I think your logic is faulty in that sense.
Q523 Lord Clement-Jones: Just thinking about future demand, are you laying sufficient
fibre when you lay it down now to cater for future demand, say, in 2020, and especially as
speeds rise, you might go to 1 GB, that sort of thing? Are you catering for that level of
future demand in what you are doing now?
Sean Williams: Yes, we believe so. We are, as I say, very confident that our fibre to cabinet
solution, which already delivers 80 Mbps, is ample for the time being for most users. If
people want higher speeds than that we are also able to deliver fibre to the premises on
demand to any premises in our fibre footprint. So once we have delivered fibre to the
cabinet and we are getting 80 Mbps, if somebody said, “Well, actually I would like 300 Mbps,
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please”, which we can deliver on our fibre to the premises product, we can deliver fibre to
the premises to them on demand.
Q524 Lord Clement-Jones: Pardon me if I am being stupid, but is that a wholesale
decision or is that a retail decision?
Sean Williams: The product is in development at the moment, our fibre to the premises on
demand. It is in development at the moment at the Openreach level. We are trialling it in
Cornwall. When it is available, it will be made available by Openreach, and all retail
competitors will be able to access that.
Q525 Lord Clement-Jones: So all service providers can go across that?
Sean Williams: Yes, and can use that product.
Q526 The Chairman: To be vulgar about it, you can get it if you pay for it?
Sean Williams: Yes, there will be a charge for that.
The Chairman: I am not criticising.
Sean Williams: There will be a charge for that and we are still working out the economics
and the pricing of that.
Q527 Lord Clement-Jones: It depends on how far from the cabinet you are, and so on?
Sean Williams: Yes, the costs are related to distance, because you put in more fibre, you do
more digging.
Q528 Lord Clement-Jones: But on fibre to the cabinet, for the foreseeable future, you
really have enough capacity?
Sean Williams: Yes. In our experience, once you put an 80 Mbps fibre to the cabinet service
into a premises, the broadband network is no longer the speed bottleneck. What you find is
that the home network is the thing that cannot cope with the speeds, or the home devices
cannot cope with the speeds, or the home wi-fi cannot cope with the speeds, or indeed at
the other end of the internet, that the server serving communications cannot deliver the
speed. We are very confident in the fibre to cabinet solution we are putting in at the
moment, but I do also emphasise that it is far from being at its limit. Technological
developments will mean that we will be able to deliver much higher speeds over fibre to
cabinet.
Q529 Lord Clement-Jones: And you can squeeze more out?
Sean Williams: Indeed, there are technology developments such as G.fast that promise to
be able to deliver a gigabit over copper, over a fibre to cabinet distance.
Q530 The Chairman: When might that happen?
Sean Williams: Who knows? We do not know the costs of the business case or anything
like that. I put it on the table only because I think people can get rather fixated that fibre to
the premises is the only solution. Fibre to the premises costs five times as much as fibre to
the cabinet and there is no business case to support it, however nice it would be.
Furthermore, it is not necessary, because fibre to the cabinet is a good solution for the
medium term and the long term as technological developments will make that an even
better solution.
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Q531 Lord Gordon of Strathblane: I hope this is not regarded as an unkind question.
BT is a PLC responsible to shareholders, and shareholders in all companies are not always
long-term thinkers. With regard to a universal telephone system in this country if we
adopted the payback model, in a way what we are probably looking for is a PLC responsible
to shareholders to mimic what Post Office Telephones did originally in providing telephone
services throughout the country, however uneconomic it was to do that, and doing that
through the intervention of public funds. The public funds come with a price ticket of open
access. You will not be surprised to know that some of your competitors think that open
access is there on the surface, but in fact the way that you do it means that they are going to
use your products more than they would like.
Sean Williams: A few remarks in that area. I think it is important also to remember that
there was a private-sector PLC called BT that deployed broadband to 100% of the country,
effectively 100%, so it is possible for a private sector company to make these kinds of
universal choices. We are very committed to providing universal service everywhere in the
country as far as possible. In relation to the fibre network, there is a limit to the commercial
viability of that. With the economics of network density, you do not get enough customers
at the end to make it pay off. That is why the gap funded model with public funding to get it
as far as humanly possible is a good solution to trying to get as far towards universal
broadband as possible, and especially not only the superfast broadband bit, but also the 2 Mb
bit.
Going on to your point around the products that people have to use, as I say, Openreach
has to provide, by regulation, the same product to absolutely everybody; to BT and to
everybody else. We are selling the GEA product, as our BT Infinity retail brand, very
successfully. We see no reason at all why others cannot do the same. They all have the
systems that could interface with Openreach. They all have the capability to market these
things. In fact, I would emphasise that we are very keen that they should. We want to have
our retail competitors like TalkTalk, Sky, Virgin Media, Orange and O2 selling our fibre
access product in volume. It is an important underpinning of our business case. That will
drive retail take-up. Retail take-up is an important part of getting the social and economic
benefits we want. We need to enlist their participation in this. We are not putting up any
obstacles to stop that happening. On the contrary, we are doing everything we can to bring
them on side as quickly as we can.
Q532 Lord Gordon of Strathblane: It is alleged that the GPON technology is less easy
to unbundle.
Sean Williams: In terms of unbundling, the VULA product is the unbundled product, and
people can do whatever they like with the GEA product, which is our VULA product. There
are eight different variants of VULA in the market already, and retailers can bundle those as
they like. They can do pricing bundles; they can put TV on it; they can put voice on it. They
can do any number of differing things with the basic input. The opportunities for
differentiation are fully there. If anybody was unhappy with that as a solution, they could
always go and invest in their own fibre network on the basis of our Passive Infrastructure
Access. Virgin is doing its own thing. It is an example of someone that is doing that.
Q533 Lord Gordon of Strathblane: I think we are talking of fibre network that will be
laid with public money, not with your shareholders’ money, as it were. The allegation is also
made that the GPON technology itself could become redundant in the medium term.
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Sean Williams: We do not see it becoming redundant in the medium term, or at any stage.
As I say, we think that the technology solutions we are putting in the ground are a good
customer experience, support the business case, and have a long-term durable technology
future. So I am not quite clear what the issue is, to be honest, because it is the foundation
for scale competition. What more is it they are looking for, other than a really effective,
robust, industrialised, high-scale, rapid deployment?
Q534 The Chairman: Are you going to be introducing WDM-PON in due course, do
you think? It gives you a much more of a reverse path, does it not? It gives the user the fibre,
the light stream, a great deal more freedom to do what he will.
Sean Williams: It is essentially trying to unbundle wavelengths, rather than unbundle the
active product.
Q535 The Chairman: Do you think that is going to be a feature of broadband in the
future and of your network in particular?
Sean Williams: Whether it is something that the regulator in the future seeks to mandate is
something I could not answer. Whether that is a good foundation for competition I really
would not be able to say. You would have to ask the regulator.
Q536 The Chairman: Do you think commercially it has potential?
Sean Williams: No, I do not, and I have to say that this is another example where we have
to be very cautious about interventions that basically undermine the business case. If you
start to unbundle all of these fibres, how are you going to recover the fixed costs of all of
the network we have put in already? We need to have some certainty about this and
somebody to commit, “No, they will not be intervening in these ways to undermine the
business case”. Otherwise it is a one-sided bet again. We are going to have people freeriding
on the network that we have deployed in the hope that they are going to do that at
extremely low cost. We are making a sunk investment here, and we need to know that we
are going to be able to recover all of those investments.
Q537 Lord Gordon of Strathblane: Would it be better if the network in theory were
provided by another body, a sort of nationalised body providing this network throughout
the country?
Sean Williams: No. As I have mentioned before, when I was at Ofcom, I was on the board
of Ofcom, and I led Ofcom’s broadband strategy and also the separation of Openreach into
a separate entity. There was a very clear strategic view in Ofcom at that time that while we
wanted this operational separation, such that Openreach had to provide the same thing to
everybody, and so cut through the discrimination that could happen across the value chain, it
was nevertheless a good idea to keep Openreach within BT Group for three reasons. First,
it retained the strategic synergy; secondly, it retained the financial synergy; and thirdly, it
kept Openreach connected to the retail market rather than separating it off as a separate
monopoly. If Openreach was a separate business, I do not believe that it could take the risks
about fibre deployment that BT Group has done for the simple reason that this strategic
synergy allows BT Group to make two choices. One is that we are going to invest £2.5
billion in deploying a fibre network and the second is that we are going to market the hell
out of it and get as many customers on to this as possible. Openreach, if was a separate
business, could not make that second choice. It cannot know that there is going to be,
among its retail customers, an organisation which is going to sell as much of this as possible,
so I do not believe it could make that risk investment that BT Group is able to make.
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Q538 The Chairman: I understand what you are saying, but can you just elaborate a bit
further. Against that background, how is it that the independent BT Retail is going to go like
hell on marketing the network when other independent operators owned by different
people are not? Surely you are selling services.
Sean Williams: We are selling our—we are trying to—
Q539 The Chairman: When I say “you”, I was falling into the trap. I referred to BT
retail, which of course you are not. Surely, if the network is there and there is a potential
business opportunity to be had from deploying it, everybody will go hell for leather, not just
one.
Sean Williams: They should be. We would thoroughly encourage the major ISPs,
particularly Sky and TalkTalk, and we are doing everything we can to encourage them in
order to sell the GEA product. BT Retail is an organisation within the BT Group, and it can
make a strategic choice to go for selling this. It has made two or three major choices. One is
that it has done some very proactive branding of the BT Infinity superfast broadband
product. The second is that it has done a lot of marketing of that through advertising on TV
and so on. It has done a lot of engagement with local communities through its Race to
Infinity programme. In particular, it has essentially chosen a retail price for the superfast
broadband product which is the same headline price as for its copper broadband product.
The purpose of doing that is that it makes it very easy for end users to choose, when they
come to BT, to opt for the fibre product rather than the copper product.
The reason for doing that is, once you have made this fixed investment in these systems,
then you want as many customers on this network as you can possibly get, and as quickly as
possible, because that is what underpins the business case. It is about the numbers of
customers. Customer volumes are a really important part of the business case. So you want
to make it as easy for people to choose fibre broadband as possible. For customers coming
to BT for the first time, at point of sale, if they are eligible for superfast broadband, more
than half of them take superfast broadband.
Q540 Lord Gordon of Strathblane: In a way it means that people are paying fibre rates
for copper service, as it were, as well.
Sean Williams: Some of them, in some parts of the country, are paying for copper
broadband. In some parts of the country, they are eligible only for copper broadband and
they are staying on copper broadband, and in some parts of the country they could upgrade
from copper to fibre, and lots of them do. So we are encouraging that migration of people
to upgrade to the faster speeds if we can get them to do that.
Q541 The Chairman: I am frightfully stupid, I fear, but you have described all these
things that BT Retail is under pressure to do, but why does being owned by the same
company as owns Openreach make it under any more pressure to do that than it would do
if it was a freestanding commercial organisation?
Sean Williams: If BT Retail was a freestanding commercial organisation, it might make a
different choice, but the point of the matter is that it is part of BT Group and BT Group is
making a choice about making a significant fixed-cost sunk investment in fibre on the one
hand in Openreach. To make that pay off, BT Group needs to make sure that we get as
many customers on there as possible, so BT Retail is out there marketing this as much as
possible. That is the only way you can make the business case pay. The point of the matter is
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if Openreach was separate you could not do that—if it was structurally separate and owned
by different shareholders.
Q542 The Chairman: The structure is separate, but there is a common interest—
Sean Williams: There is a strategic synergy within the group.
The Chairman: There is a common interest, once you have the network there, because of
the way the ownership happens to fall, to drive it for all it is worth. Is that what you are
saying?
Sean Williams: Yes.
Q543 Lord Gordon of Strathblane: You made a point about the universal service.
There is a difference between a universal service obligation and a universal service
commitment. But in your evidence at paragraph 23, you quoted with approval that Europe
has decided that the universal service obligation was not appropriate for broadband.
Sean Williams: Yes.
Lord Gordon of Strathblane: In a way harking back to the telephone, I just wonder
whether Europe would have said that a universal service obligation was not necessary in
telephones either.
Sean Williams: We do have a universal service obligation in relation to telephony, and—
Lord Gordon of Strathblane: Yes, why not broadband, then?
Sean Williams: —in functional broadband access, which is not what we are talking about
here. The reason for not having a universal service obligation for fibre access is that it is
prodigiously expensive and who is going to pay for it? At the moment, BT incurs all the costs
of providing universal service telephony. Our shareholders pay for that. But if the European
Union or the UK Government decided that there should be a universal service obligation
for, let us say, 80 Mbps fibre broadband, it would cost billions. So who is going to pay for
that?
If you just put it on as a universal service obligation, you are essentially saying, “I am sorry, it
is over to you, BT shareholders. You have to cough up the N billion that is required to do
that”. We do not think that would be a fair obligation at all. The alternative of the universal
service commitment is to say, “We are all, with the benefit of public funding, committed to
try to get broadband out to every single household, to a new standard over 2 Mbps”. So in
those circumstances we are recognising that it is not commercially viable to do that; there
needs to be some public funding to support that commitment.
Q544 The Chairman: We are getting close to the end of our session. I apologise as we
have overrun, but certainly I have enjoyed it, and I think the Members of the Committee
have too. I hope it has not been too miserable for you. This is a much more general
question. For the purposes of regulation, do you first of all think that it is a commercial
reality that fixed-line and mobile access are different markets in the world we are in now?
Sean Williams: As a matter of commercial reality?
The Chairman: The reality. Do you think they are one or two markets?
Sean Williams: Are you talking about fixed and mobile broadband, or fixed and mobile
voice telephony?
The Chairman: Both.
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BT Group plc – oral evidence (QQ 466-549)
Sean Williams: I think that fixed and mobile voice telephony, as a matter of commercial
reality, are in the same market and should be demonstrably so by the mechanisms that
Ofcom uses for determining market definition, but I do not think that 3G broadband is in
the same market as copper broadband or fibre broadband inasmuch as we are not seeing
that level of substitution between those products that you see in telephony. Whether or
not, when 4G mobile comes along, it is in the same market as copper broadband, we will
really have to see in the future. I think there is a lot of marketing hype around 4G wireless
broadband. In countries where it is typically deployed, it is delivering in the order of 10 to
12 Mbps; so, it is equivalent of good copper broadband speeds rather than superfast
broadband speeds. In those circumstances, I can imagine a future in which those 4G and
copper broadband should be defined in the same market, but it is unlikely that 4G will be the
same market as superfast broadband, I believe.
Q545 The Chairman: Do you think that putting on a pedestal the idea of superfast
broadband as something that is qualitatively different from other applications for broadband
is the right way to look at it?
Sean Williams: I think it is materially different from what any wireless solution is able to
achieve. If we really have aspirations for delivering the kinds of connected society and
communications-enabled economy, then the fixed solutions are the only ones that can work
in the long run.
Q546 The Chairman: The long run is what, 25 years? How long?
Sean Williams: No, I think fixed broadband is the performance leader today and I think it
will continue to be for the foreseeable future—whether that is fibre or copper or other
technologies. Wireless has a role to play for mobility and access. It has a role to play in
reaching hard-to-reach communities, but it is not the performance leader.
Q547 The Chairman: We are in a world where we are moving into a completely
different era with regard to communicating with each other in all kinds of ways and the
network is being rolled out that will enable us to do something that in sociological terms is
going to be very different from what we were used to previously when we were all young.
Sean Williams: Sure.
The Chairman: When do you think we will get that infrastructure in place? We are rolling
it out now. If you look ahead, when do you think that you as a business may stop rolling out
the infrastructure in a substantial way? There was a time when they stopped building
railways.
Sean Williams: Yes. We are still building out copper broadband networks. We are still
repairing the copper network. We are still investing. We still attach households to the
copper network. We will continue to do that with fibre networks and copper networks for
the foreseeable future. But I think the mass rollout of the superfast broadband fibre network
is the work of the next decade, I guess.
Q548 The Chairman: I am just trying to think of where you would put the perspective
of the work we are doing as ending.
Sean Williams: I am not sure I could really answer that question. In relation to the
particular government objective that we want to have the best superfast broadband network
in Europe by 2015, I think we have a fighting chance of delivering that, and that by the end of
2015 I am very confident we will be at above 80%. Whether we go all the way to 90% or
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BT Group plc – oral evidence (QQ 466-549)
how close to that we will have gone will be largely about how the BDUK process unfolds,
how the state aid process unfolds, and how effectively all of that money is used to deploy
the superfast broadband. Our expectation is that, given the public money on the table, we
should be able to get to 90% of the country.
Q549 The Chairman: We have kept you a long time.
Sean Williams: It has been a great pleasure.
The Chairman: Does anyone else have any questions that they would like to put to you?
Do you have anything else you would like to tell us?
Sean Williams: I think we have covered a lot of ground, and I am very grateful to you,
especially yourself, Lord Inglewood, that we have had this opportunity. I think this is a very
exciting programme, and we are determined to do everything we can to do the right thing
for the country. Thank you very much for the opportunity.
The Chairman: On behalf of the committee, thank you for the forbearance you have
shown when we have probed you from sometimes different and inherently contradictory
directions, more or less at the same time. We are trying to get answers to questions that
we have in our minds, so thank you very much.
Sean Williams: Thank you very much.
109

Buckinghamshire Business First – written evidence
Buckinghamshire Business First – written evidence
This report represents a response to the House of Lords’ call for evidence on behalf of
Buckinghamshire Business First. As the strategic economic development organisation and
independent business voice for Buckinghamshire, we are working to deliver a programme of
activity which will provide substantial improvements in next generation broadband coverage,
driven by the need to stimulate enterprise and entrepreneurship, promote job creation as
well as enable public sector service delivery transformation and provider greater social
equity. With an approved Local Broadband Plan in place, this vision is clearly articulated and
we are in the process of working with the market to accelerate investment, allowing
businesses and consumers to enjoy the benefits of next generation access.
Given the collective focus on superfast connectivity, we are keen to provide a level of local
input, experience and to help influence Government broadband policy going forward. Our
interest in the Select Committee call for evidence is therefore central to this; this response
seeks to echo our support for a strengthened national connectivity policy, which will see
greater investment in wholesale next generation infrastructure and a more cohesive
approach to delivery, incorporating wireless technologies.
We would also note that this response aligns to our support of a campaign championed by
James Elles MEP; member for the South East of England. We fully endorse his commitment
to seeking additional Government investment in superfast broadband and a review of the
approach to delivery. The details of this mandate will be presented to the Prime Minister
shortly.
1. What is being done to prevent a greater digital divide occurring between
people who can access superfast broadband and people in areas where the
roll-out of superfast broadband may not be commercially attractive? How does
the UK communications market vary regionally and what is the best way to
connect the areas that the market alone cannot reach? Is a universal service
obligation necessary to avoid widening the digital divide?
1.1 The main focus of the Government’s investment in next generation connectivity is via
the nation Broadband Delivery UK (BDUK) programme, local authority level
providing capital allocations to support the procurement of superfast infrastructure.
This is being delivered with Buckinghamshire via the Local Broadband Project, in
collaboration with our partners in Hertfordshire – together we intend to utilise
BDUK’s framework procurement process to secure substantial superfast broadband
investment across both counties. This will see a large number of premises receiving
improved connectivity, predominantly in rural areas and locations where the market
will not currently deliver. This will see substantial commercial and social benefits in
communities that are currently poorly served, as well as enhancing the counties’
competitive advantage substantially. This form the central component of a wider
programme of activity looking at market engagement and accelerating investment in
next generation access; this involves both fibre and wireless technology.
1.2 Using the Broadband Stakeholders Group as a guide to market engagement, it is
accepted that many locations will require additional subsidy and public investment to
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Buckinghamshire Business First – written evidence
deliver superfast broadband. However, there are noted limitations with the existing
BDUK procurement exercise which may limit the impact of investment in some areas
of the UK. In this respect, we would wish to see a platform which maximises
wholesale market competition, both in terms of fibre and wireless technology, whilst
also ensuring that Ofcom plays a necessary role in ensuring national coverage is
maximised as far as possible.
2. The Government have committed £530 million to help stimulate private
investment – is this enough and is it being effectively applied to develop
maximum social and economic benefit?
2.1 The Government’s commitment to the delivery of next generation infrastructure
should be applauded and this investment will see a significant increase in superfast
coverage across large parts of Buckinghamshire. However, whilst this is a good step
forward, indications are that the assigned £530m will not be enough to ensure that
the Government’s nationwide 90% target is achieved. It should be noted that this
investment is not entirely allocated to capital grants at a local authority level and a
proportion of this has been allocated to the running of the BDUK programme itself.
Indeed, current Local Authority allocations suggest that a proportion of this
investment is currently being held back within the BDUK.
2.2 Additionally, as set out below, there are question marks about the BDUK
procurement process, the market’s response to the framework and the capacity,
resource and cost implications of managing multiple procurement exercises across
England and the UK. A truly competitive wholesale response will be essential in
delivering next generation infrastructure across the UK; under the framework, wider
market engagement is currently restricted. We would also endorse an approach to
delivery which fully recognises the full importance of wireless and 4G as essential
superfast infrastructure.
3. Will the Government’s targets be met and are they ambitious enough? What
speed of broadband do we need and what drives demand for superfast
broadband?
3.1 We feel the Government’s targets are ambitious and represent a strong policy
commitment to deliver superfast infrastructure across the nation. However, the UK
needs to go further if it is to be considered the best-connected nation in Western
Europe, thereby maximising competitive advantages and the benefits for its citizens.
This ambition is mirrored within Buckinghamshire as we strive to move towards
universal superfast access. Additionally, early indications suggest the BDUK
procurement model, alongside its devolved allocations, will make it very difficult for
the UK to achieve its overarching goals by 2015, both in terms of actual coverage
and procurement completion.
3.2 We also believe that broadband speeds should be truly defined as superfast – based
on Fibre to the Premise specifications of 100Mbps or more. This will ensure that
emerging and available technologies are capitalised upon whilst maximising the
opportunities for business and the consumer; IT, media, commerce, new ways of
working will all drive demand for superfast broadband.
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Buckinghamshire Business First – written evidence
4. In fact, are there other targets the Government should set; are there other
indicators which should be used to monitor the health of the digital economy?
What communications infrastructure does the UK ultimately need to remain
competitive and meet consumer demand over the next 20 years?
4.1 Whilst speeds are important and do determine the actual availability of superfast
infrastructure, the Government needs to take a holistic view as to the value of its
investment in next generation connectivity. As such, this should include a greater
insight and assessment into the application of superfast services and the associated
benefits linked to wider policy objectives; this could include job creation, economic
development, social equity, local authority service transformation, emerging
work/travel patterns. The Government must ensure that it has a cohesive strategy
for delivering superfast infrastructure – fibre-based broadband is just one element of
this. The allocation of the 4G spectrum and associated auctioning, as well as other
investments in telecommunications will also have a significant role to play in providing
universal next generation access to consumers and businesses.
5. How will individuals and companies use cloud services for distributed storage
and computation? What network properties are required to enable efficient
provision and use of such services?
5.1 We are already seeing evidence in Buckinghamshire of the increasing use and
adoption of cloud-based services for storage, computation and wider network use.
This trend is likely to continue as next generation access will enable a growing
number of users the opportunity to maximise the benefits associated with cloudbased
services such as reduced costs, greater efficiencies and the ability to genuinely
transform working patterns and the need to travel.
5.2 A sufficient superfast network, both fibre and wireless, must be in place to enable
this wider adoption of cloud-based services. Government policy and action will need
to reflect this commitment with sufficient investment and cohesive infrastructure
delivery at the core of a 21 st century broadband network, inclusive of all appropriate
technologies. We are working hard in Buckinghamshire to ensure that 4G is an
integral component of this strategy, for instance.
6. To what extent will the advent of superfast broadband affect the ways in
which people view, listen to and use media content? Will the broadband
networks have the capacity to meet demand for new media services such as
interactive TV, HD TV and 3D content? How will superfast broadband change
e-commerce and the provision of Government services?
6.1 We are already seeing the influence of superfast connectivity on technology and
interaction with digital media – the capacity of next generation access brings a wealth
of opportunity linked to the way we go about our daily lives, both socially and
commercially. New television formats such as HD and 3D represent a wave of
technological developments that will be fuelled by superfast broadband access; each
bringing new benefits and experiences to the new user. This is ably demonstrated in
Buckinghamshire where the development of tele-health products is at the forefront
of this technology, heralding a new age in patient care. Next generation
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Buckinghamshire Business First – written evidence
infrastructure, achieving genuine superfast performance, will be the backbone to
driving such media and technology forward.
6.2 Superfast broadband also brings new commercial opportunities, enabling greater
customer interaction, order processing capacity and the ability to become an
international e-trader. This is particularly important for rural businesses and those
who operate as home-based enterprises, removing the need for traditional costs and
overheads via cloud-based services. Evidence within Buckinghamshire already shows
the importance of online transactions to rural businesses – next generation access
will take this a step further. Additionally, Buckinghamshire’s Local Authorities are
already looking closely at the opportunity for enhanced online service delivery,
providing an enhanced customer service which is both more efficient and effective.
7. Will the UK's infrastructure provide effective, affordable access to the 'internet
of things', and what new opportunities could this enable?
7.1 It is vital the wholesale superfast infrastructure, both fibre and wireless, remain
competitive marketplaces, with ample opportunity market entry and consumer
choice. Within the BDUK procurement process, the shortened list of preferred
bidders remains a concern, seemingly acting as a barrier to those wholesale suppliers
who may be well-placed to make substantial infrastructure investments whilst also
forging new relationships with retailers. It is hoped that that BDUK sponsored Local
Broadband Projects will see major superfast broadband investments, but not at the
cost of reduced market competition. Aligned to this desire, we would also seek to
ensure that the Government’s auction of the 4G spectrum provides ample market
competition, ultimately providing customer choice and further accelerating
technology and innovation.
8. What role could or should the different methods of delivery play in ensuring
the superfast broadband network is fit for purpose and is as widely available as
possible? How does the expected demand for superfast broadband influence
investment to enhance the capacity of the broadband network?
8.1 As previously stated, the Government’s approach to superfast infrastructure must be
cohesive, viewing broadband coverage in terms of wired and wireless opportunities.
This commitment must be matched by a sufficient level of investment that is able to
deliver next generation access to as many premises and consumers as possible – in
effect, a statutory utility. Associated procurement process should be given the
capacity to secure superfast investment, achieving access to speeds well beyond the
EU mandate, whilst also ensuring effective market competition and the ability to
translate this choice to consumers via a variety of retailers. Buckinghamshire will
continue to approach its vision for connectivity in holistic manner, ensuring that the
fibre and wireless components are not viewed separately.
8.2 Investment in superfast broadband infrastructure, or indeed services of any kind, is
often driven by market forces and the economics of demand. We believe the
Government recognises this fact and this is translated via the BDUK delivery
programme linked to the importance of demand registration and stimulation. It is
essential that businesses and consumers are well-informed in relation to the
transformational effect of high speed services and the ever-emerging technologies
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Buckinghamshire Business First – written evidence
that will be based upon next generation platforms. This educational exercise forms a
core component of our programme of activity in Buckinghamshire and this will need
to continue as we move towards the adoption of new wireless technologies, such as
4G.
9. Does the UK, for example, have a properly competitive market in wholesale
fibre connectivity? What benefits could such a market provide, and what
actions could the Government take to ensure such a market?
9.1 We believe the UK has a healthy wholesale fibre broadband market; one which has
the potential to provide world-leading next generation infrastructure. However, the
BDUK-driven procurement process and the associated PIA negotiated to enable BT
telecommunication infrastructure access has been met with a muted response from a
number of wholesale suppliers, thereby reducing the opportunities at a local level for
a more competitive market response. We would, therefore, strongly urge the
Government to explore opportunities to enhance the existing procurement
framework, removing commercial barriers, thus enabling increased market
competition and, greater value for local broadband projects and ultimately, improved
consumer choice.
10. What impact will enhanced broadband provision have on the media and
creative industries in the UK, not least in light of the increased danger of
online piracy? What is the role of the Government in assuring internet security,
and how should intellectual property (IP) best be protected, taking into
account the benefits of openness and security?
10.1 We believe that superfast broadband connectivity will have a major impact upon all
businesses. This is likely to be the case with media and creative sector enterprises;
both integral components of the Buckinghamshire economy. Digital technology is
likely to a key driver in terms of innovation and entrepreneurship, particularly as
media is increasingly broadcast over next generation communication networks; we
would welcome the Government’s recognition of this relationship.
10.2 Equally, we are aware of the increasing risks associated with online content and
commercial activity, particularly in relation to security, privacy and access. We
would hope that the Government is taking a central role in safeguarding the realm of
web-based activity, with a clear policy and mandate stating this intention. This should
reflect a balance which endorses the benefits of open access, as well as recognising
the role Government in regulating issues such as legal ownership, just as it would
traditional products and services. This would be of particular interest to businesses
in Buckinghamshire which are increasingly reliant on the internet for commercial
activity.
13 March 2012
114

Professor Peter Buneman – written evidence
Professor Peter Buneman – written evidence
I would like to make three simple points about the future of Internet delivery. My
credentials are that I have developed the Tegola network, which has brought fast broadband
to some of the most remote areas of the Scottish Highlands and that I have worked closely
with Professor Michael Fourman on broadband issues. Of the following three points, the
first two are based on my experience with rural broadband; the last is based on my general
experience as a computer scientist.
1. If fast, reliable broadband is important, it is doubly important in rural areas, where
other forms of communication are deficient. Our experience shows that uptake is
higher in rural than in urban areas. Without intervention to provide adequate
backhaul, communities and businesses in rural areas will be relatively worse off in the
future than they are now.
2. The Tegola project has demonstrated that communities and small businesses can
provide the “last mile'” -- in reality the last twenty miles -- at affordable prices where
centralised organisations cannot. The only technical obstacle to the development of
more of these access networks is the lack of backhaul.
3. Several computer experts have famously underestimated demand*. Right now I am
hard-pressed to come up with a reason for wanting more than 20Mb/s in the home,
but I am certain that there will be such a demand in the near future; moreover small
businesses (which are more numerous in rural areas) need higher speeds even now.
In any case, given that households even now, want speeds of about 10Mb/s
continuously for delivery of video, the only way we can meet this demand is to have
a fibre network that reaches every community of a few hundred. Since the capacity
of fibre is huge, once such a core network is in place, it is a relatively straightforward
matter to deliver much faster broadband to the home through a mixture of fibre,
copper and wireless (the Tegola project has demonstrated the last of these).
The consequences of planning based on an underestimate of the required bandwidth
could be catastrophic.
All three of these points indicate the critical need for a robust, open fibre infrastructure. I
am happy to elaborate on them if needed.
23 March 2012
* http://www.pcworld.com/article/155984/the_7_worst_tech_predictions_of_all_time.html
115

Francesco Caio – oral evidence (QQ 115-135)
Francesco Caio – oral evidence (QQ 115-135)
Evidence Session No. 3. Heard in Public. Questions 75 - 135
TUESDAY 27 MARCH 2012
Members present
Lord Inglewood (Chairman)
Lord Bragg
Lord Clement-Jones
Baroness Deech
Baroness Fookes
Lord Gordon of Strathblane
Lord Macdonald of Tradeston
Bishop of Norwich
Earl of Selborne
Lord Skelmersdale
________________
Examination of Witness
Mr Francesco Caio
Q550 The Chairman: I gather that we are likely to have some divisions so I have
mentioned that to our witness, Francesco Caio, whom I would like to welcome here.
Mr Caio: Thank you very much.
The Chairman: Apologies for keeping you waiting a tiny bit. We are very much looking
forward to what you have to say. We have had a brief CV from you so we know your
background and the role that you played for the British Government in this in the past.
What I would ask is when you begin to speak, for the sake of the record and the
transmission, please identify who you are. If you would like to make any kind of introductory
statement, we would be very pleased to hear it.
Mr Caio: Thank you very much, my Lord Chairman. I am very pleased to be here and I was
glad to get your invitation. I am Francesco Caio, currently chief executive of Avio, which is in
the aerospace industry. We are not going to be there today, but I have had direct
involvement with the information technology and telecommunications industry throughout
my career. I would mention my time at McKinsey in London where I assisted a number of
clients in this industry and then as chief executive of Omnitel, which is now part of the
Vodafone Group, and most recently as chief executive of Cable & Wireless in this country.
As you mentioned, I was asked by the British Government in 2008 to lead an independent
review of issues in the development of next generation access broadband network. I did the
same a year later with the Italian Government.
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Francesco Caio – oral evidence (QQ 115-135)
My brief remark at the beginning is that if I look back to some of the conclusions of the
review in 2008, I would say that broadly the market has evolved and the country has evolved
along the lines that were quite clear three years ago. Penetration has grown, the world has
entered into what was defined in the report as a post-PC era where the number of devices
has exploded and the internet has reached many objects that were outside its reach maybe
five or six years ago, such as television, radio, cars and so on and so forth.
I think more importantly I would say that the kernel of the recommendation to the
Government at that time was that the competitive structure of the UK industry was pointing
to a likely increase in investment in network upgrade, particularly linked to the duopoly, if
you wish, of the two physical infrastructures that are in place in this country, one being
British Telecom, BT, and the other Virgin Media. Clearly, where the two networks coincide
in terms of footprint it was likely to predict that the competition between the two would
lead to an acceleration in investment. I think that has happened, broadly speaking, even
though in ways and pace that differ from area to area. But I would say that the decision of
Virgin Media back in 2008 to upgrade the access network through a software capability and
deliver fast broadband has been the primary driver of what we have seen in the last four
years. I would say that broadly speaking the picture that was emerging from that work has
been confirmed by market trends. The issue now becomes what happens next and where
the country should go.
The Chairman: I see from the television monitor we are about to go and vote so perhaps
that is a good moment to stop. Thank you. We shall be back.
[Meeting suspended for a Division in the House.]
The Chairman: Again, for the sake of the record, apologies for keeping you waiting.
Mr Caio: Not at all. I understand fully.
Q551 The Chairman: Perhaps I might start by saying that, when you wrote your report
in 2008 for BERR, you said that one of the key findings of this review is that it is a mistake to
believe the UK must have an NGA infrastructure tomorrow or suffer as a result. Clearly it is
a few years on since then but presumably the underlying point you were making is that you
must not rush at this like a bull in a china shop and that you want to get going and cannot
expect to have perfection immediately.
Mr Caio: Yes. As I was saying before, if you look at many statistics, no matter how you cut
it the UK does not seem to have suffered by a lack of a national publicly funded NGA plan,
which was the issue at stake, or one of the issues at stake, during the report. You may
remember that one of the questions that drew the report was the concern that with BBC
launching the iPlayer, the number of people demanding high bandwidth consumption
applications—namely the iPlayer—might have brought the internet to its knees. It became
apparent that that was unlikely to be the case not least because, as was mentioned in the
previous discussion, one of the issues was the availability of a backhaul rather than specific
access capabilities.
Again, if you look at how penetration of broadband has evolved and how the average
bandwidth available to citizens and companies in this country has evolved, broadly speaking it
is aligned with what we have seen in other parts of Europe and even perhaps, at least in the
first part of the last three years, in the US. That is to say that there was no need for
immediate massive public funding but, as was reported and some of you mentioned already,
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Francesco Caio – oral evidence (QQ 115-135)
there was an indication that the availability of a high-quality, world-class network
infrastructure is not for debate. It is something that the country will have to have and three
years down the road some of the trends that were at the base of that statement have been
confirmed and accelerated. We were just talking a second ago about where this whole
internet of things developed with microprocessors appearing everywhere in objects in our
homes or offices, or factories for that matter, the amount of bandwidth required is going to
continue to grow very much. If I look back at some of the areas that were covered by Virgin
Media and BT three years ago, the speed has gone up, but the big questions that we were
debating, even in the previous session, of how far you could push the upgrade of the
network and what kind of network the country will need in the long term are now very
much relevant.
Q552 The Chairman: Given that allowing our network to evolve is not a massive
dirigiste approach from the Government, do you think that the direction of travel that we
have gone is one that will enable us to get to a destination where we do have a general
provision that would be fit for purpose in, say, eight or 15 years’ time?
Mr Caio: It is difficult. I would say it is unlikely. I need to emphasise I have not been
following the details of the industry over the last year or so in this country, even though I
have kept in touch with some of the players that are running companies in this country in
this sector. I think that the speed of the rollout for fibre-based backhaul is likely to slow
down now that the two networks have completed the first round of upgrading their
network and therefore, if you were to just leave it to competition at work, it is unlikely that
the speed would continue to be the one we have seen in the last three years. That is the
first point.
The second one is perhaps this is an opportunity that I would welcome to invite you all, if I
may, to reconsider how you define the endpoint and the level of—how can I put it?—the
conviction and the belief you have for what that endpoint is going to be. Marginal
developments are fine, but I think it might be appropriate in this forum to be clear about the
discontinuity we are going through at this stage. I was only able to hear part of the previous
witness statement but I could not avoid echoing what he was saying. We are at a stage
where technology allows us to build networks that have very little to do with the networks
we have been building. One of the strategies and the strategic decisions to be made at
policymaking level is where you draw the line between protection of the incumbency versus
speed of travel to the new world.
More specifically, one point that may be helpful to raise here is that for decades the
development of the network as we know it has been funded under the fundamental
presumption that the company or the institution laying the cable was also the company
providing the service. For many years you have had a biunivocal relationship between
physical network and physical devices and services to be delivered on that device. That has
been true in telecommunications, it has been true in broadcasting, it has been true in radio
broadcasting and it has been true in information technology. You have different networks
wedded to different services. That relationship has been evaporating under the impact of the
internet, and therefore it is now possible and it should be preferable to have just one
physical network carrying all kinds of services as we know them.
In my view, that is one of the critical issues because if you look at BT and Virgin Media—and
I want to be clear and not misunderstood, as I am not saying that the solution is to get rid of
those companies—the logic with which they have developed their networks has been to
build a network, to sell services and to capture market share. That is no longer a necessary
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model, and one of my concerns is that convenience could be described as necessity from a
technology point. Therefore, policymakers and regulators need to be very clear, in my view,
to understand where the endpoint is, to get back to your question, my Lord Chairman. The
endpoint, in my view, ought to be a world where anybody and anything can be connected to
anybody and anything, without limitation of speed, without limitation of latency in response
time and without limitation of symmetry.
Therefore, when you deal with these things it is important to recognise that people with a
vested interest—and I would add a legitimate vested interest—have very differing views and
it is difficult, perhaps naïve, to think that one country can go through transition without
some degree of perhaps heated debate on who is doing what and why. I think it is important
for me to have this framework in mind. We are going to a world where the economic role
for the companies that have been in place so far has been questioned and is being put in
question.
The Chairman: I can understand that point well.
Q553 Lord Gordon of Strathblane: Is there any merit in looking at the model of the
actual infrastructure being provided as a public utility?
Mr Caio: Yes. I think I have the good fortune of not being a politician and not running a
telecom company these days, and that somehow puts some kind of a free perspective. I
think of broadband as electricity. I am not sure that it is the right and the only way in which
you can think about it, but there is no doubt that the separation between physical
infrastructure and the services you run on that puts that kind of infrastructure very similar
to water and electricity.
Q554 Lord Gordon of Strathblane: The alternative of letting the market determine it
will give us increased competition and increased speeds in the 50% of the country that Virgin
and BT overlap but absolutely no progress whatsoever in the other parts of the country, or
very little.
Mr Caio: Back to the discussion you were having before, I think there might be more ways
that you can think in creating conditions whereby other forms of networks and other forms
of investment into those networks can flourish beyond the high-density regions.
Q555 Lord Gordon of Strathblane: There was also a point made earlier on. You
alluded to the BBC iPlayer and how everyone thought that was going to create huge
demand. There is another development that is due in the next few weeks, YouView, and we
understand the BBC are going to be playing 70 channels covering every event in the
Olympics, virtually. One thinks that might create a huge demand and certainly there might be
thought to be a sense of deprivation among some citizens who cannot watch because the
physical capability of doing so is not there.
Mr Caio: There is no doubt. I think that the notion of divide or differentiation across access
to this network is becoming, and will become, an increasingly visible issue.
Q556 Lord Gordon of Strathblane: Are we getting hung up on this idea of superfast?
Should we be concentrating more on universal provision?
Mr Caio: Three years ago I emphasised here, and to a certain extent in Italy, the notion that
again it is a policymaking decision. Do you want to go deeper with quality broadband, or
would you rather have universal access to provision? I think it is a function of the
policymaking objective. For instance, to have e-government applications and to have a real
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push for efficiency, for instance in public administration, I suspect is going to be very difficult
if you cannot guarantee universal access to broadband. At the same time, the
competitiveness of any given city is now increasingly linked to the quality of the broadband
you can get. Maybe while three or four years ago you had choices, I think these choices are
perhaps less today. I suspect you need to do both.
Q557 The Chairman: So you think the distinction between widening or deepening is
irrelevant?
Mr Caio: I think so.
The Chairman: Lady Deech?
Baroness Deech: I rather think Lord Gordon asked my question and that our witness has
answered it. Is not that the import of this one?
The Chairman: I think it possibly is, but I did not wish to deny you your moment of glory.
Q558 Lord Macdonald of Tradeston: Let me just put to you the statement of one of
the witnesses we had. He said what we are looking for with 20 Mbps, “is not superfast. It is
super-slow. The UK risk being frozen out of the next industrial revolution”. Can you make
those kinds of economic judgements yet? I know that there are great claims for what your
superfast broadband might do for GDP, but where is the evidence for that? Is it not possible
that by putting all people on to basic broadband you would get just as much of a kick for
economic growth as you would from superfast for perhaps a smaller elite?
Mr Caio: I have never come across any convincing studies that would articulate the case for
one or the other. It is important to go back to what I was saying before, and it might sound
strange coming from somebody in the business community. I think you need to apply a bit of
vision here because everybody, rightly so, is influenced by, for instance, the advertising
campaigns of the current players where speed or headline speed seems to be the name of
the game. There are other characteristics in networks that are equally important: symmetry
is very important; latency is very important; and, just to go beyond the use of iPlayer and
high bandwidth, you might want to think of distributed applications—robotics, for instance,
is leaving factories and is being distributed; home-working, which we heard about previously;
and elderly home care—which provide a new way of distributing activity that we know
requires quality networks that respond very fast and are symmetrical. Such networks may
also come with bandwidth but bandwidth is not the only game in town; the speed with
which you could seamlessly move activities in a ubiquitous way is the source of competitive
advantage of a country going forward.
On whether 20 Mbps is super-slow, I am not in a position to say that that is true or not
true. I would, however, add that the 20 Mbps that we have been sold is a bit of a theory
because 20 Mbps is perhaps available to people who live near a BT exchange, but it is not
the case for most users.
Q559 Earl of Selborne: Let me just follow up on your point, which I think must be fairly
correct, that you have to define the endpoint or what you are trying to achieve. You made it
quite clear that bandwidth is not by any means the only consideration. Would you believe
that the most successful communities or cities or other areas are going to be those that do
indeed have the most flexible service as well as the fastest service? If so, what is it that we
are trying to achieve for each community?
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Mr Caio: I am absolutely convinced that broadband will be one of the key features of any
community, to the point of driving attractiveness for demographics, property value and the
willingness of companies, and indeed families, to move to one area or not. I think you have
heard before there will be many alternative ways. This is also something that we have put in
the report. There will be a variety of ways to provide bandwidth going forward, but it is very
clear that communities without bandwidth and without broadband will be put at a very
material disadvantage going forward.
Q560 Earl of Selborne: Whether we like it or not, we have two providers of the
infrastructure at the moment—one for cities and one for everywhere else. This is not a
model that seems to suggest to me that rural communities are going to be able to compete,
or at least those rural businesses that need access to a large amount of data and need to be
interconnected around the world. You have suggested there might be alternative models
that do not require us to continue to try to get a share of the market for existing players.
Could you give us a clearer view as to what this alternative model might look like to us?
Mr Caio: There are many. I will mention a couple, again echoing some of the things you
heard before. If you think of the network today, you have the ownership of the network in
the hands of the provider until the very end, until the user. BT or Virgin Media owns it all.
One alternative way of thinking of ownership structure is if the network is what I would
define as the home with a tail, that is the household owns the last bit of fibre. Instead of
having competition among suppliers to serve those homes, the ones you have somehow
captured because services and the networks are together, you might think of a reverse
model where you have the household auctioning the ability to connect with the backhaul and
to the network, and then I, as a household, choose the services I want because I do not
need the network provider to be the service provider.
You can extend that model to the community. You could have a community raising funds
and digging the place to the closest and nearest backhaul and then deciding what they want
to do in terms of services. With the separation of network and services, once you have
optical continuity between point A and point B, the internet will do the rest for you. You
might have read recently that Sky will be available on the internet, which means that all the
efforts from Virgin Media and BT of bundling channels with the network is proving
increasingly sterile because once I get connectivity I kiss them goodbye and go and get the
services where I get them from.
The notion of reversing the model and saying that I am the owner of my own destiny when
it comes to the last mile of connectivity is possible with today’s technology. It has to be
enabled, though, because you want opening of that backhaul, and you want opening of that
optical continuity that is today in the hands of selected suppliers, BT, Virgin Media and
others.
Q561 Earl of Selborne: There is clearly a role for Parliament and a role for regulators.
Could you say what is the change in legislation that you would require in order to open up
this access?
Mr Caio: I wish I had the answer and perhaps was sitting on the other side of the table, but
I think one point that I am very keen in making, if I may, is: do not underestimate the value
of putting a vision out there that you strongly believe in. It might sound rhetorical and
philosophical, but it is important for the society and community to know that there is a
vision that the Government and the institutions care about. I am saying that because, in my
view, there will be the need to create an environment that encourages, for instance, Ofcom
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and other institutions to act boldly now. I think they need to feel the comfort of the support
from institutions like yours because the choices to be made are difficult and very
complicated.
I am afraid I cannot answer your question in terms of the specifics, but I wholeheartedly
believe that the view and the vision from a policymaking institution is very important at this
juncture. It is very important because the vested interests—and, I will repeat, legitimate
vested interests—will try to portray things that are possible and things that are not possible
in a certain way. A high degree of scepticism about what is possible and what is not possible
should be welcome from this House.
Q562 The Chairman: Can I go back to one of the responses you gave to Lord Selborne?
What in fact you are suggesting to us is that the last-mile connection is as much a part of a
house as, for example, the roof?
Mr Caio: Yes.
Q563 Lord Bragg: I asked this question of the previous speaker who gave a very
comprehensive answer, so I will try to ask it in a different way. Do you see a best model
anywhere and do you see this country anywhere near getting to it?
Mr Caio: When I was doing the report I bumped into a very high number of MPs who were
talking at that time about the Korean model. I dared to define it as the Korean syndrome,
because it seems to me that it is very easy to gain the support of your own constituency if
you promise bandwidth and fibre everywhere, as they did in Korea. However, I think the
reality is I suspect that different countries will be better off with different models and I am
afraid I do not have the model I would point to. But pragmatically, if I look at variables such
as the amount of economy or GDP that has moved to the new era, if I look at penetration
of minimum broadband in households, if I look at the creative industry and how fast it has
embraced the new world of IT, London is not a bad place. I am not sure about the rest of
the country, even though some statistics say very clearly that the UK is farther ahead than
many other countries in this type of application.
I would be careful before jumping to the conclusion that the UK has fallen behind and
everybody is in a fantastic place. Things are happening, however. I do not think there is much
room for complacency. The US have started the rollout of fibre with Verizon. There are
other countries that have the benefit of leapfrogging the development stage of the
incumbent because they are just late to the party and it is good for them, and clearly Korea
is one of them. It is difficult to say, “This is it: a pre-packaged model that we can parachute
into this country and it will do wonders”.
Q564 Lord Bragg: In many ways you concur with what Lorne Mitchell said before. Can I
ask you a supplementary? You and the previous speaker mentioned BT in various ways, and
not always in a complimentary way. Do you think that the BT-Virgin models that they are
pushing are now limiting the development of broadband in this country?
Mr Caio: I would say that is one model, and it has to be confronted, debated and
considered in the context of a variety of different models. This is one of the key issues. It is
the usual issue of policymaking and regulator: where do you draw the line between
incumbency and new models? These are big companies where pension funds have invested
and there are all kinds of things that you need to take into account. I would welcome at the
European level—I am not just talking about the UK—a more robust debate between
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regulators and incumbents. I think it is the time to consider more creative solutions and
perhaps more radical solutions than in the past.
Q565 The Chairman: That brings us on very neatly to the next question. The way you
have talked about a house with a tail—you have talked about reversal of the model—brings
us straight back to the question of access again, Mr Caio. It has been suggested to us that the
key ingredient in the establishment of a comprehensive national network would be
wholesale open access to both dark and active fibre. When you are talking about new
models you are talking, in a sense, about overriding the incumbents. Is that the direction of
travel that you want to see policy take?
Mr Caio: I think that is clearly a very important ingredient to make sure that the
environment fosters innovation and creates conditions for new investors, perhaps even
locally, to have a chance of building new networks.
Q566 The Chairman: Maybe this is a naïve question, but why do you think the
incumbents are reluctant to allow that sort of access to their networks?
Mr Caio: If you think of incumbents, or even mobile operators, both in fixed and mobile,
the way they came about, the reason for their birth and their development is they have been
built as organisations whose task was to build networks and connect people—and, perhaps
in the context of mobile, to open shops to sell subscriptions. Two things happened. One is
there is very little network to be built in high density and there are more masts than we can
cope with. The fundamental growth driver of new people on the network has come to a
halt; it is different usage for people having the network. So, that is the first bit. It is kind of a
separation, if you wish, of the first generation infrastructure. The second one, and this is the
one we were talking about, is separation of services and network. They are not in the
business they were in 10 or 15 years ago. I do not need Virgin Media or BT to make a
telephone call. I need that infrastructure to connect to a place and that place is for me to
choose, not for them to direct me to.
If you bring these two things together, a picture emerges where you could run the network
or run, without getting too technical, a national fibre network with, I am afraid, a small to
very small fraction of the people you employ now. I think here lies one of the issues: the
issue of overcapacity and overpopulation of an industry with the mix of skills that is not
relevant to the new world. I am not making it anybody’s fault; I am describing a trend. People
who have been trained to test electrical continuity for a switchboard that in the 1950s was
occupying an entire building are now replaced by software agents who navigate the net to
tell me where my connectivity has gone, in a switchboard that is as big as a shoebox. We all
have an issue here and it is that issue that also creates a tension that is reverberating in the
attention of Ofcom. But I think it should be clear that this is one of the topics.
Q567 Lord Clement-Jones: People may want to come back on that skills point, but can I
make one final point? One of the difficulties if we are talking about the access issue is
regulating, probably, for that access to be given but also allowing enough flexibility so that
there is a business incentive to roll out the trunk network, the fibre network, whatever we
describe it as. Can you see those two things being compatible?
Mr Caio: It is more difficult, and I think you need to be thinking about alternative
technologies to create some ability to create competition in access. From my perspective—
again, I would say something that might sound a bit controversial—if you think of fixed local
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access it is a natural monopoly and I think if you talk in these terms to incumbents they say
that is not true. I am not talking about the UK. I will come to the UK in a second. They say,
“Oh, no, no, there is plenty of competition in DSL and different providers”. It is not true.
Once you have a wire into a home there is barely the economic value to justify one; to
justify two is impossible.
If you do not start going back to the basics of the economics underlying that, it is very
difficult to have an open debate. This country, I say, has been blessed with the presence of
two physical access networks. One is the traditional copper network of the monopolistic
incumbent of voice services. The other is the result, unfortunately, of a series of
bankruptcies associated with franchises for cable TV, but this is now turning out to be a bit
of a blessing because competition at the access level is not something that you find in many
other countries, yet it is in this country and it has driven the upgrade of the network.
In going forward it must be clear that if physical access to the network is thought of as a
natural monopoly then there are a number of consequences. I am not saying that this is the
model—back to your question—but it is one possible model. It is perfectly technically
feasible to think of a monopolistic, partially public and partially privately owned utility—back
to your point—heavily regulated on RPIs and whose purpose in life is to provide optical
connectivity between point 1 and point 2.
I will probably need some bodyguards when I get out of this building and I have repeated for
the record this is not to say that this is the only and therefore immediate model that the
country ought to be going to, but it is important for regulators and policymakers to
understand that what is really needed to unleash the power of the internet and the creativity
around the internet is optical continuity A to B. The technology in the market will do the
rest but the market will not do continuity between A and B because 85% is creating the civil
engineering work for the duct. That is a monopoly.
Q568 Lord Macdonald of Tradeston: In terms of economic regulation, which model
would you use? In a natural monopoly like water you still have that divided into many service
companies, or if you take energy, again you have a lot in the National Grid but you have
another couple of companies in there. Would it be a single UK model or would you break it
up in a regional way?
Mr Caio: It is too difficult for me to answer. Put it this way: technologically, you could think
of it both ways. You could have regions of networks. One of the things I put in here is if the
Government were to decide to support and favour this utility local model with, for instance,
public funds it is very important to define a blueprint so that you can guarantee connectivity
at the civil engineering level, at the optical level and, if you want to push it forward, at the IP
level. I would stick at the optical level.
Q569 Baroness Fookes: In your report to the Government in 2008 you indicated that
you thought the market could deal with the next generation access without major
intervention from Government but that one needed to keep a vigilant eye upon it. I do not
know how vigilant your eye has been since then, but do you have any comments to make? In
particular, could you clarify for me—I confess I did not read the whole report—when you
said “major intervention”, was that to be of a regulatory kind or financial or both?
Mr Caio: First of all, you are absolutely right in asking about my eye being on the industry. I
follow it but not as closely as I did when I did the report, so you may want to excuse me if I
mention something that has happened and it has not, or vice versa.
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My observation on your first part of the question is that, although subsequent to my report
the Digital Britain project was launched, my sense is that the Government might have done
more in terms of keeping the debate going, in terms of checking what was going on in the
country when it comes to network rollout. I am aware that the Government has been very
active in publicising some of the local initiatives—maybe the local authorities more than
central government—but I would not mind knowing as a citizen that on a yearly basis there
is one broadband day where companies who have promised certain rollout in year minus
one come to the fore and articulate what they have done and why and what they have not
done and why.
I must say, if I may, that my perception walking away from the review was that there tends
to be—not just in the UK but in Europe—the notion that if the Government does not have
any funds to spend, then there is not really anything for the Government to do. I think that
is not the approach I would take. There are many things that the Government and public
institutions can do with our money, and I will go back to the notion of vision and control.
On the second point of your question, on the kind of interventions that the Government
might take, they may vary and they may be all of the types that you mentioned. Let me give
you an example, referring to the Italian debate, if I may, for a second. Bear in mind that in
Italy there is no cable television and therefore the country is not benefitting—only one area
in Milan—from the competition between two physical access networks. One of the possible
remedies was what is called network separation, which was at a certain point debated even
marginally in this country, which is to say you find a way of having two real incumbents. You
take Openreach, I think it is called here, and you turn it not just as a division but as a fully
listed company, the monopolistic utility we were talking about. That would have represented
a major intervention because the incumbent articulated a very strong view against that
option and I think the articulation of that view against that option goes back to the cultural
model they come from. They have been trying to develop new services but they know in the
depth of their heart that the source of profit is coming from the access network.
So, you might have a financial intervention. You say, “Okay, for these 15 cities we auction
availability of £500 million to the best private/public projects”. You have a regulatory
intervention, you mandate BT to separate the network and you mandate Virgin Media to
open the ducts. At the point of the report I thought that was not needed because of what I
had been told, and I was observing from an economic standpoint in high density areas. On
balance, history is pointing in that direction, but these are the kind of toolkits that potentially
the Government and the regulator have in their hands.
Q570 Bishop of Norwich: You have mentioned the need for vision quite a bit, so we
might begin our report with a Biblical quote, “Where there is no vision the people perish”.
Mr Caio: I will buy that.
Bishop of Norwich: I just thought I would get that in for the record. But vision needs
application as well, of course. One of the things that intrigues me is in your 2008 report you
said market supply and demand needed to be assessed in terms of progress, but it is where
market supply and demand are related in relation to everything to do with the internet. A
decade ago I did not know I could not live without an iPhone whereas now because it exists
I cannot live without it. It seems to me that market supply in this area creates demand in a
way that does not seem to apply elsewhere. Do you think that is true, or is it just the
strange experience of a bishop who cannot live without gadgets?
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Mr Caio: It is true that innovation is very rapid indeed and at the frontier of the possible
moves forward any single—[Interruption.]
The Chairman: I am sorry. This is democracy—although very rarely is that what we are
described as being—but the Bell will stop. If you could finish the question, we are just about
at the end. It goes on and off but we will have a gap and then we will all sprint.
Mr Caio: The frontier of the possible is moving forward and I think it is very difficult to
decide today what the applications will be and what the markets will be. I can only tell you
that there are things happening. For instance, we have not been talking about manufacturing
today. The requirement for connected manufacturing is about to explode and the issue of
creating jobs in places where you would not have thought jobs for manufacturing could take
place is an example of things that maybe we do not look at today as familiar and will be a
daily activity going forward. I am referring, for instance, to 3D printing where you have
plastics coming out of printing. Even if you think of the amount of data that will be produced
by individuals with personalised medicine, or indeed the application of very simple, very lowcost
robots for elderly care at home, again you do not need enormous bandwidth for these
things, but you need an environment with digital connectivity. The Victorians did not really
know what electricity would do to the world, and it is impossible today to run a business
without electricity. I think we are in absolutely the same camp.
The Chairman: This is a suitable moment to say thank you. I apologise for the
interruptions. You have been very long-suffering about them. We have valued what you have
had to tell us a very great deal.
Mr Caio: Thank you very much indeed.
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Click4Internet – written evidence
Click4Internet – written evidence
1. What is being done to prevent a greater digital divide occurring between
people who can access superfast broadband and people in areas where the
roll-out of superfast broadband may not be commercially attractive? How
does the UK communications market vary regionally and what is the best
way to connect the areas that the market alone cannot reach? Is a universal
service obligation necessary to avoid widening the digital divide?
Until recently very little, if anything, was being done officially to address the digital divide
issue. Innovative local providers and groups have successfully deployed and operated
niche networks for several years and it is as a result of their efforts that many rural
communities already enjoy speeds in excess of those available from any central network
provider. The only way that the digital divide can be effectively addressed is to create a
program of targeted local and regional funding initiatives that embrace these solutions
rather than disregarding them.
Our own experience lies mainly within the Isle of Wight, Hampshire and Dorset. We
are a WISP with over 500 square miles of network coverage – an area containing over 1
million people. The geography of the area has meant that the terrestrial infrastructure
has received little improvement for commercial reasons, these being primarily the high
cost to reward ratio associated with rural infrastructure development. We have achieved
cost effective Superfast and above delivery to a diverse range of homes and businesses
who had no prospect of improved ‘phone line’ services. We use wireless technology to
achieve this and we have achieved 99% customer retention over three years.
We believe the implementation of a universal service obligation for Superfast internet
delivery that included specially hard to reach areas could be an effective way of
channelling commercial resources towards innovative local solutions provided the
structure of the USO accommodates this, and specifically provides for local solution
inclusion.
We have been continually frustrated in our efforts to attract any material assistance from
local authority or any other funding source. We are aware that the same story goes for
numerous other regional WISPs around the UK. We find it hard to believe that it is
legitimate for Government policy to require reference to inaccurate incomplete and
often distracting data where current broadband services are concerned. We have made
many attempts to alert the relevant organisations that we already offer above Superfast
connectivity across a wide area including around 70% of our county. Our information is
continually excluded. Our coverage is ignored and the LBP is openly drawn up without
reference to the coverage we provide. We have seen this result in government funding
being used to deploy far less than Superfast broadband systems in direct competition to
our own more than Superfast connectivity. We are horrified that in today’s world of
rapidly changing criteria the data sources that are prescribed are not only inaccurate but
old and stale. Although this is openly admitted nothing is apparently being done to
ensure that the deployment of a massive £530M of public money is done based on
accurate and up to date information. No commercial organisation would even consider
spending a sum like this if it was well aware that it its primary data was inaccurate and
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Click4Internet – written evidence
outdated. We fail to see how it can be legitimate for public money to be deployed in
these circumstances
The current structure and spirit of the entire process in many cases excludes the
valuable resources of local knowledge, technological innovation and entrepreneurial
activity and instead favours practically a single corporate provider. The specific exclusion
of all companies who are not major national providers from the existing framework is a
tragedy and will inevitability result in a loss of diversity and competition and will reduce
the extent to which Superfast services reach out into the rural communities who so
badly need improvement.
2. The Government have committed £530 million to help stimulate private
investment – is this enough and is it being effectively applied to develop
maximum social and economic benefit?
Whether the £530 million allocated is enough entirely depends on the nature of the
solutions. The current approach of excluding competitive smaller companies is unlikely
to solve the problem with this budget, we believe that if applied effectively far more
could be achieved with this money.
3. Will the Government’s targets be met and are they ambitious enough? What
speed of broadband do we need and what drives demand for superfast
broadband?
The current targets for the government require Superfast broadband at up to 24Mb/s.
The fundamental problem is the requirement only appears to stipulate up to 24Mb/s with
over 2Mb/s being accepted as achieving this goal. This is clearly not ambitious enough.
We are finding that our 10Mb/s download speed product is very popular and that the
numbers of people choosing 20Mb/s or more tariffs is increasing. We estimate that
commercially speaking, in terms of capacity of backhaul/supply, our network needs to be
capable of delivering at least 30Mb/s to all users who demand it by 2015. We would
therefore suggest that 2Mb/s is certainly not a useful or effective target as within three
years will be insufficient and all monies invested would have been wasted.
4. In fact, are there other targets the Government should set; are there other
indicators which should be used to monitor the health of the digital
economy? What communications infrastructure does the UK ultimately need
to remain competitive and meet consumer demand over the next 20 years?
The key to keeping pace with the rapidly changing demands over the next 20 years is
innovation of solution. This requires a blend of technologies to be developed and
deployed to ensure flexibility and sustainability. An investment exclusively in phone line
technologies that have proved traditionally they are an expensive an ineffective solution
to many, especially rural areas, is not a effective way forward and will simply move the
problem along by a few years at best.
5. How will individuals and companies use cloud services for distributed storage
and computation? What network properties are required to enable efficient
provision and use of such services?
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We see an increasing demand for cloud services from users in all sectors. Many of our
business users already use cloud computing. It seems as if the more rural and ‘cut off’ a
user is, the keener they are to adopt cloud computing. Upload speed is a key factor
required for effective cloud computing. There is a danger that various forms of DSL
technology will be used in the emerging Council’s LBP’s and general BDUK policy for
final mile delivery. Even over short distances upload speed capabilities of all forms of DSL
struggle to offer an acceptable cloud experience at the moment with no prospect of any
significant improvement being possible from this technology. The primary users to suffer
are those more than around 3KM from their source. There are other options that are
far more effective than DSL or terrestrial technologies at serving niche needs and
demands in commercially unattractive areas. What is needed is a policy that ensures
innovation and the inclusion of the variety of technologies and solutions that the UK has
developed so effectively and not a reliance on a cumbersome and inflexible ‘copper’
network. Where fibre optics can be deployed cost effectively wireless technology must
be used and embraced.
6. To what extent will the advent of superfast broadband affect the ways in
which people view, listen to and use media content? Will the broadband
networks have the capacity to meet demand for new media services such as
interactive TV, HD TV and 3D content? How will superfast broadband
change e-commerce and the provision of Government services?
The average requirement (draw) for each connection is increasing sharply month on
month already. Many families already choose to watch their media content on internet
TV’s, Laptops and hand held devices. In addition multiple devices within a single
household all demanding their own individual streaming content is becoming common
place. This completely changes the viewing experience form a content fed model to a
content demanded model.
Networks have to make provision for massive increased capacity and in the case of niche
rural solutions this may mean improvements to county and national backhaul supplies to
ensure that they can feed the networks as demand increase.
7. Will the UK's infrastructure provide effective, affordable access to the
'internet of things', and what new opportunities could this enable?
8. How might superfast broadband change the relationship between providers
and consumers in other sectors such as content? What aspects of this
relationship are key to enabling future innovations that will benefit society?
9. What role could or should the different methods of delivery play in ensuring
the superfast broadband network is fit for purpose and is as widely available
as possible? How does the expected demand for superfast broadband
influence investment to enhance the capacity of the broadband network?
The role for terrestrial fibre technologies lies in urban areas and anywhere close to a
major national or regional backbone. The role for wireless technologies lies in extending
the reach of terrestrial systems into expensive to reach or commercially unattractive
areas. The meteoric increase in demand over the past five years coupled with the fact
that today’s demand already exceeds supply and availability in many areas, will hopefully
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ensure that investments in continued speed improvement are considered an attractive
proposition by government and industry alike.
10. Does the UK, for example, have a properly competitive market in wholesale
fibre connectivity? What benefits could such a market provide, and what
actions could the government take to ensure such a market?
11. What impact will enhanced broadband provision have on the media and
creative industries in the UK, not least in light of the increased danger of
online piracy? What is the role of the Government in assuring internet
security, and how should intellectual property (IP) best be protected, taking
into account the benefits of openness and security?
13 March 2012
130

The Coalition for a Digital Economy (Coadec) – written evidence
The Coalition for a Digital Economy (Coadec) – written evidence
The Coalition for a Digital Economy (Coadec) is a non-profit organisation that works to
support legislation and other government policies that foster a vibrant, innovative and
sustainable digital economy for Britain. We are made up of a wide range of members of the
UK innovation community, including entrepreneurs, leaders of tech-driven startups and
SMEs, inventors and developers, and many others who believe that the future of Britain lies
in the success of its digital economy.
In responding to the call for evidence of the committee we do this as representatives of
some of the tech-driven startups, entrepreneurs and SMEs developing services dependent
upon broadband, and so in the interest of brevity we have responded on the issues most
pertinent to the individuals and businesses we work with.
Growth
The potential of the UK’s digital economy is huge. In 2009 the Internet was already worth
7.3% of GDP and it is predicted to grow to 10% within 3 years 20 . Both businesses and
consumers have been able to benefit from access to services and content delivery methods
provided on the Internet, and most importantly the Internet has benefited society by
providing greater access to information and communication.
The numbers of devices within a home that utilise the Internet are increasing. While just as
there used to be only one phone line in a house there are now multiple computers, laptops,
smart phones, tablets and many other devices connected to the Internet. Tablets are now
becoming so common that they been added to the office of national statistic’s inflation
index 21 . As highlighted in the call for evidence, there is a growing development in the ‘ of
things’, or machine to machine communications. This is an emerging technology but is
becoming increasingly common with WiFi technology being incorporated into printers,
cameras, and fridges. In research conducted by Cisco they predicted that the bandwidth
occupied by mobile communication between objects, machines or sensors will increase 22fold
between 2011 and 2016 22 .
As well as the number of devices there are many new innovative technologies that are
driving the demand for faster Internet connections. A core demand on bandwidth is content
streaming services. These are the services that deliver content like films, TV programmes,
games and music on demand through the Internet either on a PC, through a Smartphone, on
a games console or a number of other ways. These services often need a large amount of
bandwidth to deliver these, particularly when they are high definition. The BBC iPlayer was
introduced in 2007 and since then a number of video streaming services have developed
including Netflix, Blinkbox, Lovefilm, HMVon-Demand, YouTube, and YouView and BSkyB
are due to launch later this year. In music a number of services provide distribution services
for downloading music including Spotify, Last.fm, Mixcloud, We7 and others. Increasingly
20 Boston Consulting Group, 2010 http://www.bcg.com/documents/file62983.pdf
21 iPad and Galaxy added to inflation index, Financial Times, Tuesday 13 th March 2012,
http://www.ft.com/cms/s/0/04f825d4-6cfa-11e1-a7c7-00144feab49a.html#axzz1p0JA58cu
22 Cisco predicts machine-to-machine traffic will increase 22-fold, ComputerWeekly, Thursday 16 th February 2012,
http://www.computerweekly.com/news/2240117424/Cisco-predicts-machine-to-machine-traffic-will-increase-22fold
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The Coalition for a Digital Economy (Coadec) – written evidence
games are also being delivered solely in download format, with individuals who are able to
use the same consoles that are able to stream films and music, also able to purchase and
download a new game to their console without having to leave the home. All of these
demand high speeds to be able to access these services in a useable way.
A further pressure on current bandwidth levels is the growth of ‘cloud storage’. Cloud
storage allows individuals to store all their files remotely and access them not only on
multiple PCs but also on multiple devices. This technology is vital in an environment where
people are increasingly working on the move or from home. This is particularly pertinent
this year during the Olympics. Under “Operation Stepchange” which took place in February
this year, civil servants practiced working from home in preparation for the Olympics
utilising remote computer networks. As businesses increasingly provide flexible working
arrangements the speeds available to home Internet connections will need to compete with
those available in large inner city office buildings.
There are many emerging technologies that intersect across different aspects of commerce
and communication that rely upon the ability to obtain adequate bandwidth, and we have
run through some here, but the application of Internet technology is limited almost purely by
imagination and new innovations are frequently demonstrating this. However we do know
that the current speeds users are receiving are not sufficient for today’s needs. BBC’s iPlayer
requires 3.2Mbit/s of data to stream content, however rural areas are receiving average
speeds of just 3.6Mbit/s which leaves very little room for any additional devices utilising an
Internet connection, which is increasingly common and will grow with the development of
‘machine to machine’ communications.
It is important to remember that while there are larger platforms we have mentioned here,
there are thousands of other startups and entrepreneurs working on innovative
new ways to enter the market. To this end another measure the committee may wish
to consider in this discussion is preserving the principle of net neutrality. The European
Parliament recently passed a resolution which described net neutrality as “a significant
prerequisite for enabling an innovative Internet ecosystem and for securing a level playing
field at the service of European citizens and entrepreneurs” 23 . Startups and SMEs rely upon
an open Internet, in which businesses large and small are able to provide their content to
consumer on a relatively equal footing. This is crucial to innovation by digital businesses and
consistent with the role of the Internet as a marketplace and a communications system.
Some types of traffic shaping are unavoidable, but we oppose commercial discrimination in
traffic management by ISPs, whereby businesses pays ISPs to prioritise their traffic. In
increasing the speeds available to users we continue to preserve the principle of net
neutrality.
Copyright
Our core motivation in responding to this call for evidence was to highlight how improving
the provision of superfast broadband could contribute significantly to growth in the
economy due to the number of currently available services that utilise bandwidth, and the
potential for new ones to develop. Therefore, considering the nature of the inquiry, we
were extremely surprised to find the following question included in the call for evidence;
23 http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P7-TA-2011-
0511+0+DOC+XML+V0//EN
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The Coalition for a Digital Economy (Coadec) – written evidence
What impact will enhanced broadband provision have on the media and creative industries in
the UK, not least in light of the increased danger of online piracy? What is the role of the
Government in assuring Internet security, and how should intellectual property (IP) best be
protected, taking into account the benefits of openness and security?
As the focus of this inquiry is on investment in superfast broadband, we will not run through
the discussions on copyright that are taking place elsewhere so as not to dilute the debate.
However we wanted to highlight briefly that contrary to the suggestion of the question, the
Internet and increasing access to superfast broadband presents no net threat to copyright,
and will facilitate its legitimate access through licensed services that will help to combat
piracy. Time and time again studies show that when legitimate access is made readily
available consumers will turn away from pirated material. Being able to easily access and
legally stream high quality content for a fair market price is far preferable to any user. Piracy
is only made appealing to consumers when it is more convenient than legally accessing
material.
This is not just anecdotal evidence and there are direct comparisons to when legitimate,
easy to access, services have persevered to obtain licensing agreements and deliver
consumers legal access to copyrighted content at competitive prices, they actively reduce
copyright infringement.
Within a year of Spotify’s launch Sweden saw a 25% drop in music piracy 24 . The
pie charts below indicate peak bandwidth consumption in the US and the EU. As the chart
indicates in the US the percentage of bandwidth that Netflix (a legal film and
television online streaming service) takes up the same bandwidth as the peer-topeer
sharing systems do in the EU (despite there being no block or legislation against
peer-to-peer sharing in the US) 25 .
US Peak Bandwidth Consumption EU Peak Bandwidth Consumption
We understand that there have been some strong discussions between those operating in
the Internet economy, and those who are holders of copyright but we feel that this is a
discussion that falls outside the realms of Government investment in broadband
infrastructure. To include it in this call for evidence implies that because some users abuse
24 Musiksverige Svenskarnas Internet Van Or Q2 20111, Available online
http://www.scribd.com/doc/66658516/Musiksverige-Svenskarnas-Internet-Van-Or-Q2-20111
25 Envisional, Technical Report: An estimate of Infringing Use of the Internet
http://documents.envisional.com/docs/Envisional-Internet_Usage-Jan2011.pdf
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The Coalition for a Digital Economy (Coadec) – written evidence
the privilege of Internet access the Government should reconsider investing in superfast
broadband, despite the benefits to businesses, consumers and the public as a whole.
Long-term
While we can speculate on the growth of current services it really is impossible to
accurately predict future demand on bandwidth, as it will not be dependent just on an
increased access from a number of users, but also on differentiated usage as new innovative
platforms are developed. Just 5 years ago we could not have predicted the popularity of
streaming services, but since iPlayer, now multiple players are quickly entering the market
putting more strain on the current bandwidth provision.
The current plans will ensure that the majority of the UK will be able to stream multiple
high quality videos. In the short term (which is very short in the Internet economy)
significant increases in demand are likely to be driven by bandwidth intense content delivery
systems such as high definition videos. Virgin Media are currently developing their TiVo
system which utilises an Internet connection. As they are also Internet Service Providers, it
is in their interest to increase the provision for this service. It would be logical that once a
basic level of provision is provided using government investment, this will encourage
providers expanding their services to also invest in improvements to existing infrastructure.
Indeed on the day of submission, BT and TalkTalk announced their intentions to launch
80MBit/s services 26 .
We are very supportive of the Government’s commitment to improving broadband speeds
across the nation, as this recognises the importance of the Internet not only as a facilitator
of communication and the dissemination of knowledge, but also as a facilitator of growth and
business development in many different sectors.
13 March 2012
26 TalkTalk launches 80Mbps service as BT plans the same, ZDNet, 13 th March 2012
http://www.zdnet.co.uk/news/networking/2012/03/13/talktalk-launches-80mbps-service-as-bt-plans-the-same-
40095248/
134

Dr Peter Cochrane OBE – oral evidence (QQ 29-74)
Dr Peter Cochrane OBE – oral evidence (QQ 29-74)
Evidence Session No. 2. Heard in Public. Questions 29 - 74
TUESDAY 20 MARCH 2012
Members present
Lord Inglewood (Chairman)
Lord Clement-Jones
Baroness Fookes
Lord Gordon of Strathblane
Bishop of Norwich
Lord Razzall
Lord St John of Bletso
Earl of Selborne
Lord Skelmersdale
________________
Examination of Witness
Dr Peter Cochrane OBE, former Chief Technological Officer, BT
Q29 The Chairman: I welcome Peter Cochrane here. Thank you very much, and
apologies for having kept you kicking your heels outside. We had a vote, and that got in the
way of the timetable of the previous bit, so thank you very much.
We have in front of us a brief CV of your background, which you have helped us by
providing, so thank you. The meeting will be broadcast, so I hope that that will not pose any
problems for you. When you start, will you briefly, for the benefit of all those listening, tell
us who you are? Then, if you would like to make a brief opening statement, please feel free
to do so. With your permission, I would like us to go on for about an hour.
Dr Cochrane: It is a pleasure to be here. I am rather pleased that you have invited me. I
have been working in this area for a long, long time. My name is Peter Cochrane. I have two
doctorates in technology and am also a visiting professor in the UK. I have spent all my life,
from a being a young man, in telecommunications: and IT. To give you a perspective, I was at
one point a line man, as a young man, so I used to climb and dig holes. I went into research
and development and became head of research at BT, and ultimately CTO of the company.
In 1979, my PhD was instrumental in BT making the decision to go fibre everywhere. In
1986 I got fibre into the home cheaper than copper at 2 Mbps. I left BT in 2000 and my
company now is a consultancy. I travel the world continuously, so the evidence that I am
going to give this afternoon is not based on the UK or Europe, but is a global perspective.
To give you a rather interesting view, we completed a project recently in which the island of
Jersey has installed fibre to every office and home at 1 Gbps; that is, 1,000 Mbps both ways.
It is cheaper than copper, and it is there to enable a new economy. They have a
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Dr Peter Cochrane OBE – oral evidence (QQ 29-74)
monoculture of banking, and they need to change the economy of the island. That has got to
be founded on the ability to communicate globally. They have already completed all of the
offices, and every company has access to 1,000 Mbps, and they are now rolling out the
homes.
I would like to position my afternoon with you along the following lines. Starting from the
point of an ambition to give people 2 Mbps is like giving our population a Morse key. You
might as well not bother. In Columbia recently, I was getting 100 Mbps both ways from my
hotel. In America, I regularly get between 50 Mbps and 100 Mbps. If I go to Korea, China or
Japan, I get above that level. For me, the starting point for this nation is 100 Mbps. Providing
20 to 50 Mbps will not give us the entry on which rests the next phase of industry,
commerce and the generation of GDP.
From a professional point of view I am quite relaxed. I have no axe to grind, and I have no
vested interest. But as a citizen of this country, I really am quite worried as I watch the
positioning of this nation on the back foot. To give you some perspective, on fibre to the
home this nation is number 36 in the world league. When it comes to broadband in the EU,
we are number 25. If we look at the UK on a global grid, we are number 33 in terms of
broadband provision. That does not bode well for our population and our ability to compete
in world markets, it really does not.
When people use the word “superfast” about broadband in the UK, I have to smile. It is
neither super, nor is it fast. One aspect of this is that it is asymmetric. The world is not an
asymmetric place. If we are going to communicate, it tends to be rather symmetrical. If we
are going to stop driving vehicles, travelling an awful lot and flying in aeroplanes, then videoconferencing
is an obvious technology—which we cannot access because we do not have a
symmetrical service. That is just one aspect. There are many others. I would like to see us
with a programme that brings us up to a world standard in a reasonable time. I have some
formulas and suggestions for doing just that. It means changing the way that we think about
the problem and stepping outside of the shoes of a 200-year history that spans telegraphy
and telephony. We need to think differently.
Q30 The Chairman: Thank you. From what you have just told us, you have no
equivocation in saying that internet access at a high speed is a sine qua non of success in the
modern world. As such, you would argue that it was a strategic utility and an overriding
economic requirement for the future well-being of this country. Is that correct?
Dr Cochrane: Correct, probably even more so than road and rail.
Q31 Lord Clement-Jones: Do you think that there is some complacency about adopting
that view within government?
Dr Cochrane: I think that there is a lack of understanding. There is a perception afoot that
has come out of industry and is in the interest of certain industries but not in the interests
of the population at large. In my time in industry, I have seen phenomenal change in
everything from honesty to ethics to positioning. I came into industry and it was clear cut.
We were the servants of this society. Our job was to put into place products and services
that actually satisfied the need of the developing nation. There seems to have been a swing
of the pendulum away from that to, “I am here to benefit the company; I am here for the
benefit of the shareholders”. That loss of perspective, of a duty to society, is really quite
damaging.
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Q32 Earl of Selborne: You are very clear that superfast broadband is a strategic
necessity. You said that Jersey was going to have 1 Gbps into business. That seems to me to
make sense, but what are you expecting the benefits of that amount to be to a household
unless they are running a business from it? What happens in societies where they already
have large access to superfast broadband, in countries like Korea? Is it not the case that that
is used for downloading films, very often illegally? What other benefit is there for the
household?
Dr Cochrane: Let me approach that from this direction. Very often the view is put in this
country that if everybody cannot have something then no one can have it. If, for example,
the company that produces my mobile phone had started with the question, “How do we
make this so affordable that everybody in the country can have it?”, they would have failed.
All commercial products start at the top end of society. They start at a high price and low
volume. The amortisation of R&D takes place at the cost of the people with money, the
early adopters, and gradually the price comes down. We now have a situation, because of
that effect, where there is no excuse for someone not being online. The cost of a mobile
phone and a laptop is so low that, believe me, everyone can afford one. They may have to
buy a second-hand one, but even the new devices are quite low in cost.
So what are people going to do in the home with this broadband? In the United States, for
example, they are rapidly adopting IBM Watson technology in medicine. Let me break that
down. IBM Watson started off as a challenge. Deep Blue took on the human race and won:
it became the chess champion. Watson took on all human players in a game show called
“Jeopardy”. It wiped out the human race. It is now wiping out human MDs—doctors—on
diagnoses by a good measure. The reason is that it is able to analyse and put in perspective
all the case histories that are available to it, whereas most MDs and most specialists in any
topic, including my own, are really struggling to read the literature and keep up with the
leading-edge technology. So when I go to see my specialist, I go to see him with the latest
research papers because I have a vested interest in staying alive. He does not have the time
to keep me alive. I have to look after myself. Let us run a scenario where you are ill. The
doctor comes to visit you. Unfortunately, you do not have broadband so he cannot access
the database. You are depleted of the very finest care, because the artificial intelligence is
not there to help you.
If you move on from entertainment and ask what is going to happen in education for our
children, the model of education that we have right now is vested in an old industrial
revolution which was about getting a population of people to read and write and know a
little bit about geography pertinent to producing goods that we would ship worldwide.
Nothing has changed, but education has to change. We are moving from a world of
stovepipes, where we have physics, chemistry, biology, technology and engineering and
history, to one where there is science. The interdisciplinary nature of industry means that
we have to change the way that we educate our people. We are not going to do this in the
future in the way that we have done with the sage on the stage and a whiteboard. We are
going to have to do it much more on an individual basis. To do that, children will need
access at speed to a machine that will help them learn and understand.
On top of that, you have to recognise that understanding a lot of complex things is now also
beyond the world of the mathematics that you and I enjoyed. It is inter-computer simulation.
If you cannot get through on a broadband link to the computing power to allow you to do
that simulation, then education is going to suffer. On the media side, you have to think in
terms of television and radio being moribund. The notion that you will sit down with an
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actual timetable and watch and listen to programmes at the behest of the broadcasters is
nonsense. People are now time-shifting all of this content to when they can.
However, there is an absolute desire to participate. I see the world moving from passive
consumption to active participation. After World War Two, I was born in 1946. At 11 years
old I got into electronics and drove my parents mad by doing electronics on the kitchen
table. We now have a new genre, and they are doing bioengineering on the kitchen table.
These are young people who are opting out of our universities because they are so dull.
They are not getting the leadership and it is not adventurous enough. You can buy known
genetic strings of material for $5. They are doing experiments at that level, and the only
thing that worries me about this is what they are flushing down the sink.
It turns out that things of that nature, including 3D printers, are giving rise to new industrial
models. These are not the mighty workshops that we are used to today; they are dispersed.
I know that it is a far stretch right now, but you have to think in terms of shipping designs
and solutions instead of shipping product. That is the world that we are gearing up to. I do
not want to engineer for today. I want to engineer for tomorrow with my sight on the
future. There is a huge cost in getting this wrong. If we go fibre halfway, we will have to
upgrade at some point. If we put 20 Mbps in, we will be re-engineering it within a couple of
years.
Q33 Lord Gordon of Strathblane: I suspect that I know the answer from your previous
sentence, but what sort of infrastructure would you put in place to deliver this?
Dr Cochrane: I have no religious conviction here. I worked on optical fibre. I was
responsible for the team that put the first fibre across the Atlantic. It was a terrific
technology, but the reality is that you cannot always get fibre in. The mainstay of the future
network has to be fibre. There will no doubt be some places where we will have to use a
wireless drop to reach people. Let me give you a slightly bleak view. People are getting very
excited about 4G. How would you feel about at least four or five times more towers around
the countryside to service the nation with that technology? It makes no sense. On Jersey,
when we put fibre into the home, the box that we put there has 3G in it and will be
upgraded to 4G. Now we have automatic infill of the network. When we get a room like
this, when we all suddenly want bandwidth, it can be serviced from a box in the corner, as
opposed to a mast a 1-10 km away. The only way that we can engineer a network that
allows for the clustering of people and things is to put bandwidth out there on the end of
fibre.
Q34 Lord Gordon of Strathblane: But is it fibre to the cabinet or fibre to the home?
Dr Cochrane: Fibre to the cabinet is one of the biggest mistakes humanity has made. It ties
a knot in the cable in terms of bandwidth and imposes huge unreliability risks. Once the local
bandits have recognised that there is a car battery in the bottom, you can bet your bottom
dollar that a crowbar will be out and the battery will keep disappearing. It is a shame, but I
understand why people have made that decision. They have made it worldwide, by the way.
Q35 Lord Gordon of Strathblane: I imagine that cost plays a large part. My
understanding is that it is abut a quarter or fifth of the cost of fibre to the home.
Dr Cochrane: Let me give you an alternative view. I live out in the country. We have 420
households and I am trying to get fibre into the village. All I am asking a company to do is
put a fibre into the middle of the village and walk away. I know that it is going to work
because on the island of Jersey we have taken housing developments where there is an
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underground or on-surface garage with six or 12 apartments above. We put a box with a
fibre in it into the basement. We open up the wi-fi and 3G. We leave all the Cat 5 sockets—
the RJ45s—open, go away, come back a month later and the apartment block is wired up.
What a miracle. Think about it. You buy a washing machine, a television, a hi-fi or a
computer and you install it yourself. What is the magic about this fibre to the home?
Answer: none. You can put copper cable, Cat 5—LAN cable, if you will—in yourself. If you
cannot—
Q36 Lord Gordon of Strathblane: Forgive me, are you allowed to?
Dr Cochrane: I always take the view, in everything, that I will beg forgiveness later. In my
previous home, when I worked for BT, I asked them to put fibre to my home and they
would not. I arranged for a drum of cable to be dropped off one night, and my sons and I
pulled the cable in ourselves using my car instead of a winch. Some friends spliced it in and I
had eight fibres into my home. That is an alternate model.
Just a month ago, I was in Munich giving the opening address to the fibre-to-the-home
conference. I stood and watched in amazement a gentleman from 3M jointing single-mode
optical fibre with snap connectors in less than two minutes. The last time that I did that in
the laboratory it was taking half an hour; it was a precision job. I looked at that and thought,
“I think that I could find geeks in just about every housing development and village in the
land who would take about an hour to train in doing that, and then they would do it”. In my
community, I have a farmer with a plough and a JCB, and he is happy to cut me a trench.
When I go to BT, they say, “We need £140,000 to put the fibre in”, and you can bet your
bottom dollar that that is £130,000 for the trench. But they will not accept my trench. I am
looking for a company with the imagination to say, “Dig me a hole, I’ll put it in, you cover it
up and we’ll take it from there”.
Q37 Lord Gordon of Strathblane: Just so that I am absolutely clear, you would go for
fibre to the home?
Dr Cochrane: Yes, wherever possible, without a shadow of a doubt.
Q38 Lord Gordon of Strathblane: At the moment we have a lot of copper, in which BT
possibly wishes to recoup its investment. Is there any future for copper in even the medium
term?
Dr Cochrane: Let me give you an interesting statistic. Even when I was in the company, 85%
of all homes were within one kilometre of a BT fibre that was dark; it was not being used.
From my home to the nearest fibre is 500 metres to the east and 500 metres to the west. I
can get access to neither. The easterly fibre belongs to the railway, and the westerly fibre
belongs to BT. The whole village is surrounded by fibre, but we are not allowed to drink.
Q39 The Chairman: Is your point that across the UK there is a considerable amount of
fibre that is either dark or used in private networks that could, and you would perhaps argue
should, be deployed more generally with other people tapping into it?
Dr Cochrane: Correct. I have a line I have tried on Ofcom from time to time, which goes
like this. If they are powerful enough to regulate the air we breathe—by which I mean the
radio spectrum—surely they are powerful enough to regulate the wavelengths on the optical
fibre. A single fibre can carry all the conversations of humanity at the same time twice over.
It is an immense amount of bandwidth. Their ability to carry data is a lot less, of course, but
there is quite a lot of space on the fibres that are in the ground now that could be accessed.
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As we go along, liberating and unbundling the duct network, there is a case for unbundling
optical fibre and the wavelengths.
Q40 Earl of Selborne: It is clear that you wish to see every household connected to
optical fibre, and that the cost at the moment, if you get a quote from the operators to
install it, as I would—like you, I live in a remote, rural community—is fairly staggering. What
is the cost of the cable itself, if I were to buy it?
Dr Cochrane: The cable is trivial. The fibre costs pence, the plastic that goes around it costs
pence. It is a very low cost. The fantastic costings that you get are entirely due to civil
engineering. It is always the civil engineering that gets you.
Q41 Earl of Selborne: I have got a JCB, so that is not a problem. What problem am I
going to have getting somebody to accept that work? They are not, are they?
Dr Cochrane: In BT’s case, it is not in their business model to do that. Before they can do
it, they have to modify their business model. However, I was with a company this morning
which is coming to have a look. Right now, for my village I have two contenders who want
to come into the village with wireless from the church tower, and one contender who wants
to bring in optical fibre. My solution for my particular village is that there are quite a lot of
houses side by side. That makes it relatively easy to dig a trench right across the gardens if
people want to join. The get-out is to have small antennas on the church tower to beam into
people’s homes. I can get about 100 Mbps to people’s homes within reasonable range doing
that.
Q42 Earl of Selborne: What should the Government do to break what appears to be
something of a cartel which allows these massive costs to be foisted on the consumer?
Dr Cochrane: My recommendation would be to put some money into an investment called
“The New Players”. The £560 million that is being talked about, I have to tell you, is petty
cash in this game. For getting the country up to fibre to the home for everyone, we are
probably talking something in the range of £10 billion to £15 billion. If we want to leverage
for the nation the best we can out of that £560 million, I would invest it in the small players
so that there is a third force. In all successful commercial markets there is a rule of three,
possibly four. Right now we have a rule of two. We do not have enough competition, and
we need more competition in the market. If we were to bring in new players with new
business models, with the flexibility to come to you and me and say, “You dig the trench and
we will provide the terminal equipment and the fibre”, that would transform it. It would also
change the attitude and the approach of the incumbents. That is what it is going to take.
Why would you change if you control the market?
Q43 Lord Clement-Jones: I do not think that I am digressing, but are these new players,
particularly one of the two that you were talking about—you dig the trench, they lay the
fibre—not still going to have the issue of connecting to the BT fibre? How do you regulate
that? Are you saying that that is what Ofcom should be specifying and so on?
Dr Cochrane: In a lot of cases, that is the problem. The charges are entirely commercial; by
which I mean “for business”. There is no breaking up of the charges for domestic use, or
even SME use. It becomes prohibitive. But there are cases where a number of companies
have actually got their own fibre. It will need the will of government and probably a change
in regulation and operating licences to make sure that that national investment in fibre,
which has been amortised this past 20 years, should be accessible to other players. We need
a little bit more of a level playing field. The worst thing that I see is start-up companies that
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get into this space to service people like you and me, which are then observed making a
success and purposefully wiped out by the incumbents. I do not think that that is a healthy
marketplace. It is unbalanced. We need three strong players and, probably, one or two
boutique players. That is the sort of market mix you usually get.
Q44 The Chairman: You make a point there about small companies growing and then
being wiped out. Do you have any evidence on that for us? It is difficult, and I am not
pressing on it.
Dr Cochrane: Yes. If you look at Cambridge, for example, there have been several start-up
companies, like Cambridge Wireless, which set up purposefully to serve the villages in
Cambridgeshire. The inhabitants went to the incumbents and said, “We would like
broadband” and were told that it was not cost-effective. Cambridge Wireless went out
there to put in wireless broadband. As soon as they went out to the households, there was
an announcement by the incumbent: “We are coming”. Once that happens, people say, “Oh,
we will wait for the incumbent, then”. Then the market is taken away. You do not need too
much of that to destroy a small start-up.
The Chairman: When did this happen?
Dr Cochrane: This has happened within the past five years. It is repeated behaviour.
Q45 Lord St John of Bletso: You mentioned in your opening remarks the UK falling
woefully short of the world standard for superfast broadband. Could you define that world
standard? What criteria would we need to satisfy in order to have the best superfast
broadband in Europe? I think that we are 25th in Europe.
Dr Cochrane: Yes. What are the leaders doing? There is Sweden in greater Europe, and in
the Far East you have Korea, Japan and China. They have a minimum level of 100 Mbps. That
is where they start. They are rolling out 1 Gbps, but they are planning for the next phase of
10 Gbps. To return to an earlier point, if you have got fibre to the cabinet and you are
relying on copper, I can tell you that the network is going to collapse on copper when you
get to 1 Gbps. It will collapse much earlier. You may do 200 to 300 Mbps over a very short
distance, but you are not going to do anything with a reasonable reach over 1 Gbps, and you
are certainly not going anywhere at 10 Gbps. So you have immediately got this knot in the
bandwidth. The only question is how fast all this occurred. That is almost entirely down to
the rate of industrialisation and growth.
A lot of people see Japan as something of an economic basket case in south-east Asia. I do
not. It has been a roaring success. They have done rather well at fending off the Chinese and
have held on to the high-tech ground. Compared to the Western economies they have done
quite well. They are investing in the next round of supercomputers and robotics, and the
next round of industries that will be based on nanotechnology and biotechnology. I
sometimes have this dream: if I could go back to being 20 years old, where would I go?
What would I target as an industry? It would be at the cusp of nano, bio, ICT and artificial
intelligence. That is where the action is for the coming 50 years. That is very much a
bandwidth-hungry sector. If we do not invest in those areas, we are going to lose out
significantly.
Q46 The Chairman: In the case of these south-east Asian countries, where did they get
the money from in order to do what you have described?
Dr Cochrane: Well, there are several models. One of them is, of course, government
intervention. Another is much lighter taxation. They see fibre to the home or bandwidth
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rollout as much of an infrastructure as water, sewerage, electricity, gas, road, rail and air. It
is a necessary infrastructure, and if you have not got it, then your economy suffers in the
same way that the British economy suffers because of the road network. They see the next
phase being heavily dependent on the transport of bits—period.
Q47 Lord St John of Bletso: Within that context, you were saying that the amount that
the Government have set aside, £560 million, is petty cash.
Dr Cochrane: Correct. There is a zero missing off the end.
Q48 Lord St John of Bletso: Are you then suggesting tax breaks to smaller operators
who can fill that third space which you talk about?
Dr Cochrane: Here is the problem. I work in the start-up sector here and in the United
States. It is quite upsetting. If you go for funding in the UK, people start talking about
£50,000 or £100,000, possibly £1 million. You go to the United States, and they start with
$10 million, or $100 million to $200 million. Ask this question: what contribution has
Europe made to internet technology? What revolutionary technology and industry came out
of the internet for Europe? There is only one. It was Skype, and that was bought by the
Americans. All of the innovative technologies in the internet came out of the United States.
We do not have an Intel, an Apple, a Microsoft or a Cisco. We do not have anything
remotely close to those industries. Why? We have spent an awful lot of money in R&D in
Europe, mainly funding academic exercises. They have not resulted in big industry. Where
we were really good in manufacturing was in things like aerospace and pharmaceuticals. That
is where we have scored. But there is nothing coming out of Europe that would excite you
about the internet. That is not where the innovation is. Partly, that is due to the fact that
you cannot get funding—period.
I listen to government Ministers and I watch the market. I watch people trying to change the
funding regime, but it is extremely difficult to get funding for anything innovative in Europe. If
you fail in the United States, someone will immediately ring you up and offer you a job; you
must have learnt something. In the UK, if you fail, you will not be given a job. If you fail in
Europe, it is a real black mark, a social disgrace. If you fail in south-east Asia, loss of face will
probably mean that you will commit suicide. Those are the social inhibitors. In this country,
we have got some super people and really good start-up companies. But they cannot get the
money to succeed. If you are up against someone who is not as clever or smart as you are,
but they have got $200 million and you have got £1 million, guess who is going to win.
Q49 Lord St John of Bletso: On the current model in the United Kingdom, the strategy
for superfast broadband, you mentioned the rollout of 4G. Are you saying that that is not
going to be a viable rollout?
Dr Cochrane: I am saying that it will not do what it says on the tin. One of the things that
amuses me greatly is “up to 20Mbps”. It is like “up to 5,000 cornflakes” in my box, but there
are three. It does not help. It is an absurd product description. If anything needs deleting
from the English language, it is “up to”. If 4G is rolled out, for sure, if you are close to the
base station, you will get bandwidth. The further away you go, the less bandwidth you will
get. That is a function of physics; you cannot beat that. The only way to get a lot of
bandwidth everywhere is to have more and more and smaller cells. That is really what the
wireless future is about. To do that, you need more fibre.
Q50 Baroness Fookes: Dr Cochrane, I was going to ask you if you thought that the
Government could deliver on their campaign and effort to have the best superfast
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broadband network in Europe. I get the impression from your previous answers that you do
not think so on present policy.
Dr Cochrane: Correct – there is not a chance.
The Chairman: I am told that we have a Division in three minutes, so do not think that it
is discourteous when the Bell goes off. We will either finish or not within three minutes.
Q51 Baroness Fookes: So, if you had to give advice to the Government—maybe you
have—what three things, or even one thing, would you say that they should be doing?
Dr Cochrane: Funnily enough, I have got three things on my list here. First, pursue the
unbundling of the duct network. Secondly, unbundle the dark fibre and make capacity
available. Thirdly, empower Ofcom to regulate the wavelengths on fibre as they do the
frequencies in the radio spectrum. If I can have a fourth, please push some money towards
the start-up companies that have a new and refreshing business model that will allow us to
do something in the rural areas as well as in the cities. In the village where I live, the number
of creative people is quite phenomenal and the number of businesses that have failed is also
quite phenomenal.
The Chairman: Can we temporarily retire and come back and listen to the rest?
[Meeting suspended for a Division in the House.]
Q52 Baroness Fookes: What you are really saying is that we are dealing with a monopoly
which has to be broken.
Dr Cochrane: Yes. “Monopoly” or “cartel”, it is a protected market.
Q53 Baroness Fookes: What would be the best way of bringing about the four good
things that you thought should be done? Does it need a lot of legislation? Could it be done
by regulation? Would the forthcoming communications Bill—we understand that there will
be one—be a suitable vehicle?
Dr Cochrane: Yes to all of the above. I am great believer in the light hand of management. I
never saw a bureaucracy problem solved by even more bureaucracy. I suggest that it is the
Government’s role to present a playing field on which the players can play an even game,
and the nation can benefit.
Baroness Fookes: They can be a facilitator.
Dr Cochrane: Absolutely. The Government’s role is to be the guardians of the society, in
my view, to protect the citizens in every sense of the word. We need to have in place laws,
regulation and investment that bring about a levelling of the playing field so that the nation
can get broadband at a reasonable speed. I am also very much in favour of self-help. Being
identifiably from BT can be quite alarming sometimes. Everybody in my village knows that I
am from BT, ergo I have suddenly had the finger pointed at me and they say, “Why can’t you
fix it?”. So I am suddenly the man in the chair for my village and am doing everything that I
can. What I have been entrusted with doing there, by the way, is creating a new model and
then advertising that model as an exemplar to say, “This is the way that it can work”.
Let me give you an idea of a similar community in the United States. Occasionally, I go to a
geeky conference in Woods Hole on the east coast of the United States. Verizon said that it
was not cost effective to put broadband into this small village, so the community started a
company, raised $30 million and put up broadband themselves. Every home in that village
now has 100+ Mbps and the wi-fi has to be left open so that everybody can use it. You can
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walk down the street and pick up a huge amount of bandwidth for free all over the village. It
has the advantage of being a rather hi-tech community because there is an oceanographic
institute there. They have 53 Nobel prize-winners living there, or whatever. However, it is
an exemplar which says that if citizens take, if you wish, the law into their own hands and
form a company or corporation, things can change. I am willing, where I live, to go that far if
I can muster the support. I cannot afford to do it on my own, but I am willing to chip in my
time and some money to create a smaller model of that exemplar.
Baroness Fookes: Sounds like a lucky village.
Dr Cochrane: Well, I am not the only one. Everywhere I go in this country, I find
remarkable people living in the rural areas, such as the farming community. Where I live,
there are people who are world famous for restoring vintage cars, yacht designers, sail
designers, and people who work for the BBC and the media. We even have an exgovernment
diplomat in the village. These are smart people. It is up to them to lead the rest
and solve the problem.
Q54 Lord Clement-Jones: I will pursue that a little. It seems to me that you are not
saying that there should be government money. That is the sine qua non of this. If you
opened it up and allowed investment to take place, obviously subject to that predatory
competition point that you mentioned earlier, that could do the trick.
Dr Cochrane: Yes. There are two dangers with government investment. It is either spread
too thin and has no effect or it just impacts one place. The trick is to do exactly what you
said: to put in place a legal and regulatory situation whereby small start-up companies that
are willing to raise investment and move into this area stand a reasonable chance of survival.
If they do not, investors will not put their money into the pot. So we need a situation where,
clearly, these new companies stand a fighting change of survival. That is what I would like to
see.
Q55 The Chairman: Can we move on before we go back to the Bishop of Norwich?
When you talked about the three measures, one of those you recommended was that dark
fibre should be unbundled. Was that a shorthand way of saying, “Obviously, active fibre
networks would equally be unbundled and people given access to them”?
Dr Cochrane: Yes. While you were out in the Division, we had a short discussion about the
parallel situation with mobile. What happened in the UK was that five mobile operators each
put up 30,000 towers costing £2 billion for each operator, so £10 billion was spent when
they could have all shared the same tower. The country could have spent £2 billion. The
competition was not about towers and coverage, it was about services. Only now, as
competition and costs are really biting, do we see the mobile operators coming together. I
am always interested in the way that we leverage technology to the benefit of humanity; that
is, this society. That parallels exactly what you said.
Q56 Bishop of Norwich: Before I get on to my main question, I am interested in your
comments about towers. I have about 648 of them in my diocese and you mentioned them
in relation to your village. You have focused quite a lot on fibre, but do you think that
wireless has enormous capacity for meeting some of the challenges about which we have
been talking?
Dr Cochrane: Yes, but it depends on a number of things such as the geography and density
of the population. Something as simple as a wet tree between you and the antenna can wipe
out a signal. You have to remember that the laws of physics cannot be got around. The
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distance from the antenna is critical. Any obstructions in the way are quite critical. You are
quite right that we can do a lot with wireless, but if we are going to get 100 Mbps then the
wireless is going to be a relatively short distance. You are not going to be doing 100 Mbps
over 10 kilometres; you really are not.
Q57 Bishop of Norwich: Going back to some of the things that you said earlier, you
described what sounds like a combination of market failure and political failure. Do you think
that the political failure is more to do with a lack of understanding of what the potential of
superfast, or super-superfast, broadband is? How is it that other countries have not
experienced the same combination of market and political failure?
Dr Cochrane: Let me relate to you a very sad story from my past. In 1986, I got fibre to the
home. By 1990, BT, with DuPont, had built two factories, one in Ipswich and one in
Birmingham. The Ipswich factory employed nearly 1,000 people manufacturing the
components. The Birmingham factory was manufacturing the systems. We were rolling out
fibre to the home as an active programme. It was stopped by a little problem called the
Thatcher Government and Sir Keith Joseph. They wanted the American cable companies in.
The programme was stopped, and who was right behind us? Who were we working with?
The Japanese and the Koreans. They looked on aghast as we stopped and they carried on.
They have had the benefit of a lead since about 1991, where they have rolled out fibre to the
home and we went backwards in time. That is the political failure.
This could also be a commercial and an engineering failure. Technologists have a wonderful
habit of rolling out technology without telling society what it means and what the
implications are. I have fought all my engineering life to try to explain to lay people that the
implications of the technology are very important. To my mind, that failure was, first,
catastrophic; secondly, it was partially political; and, thirdly, it was an industrial failure: a
failure to come to the Government and explain the implications and why that investment
should not have been stopped. It could be that bringing in more competition was the right
thing to do, but it could have been done without forestalling the fibre rollout at that time.
That happens all the time, by the way.
Q58 The Chairman: Can I just get back to the point about the business that was stopped
in 1986—was it called BT then?
Dr Cochrane: It was BT engaged in manufacturing. Right up until that period, we had been
manufacturing for undersea cable systems, so we had an established manufacturing arm. By
the way, in its GPO past, it used to be called the factories department and refurbish
telephones, switching equipment and things like that. What actually happened was that
Hewlett Packard bought the Ipswich plant, and that was then dismantled and sold into southeast
Asia; this was all the clean rooms and the fabrication equipment. Fujitsu purchased the
plant in Birmingham, and that is still in operation.
Q59 The Chairman: Do you think it is a general proposition, therefore, that where there
is fibre, there should be open access?
Dr Cochrane: Yes.
Q60 The Chairman: Presumably, the same basically will follow with mobile and satellite.
So the key to it is open access to whatever infrastructural means of delivery.
Dr Cochrane: Yes. One of the things that I have engendered in Jersey is that 3G, which is
built into everybody's home, should be operator agnostic. The incumbent, Jersey Telecom,
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which is providing the 3G service, can carry a competitor's mobile signals and make a little
money out of that.
Q61 The Chairman: So it is a bit like the railways. Providing that you can buy a ticket,
you can get on the train.
Dr Cochrane: Yes. That is exactly right. But it is difficult sometimes to convince people that
this is a sensible argument and a sensible way to operate. In my past, when competition
came up against BT in the UK, I argued strongly for opening up the ducts and cables and
using our strategic resources, which were things like buildings, telephone exchanges and
computer stations to house the equipment of the internet service providers and the
competition. We could provide them with power because we had diesel generators and
batteries and all the people. We could sell that as a service. But that was not seen as a good
business plan.
Q62 The Chairman: The idea was to squeeze the other guys out rather than to make a
profit.
Dr Cochrane: That was the alternative, but that does not play to the benefit of the nation.
To my mind, it is not a very clever business model.
Q63 The Chairman: But then, if you have fibre trailing across the countryside in various
ducts, is it difficult where there is no access point to make an access point to tap into it?
Dr Cochrane: If it is dark fibre it is extremely simple. You and I could go and do it one
afternoon with a pen knife and a few bits and pieces.
Q64 The Chairman: You speak for yourself: I am pretty cack-handed. To go back to the
point that you are making about self-help, if you could get access to the nearest piece of
fibre, whoever it happened to be owned by, that obviously makes self-help easier and more
attractive.
Dr Cochrane: Correct.
Q65 The Chairman: If you have dark fibre or private intranet stuff nearby, if you could
get in, would it transform it or is it just at the margins?
Dr Cochrane: No, it would be absolutely transformative. By the way, this is exactly the
history of the cable TV industry in the United States, the telegraph industry way back and
the telecom system way back in the United Kingdom. In the United States, on the prairies,
people could not get a television signal. It was not cost-effective to build more transmitters
so the community banded together and put up a 300-foot tower with a huge antenna and an
amplifier and then wired up the community for what was called community antenna TV. That
later became an industry called cable TV. In my mind, this self-help ultimately will become
another industry. Believe me, the last thing that any of us want to do is to run a network.
But once the network is established, players will come in and say, “We will manage it for
you”. The key thing is getting that network installed. That is where all the cost is. The
running cost after that is relatively low. In our communities—believe me, the farming
community is wonderful—if you mention that you need a trench, someone will turn up with
a huge tractor, a plough and a JCB and that will be that. It will be done.
Q66 The Chairman: In my experience, they normally dig up the water main at the same
time.
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Dr Cochrane: They certainly do in the towns. In the villages, they tend to be a bit more
careful. The sorts of problems that a large corporation would have are with wayleave, and
that sort of thing. And yet there are vested interests here, because the landowners want
broadband—and if you want broadband, you have to let us put a trench across your
property.
Q67 The Chairman: Are there potential difficulties with calculating the costs of carriage
in respect of the inputted wireless network? Somehow or other, you have got to agree a
price and, if you cannot do so, you need a regulation to set it.
Dr Cochrane: A long time ago, I came to the conclusion, which by and large is true, that the
delivery of bandwidth is independent of both the bandwidth and the distance. That is the
reason why your telephone call to North America is worth relatively nothing. It is just the
sheer quantity of calls that makes it a viable business. Let me give you a couple of figures that
pop into my mind. When I came into this business, it was with the old analogue cables
across the Atlantic, which used thermionic valves. A system would be put in which would
cost about $300 million and would take something like five to seven years to pay back.
When the first optical system was put in, it was filled inside about six months and paid back
in less than 18 months. Today those systems cost $350 million and the cost of the
installation and the project pays in in a matter of months, not years. So the money to be
made in that provision is huge. In terms of talking about thousands of circuits across the
Atlantic, we are now talking about 2.5 million speech circuits across the Atlantic, because
the majority of communicators on this planet now are machines, not human beings.
Q68 The Chairman: If that analysis is basically correct, why is it that people who have
either dark cable or exclusively use cable are not falling over themselves to encourage other
people to tap in?
Dr Cochrane: Because they are hanging on to grim death, to old thinking and to an old
business model—period. They have to think again. My analogy would be something like the
old steel industry as against the new steel industry. If you have bought all the old
infrastructure and have thousands of people running it, it is very difficult to say that you have
to get rid of all that. Let me just recall some numbers. When I was in BT there were 7,600
telephone exchanges—small buildings in villages all over the land. We came to the
conclusion that with optical fibre, because of the greater reach than copper, we could get
well below 100, or something like 60 buildings. Now 60 buildings versus 7,600 is an awful lot
of reduction. There was also the possibility of going down from 10,000 or more “man in
van” crews to fewer than 1,000. The number one fault problem with copper is water
ingress. Fibre does not care about water. There is not a lot that you can do about the JCB
driver who hooks a cable and rips it up—but that is the minimal case. The fault level in an
optical network goes down very low. You can reduce manning, buildings, power
consumption and everything.
Q69 Baroness Fookes: When you speak about trenches, forgive me but I am not really
familiar with trenches. What depth are you going down to, and what is the size of the trench
into which all this is laid?
Dr Cochrane: The trick in digging a trench is not how much earth you take out, it is how
much earth you do not take out. Let me give you a couple of examples. In Scotland and
Wales, for example, rock saws are used, with a trench about 2 inches wide—this is done in
Sweden also—and about a foot deep. The cable is put in and then they put cement in back
further, so you just get a line in the rock. Where I live, in a sandy location, the cables are
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typically 1 metre or possibly 2 metres down, depending on the other services there. You
have to imagine in 3-D that services are layered, and you try to avoid things like power
cables, for example. So if it was a trunk cable between London and Birmingham, the answer
to your question is that it is about 3 metres deep, the duct is taller than me and about 1
metre wide, it has a lot of holes in it, and it is earthenware all the way. It is set in reinforced
concrete and covered in shale and sand, and occasionally a JCB digger will hit it and keep
going, despite all the indications that there is something valuable there. So it depends. The
big infrastructure between major cities is buried very deep. It is a lot closer to the surface
when you go between town and village, and when you get to your home, it can be a foot or
two feet down, depending on the terrain.
Q70 The Chairman: As we are getting to the end of the session, I would ask you, first of
all, whether there is anywhere you think it is particularly beneficial for us to have a look at
around the globe. You have a very wide global experience in these matters. If you are
interested in the topic that we are talking about, where should we look to see what you
think is as good an example as there is?
Dr Cochrane: I think you should go to Scandinavia, because there are a lot of self-help
examples there. I think if you went to south-east Asia, you would be both surprised and
shocked. Germany is another good example.
Q71 The Chairman: When you say surprised and shocked, can you elaborate?
Dr Cochrane: It goes like this. The engineering is neither elegant nor particularly secure. I
always describe it to students that, if there is a tree or anything standing vertical, they just
nail the cable to it and continue. It is extremely crude but very low-cost. So if you go to the
United States, one of the things that immediately strikes you is the amount of cable that is in
the air. This country is wonderfully clean by comparison. Any town, any village, relatively
speaking, is free of cable in the air. In the United States, major cities have huge cables
dragged on poles right into the centre, which is always a bit of a shock. The Japanese do the
same thing. I believe that the Germans are much more tidy-minded, as are the Scandinavians.
The Germans have an incredible social pride about their towns. They do not have them
cluttered; they engineer well. A lot of people would say that they engineer to the extreme.
Another place is Singapore, which is also engineered well. So on my list would be a few
extremes, and I think Japan and Korea are at one end and—
Lord Gordon of Strathblane: The Baltic states?
Dr Cochrane: There are a few places there, yes.
But from an engineering point of view, the costs, roughly speaking, if you dig a trench and it
is at all hard work, like you are putting through Tarmac, concrete or any kind of stones
inclusions, are about £80 a metre or thereabouts. If you are in sand, you can get down to
about £15 or £10 a metre. It is of that order. So if it is 100 metres to your home, you are
talking the top side of £1,000 just for the hole. So that is the order of the problem.
However, very often you are not coming to one property; you can fan out to several. If you
can get to one place, you can get to several others and share that cost.
Q72 The Chairman: That is interesting. Finally, if you were in charge of writing a
national superfast broadband strategy, what would be its core principle?
Dr Cochrane: The core principles would be founded on access for all companies and all
people at a rate of 100 Mbps and above, with an eye on fair competition and an economic
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framework and a regulatory framework that encourage people to help themselves and
encourage start-up companies to provide the competition that is necessary.
Q73 The Chairman: Thank you. And if you were starting today, when do think it would
be realistic to suppose that you might have managed to have achieved what you just
described?
Dr Cochrane: If we put everything in place, you have to be thinking in terms of a 10-year
programme. It has to be of that order. One of the most significant difficulties now is the lack
of physical skills. Getting enough people to actually go out there and do this is a problem for
the established industry, let alone the new. So part of this has to be training up people with
sufficient dexterity and technical skills to do this work. But I do think those people are
there. It is a question of identifying them and getting on with the job.
Q74 The Chairman: Thank you very much indeed, unless there is anything more you
wish to say to us.
Dr Cochrane: I wish you luck in your endeavour, and I look forward to reading your report.
Should you require any more information or any help, if you cannot find it on my homepage,
which is cochrane.org.uk, just e-mail me or call, and I will help you all I can.
The Chairman: You have been very generous. Thank you very much.
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Communication Workers Union (CWU) – written evidence
Communication Workers Union (CWU) – written evidence
SUMMARY OF CWU WRITTEN EVIDENCE
1. More public investment is needed to ensure the ‘final third’ of the UK’s population will
receive superfast broadband on a fibre-to-the-home (FTTH) network within the
Government’s set targets.
2. Only those telecoms operators which possess ‘significant market power’ (SMP) can
successfully utilise their economies of scale to deliver a truly FTTH national network
not prone to interconnectivity problems.
3. A Universal Service Obligation (USO) placed upon all telecoms operators is necessary
if the digital divide in the UK is to be closed sufficiently within the Government’s
timeframe.
4. The UK is lagging behind its foreign competitors in terms of FTTH broadband
deployment and unless additional public investment is granted the full social and
economic benefits to the UK will not be realised.
5. The Government’s targets are not ambitious enough to ensure the UK’s economy
remains globally competitive; faster speeds are required if demand is to be increased
for internet services.
6. The level of internet media literacy in the UK must be a key target and indicator if the
Government is serious about achieving a more inclusive, prosperous and fair society.
7. The various ways to access media content through enhanced technology will only
succeed if the Government seriously addresses the issue of traffic management and
capacity through the provision of minimum standards on quality and performance.
8. The Government should end unfair competition and monopolistic practice in the payas-you-view
market to provide consumers with greater choice.
9. Profits by successful bidders resulting from the sale of 4G spectrum licenses later this
year at knock-down prices, estimated at £1 billion, should be re-invested back into
superfast broadband FTTH deployment.
10. A truly competitive market in wholesale fibre connectivity releasing benefits to the
consumer will only develop if all telecoms providers with significant market power are
obliged to provide open access to their physical infrastructures.
The Communication Workers Union (CWU) is the leading trade union in the
communications sector and represents over 200,000 employees in the postal, telecoms and
related industries. The union represents members in companies including Royal Mail Group,
BT, Telefonica O2 UK, Virgin Media, Everything Everywhere and Santander.
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1. What is being done to prevent a greater digital divide occurring between people
who can access superfast broadband and people in areas where the roll-out of
superfast broadband may not be commercially attractive? How does the UK
communications market vary regionally and what is the best way to connect the
areas that the market alone cannot reach? Is a universal service obligation
necessary to avoid widening the digital divide?
1.1 The CWU is concerned that both the geographic and educational ‘digital divide’ is
closed as quickly as possible. To do this broadband access needs to be extended to the
rural and remote areas of the UK and internet literacy must be increased. The
Government’s target is to reach 90% of UK homes and businesses with superfast
broadband - with a speed faster than 24Mbps and 100% with a speed of at least 2Mbps
- by 2015 27 . The Government has committed funding of £530 million (through
Broadband Delivery UK) along with a £20 million rural broadband fund, £100 million
of super-city funding between now and 2015, and a further £300 million earmarked for
spending between 2015 and 2017. The CWU believes this level of funding is insufficient
to achieve the Government’s goals for two prime reasons. First it is a low sum
compared to the amounts the UK’s competitors are spending on broadband
infrastructure within existing networks as they are upgraded and second the market
cannot provide a robust business model to complete end-to-end connection.
1.2 At a Westminster eForum 28 event in 2010 it was pointed out that around 10% of the
UK (the most remote and rural areas contained in the ‘final third’ of premises for
whom a market-led approach will not deliver next generation broadband access) will
not be able to receive superfast broadband in the next decade and that the funds set
aside by Government are insufficient to address these ‘not spot’ areas. Fujitsu who
originally promised in April 2011 that it would offer a fibre-to-the-home (FTTH)
network to those homes bypassed by commercial broadband roll-outs and has now
reversed its commitment for both the Scottish Highlands and Islands and for Wales
stating that the sums did not add up to make the business case work even with
Government funding. Similarly Cable & Wireless has also withdrawn from the pilot in
Cumbria and GeoNetworks has withdrawn from previous commitments in Wales on
the same basis. The CWU considers that the Government ought to consider speeding
up the pace of broadband roll-out by making the process more cost effective through
increased public investment and by making the bidding process for licenses easier and
less cumbersome.
1.3 Given these recent developments it is manifestly clear that the market alone cannot
provide the ‘final third’ with superfast broadband fibre-to-the-home (FTTH) access if
left to its own devices. Only those telecoms operators who possess ‘significant market
power’ (SMP) can utilise their considerable economies of scale supported by public
investment, to deliver a truly national FTTH network that is not prone to
interconnectivity and operability problems. By contrast the Government’s preferred
solution to reach its objective of a 100% of homes with a broadband speed of at least
2Mbps by 2015 is to allow mobile operators to plug the gap so that superfast
broadband can instead be accessed via mobile and satellite technology rather than
27 Britain’s Superfast Broadband Future’, December 2010, Department for Culture, Media and Sport (DCMS).
28 ‘Delivering the UK’s Broadband Future’, 10th November 2011, Westminster eForum.
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FTTH. This is evidenced in Ofcom’s current consultation 29 which posits two options:
the first to increase the service obligation on the license holders to 98% coverage of
the UK by population; and second to require that one 800MHz operator provides 4G
coverage that not only matches existing 2G coverage but also extends into mobile ‘not
spot’ areas of the UK and must be in place by 2017.
1.4 The CWU is concerned that the Government’s proposals for investment in the new
high-speed broadband internet structure and mobile phone ‘not-spots’ still assumes
high levels of private investment for which there is no guarantee. Most significantly this
affects Scotland where the not-spot areas account for 15.5% of the nation’s total.
1.5 The CWU considers that a Universal Service Obligation (USO) is necessary to avoid
increasing the digital divide between those parts of the UK that have superfast
broadband and those that do not. If left with only a commitment and not an obligation
to universal service, the market will concentrate only on profitable and niche areas,
with remote areas suffering greater economic disadvantage. The Federation of Small
Businesses (FSB) supported this objective by calling upon the Government to make
minimum broadband speeds a universal service obligation rather than merely a
commitment. 30 Similarly the International Telecommunication Union (ITU) reported 31
that of 82 countries around the world that had adopted a national broadband strategy,
over 40 include universal service/universal access as a requirement (e.g. USA, China,
India, Brazil and Spain) through a FTTH network. Finland for example became the first
country in the world in July 2010 to adopt a USO with legal force. This is why the
CWU has consistently argued that there should be a USO which builds on the current
USO for basic fixed line services and introduces a legal requirement for universal
availability of broadband services.
2. The Government have committed £530 million to help stimulate private
investment – is this enough and is it being effectively applied to develop
maximum social and economic benefit?
2.1 The CWU does not consider that the Government’s strategy for the rollout of
superfast broadband is being applied in a way that will develop maximum social and
economic benefit. The Government’s ambition is to create thousands of jobs, to add
to GDP, build a fairer and more prosperous society, and for the UK to have the best
broadband system in Europe by 2015. However in comparison with other countries
the money committed by the UK Government is meager. UK Broadband deployment
ranks sixth in the world behind China, USA, Japan, Germany and France according to
Broadband Forum. 32 It cites India as investing £8.13 billion to extend superfast
broadband to rural areas by 2014 all of which will be paid for by Government funds
and loans. The French Government has invested £1.7 billion already with a further
£570 million each year until 2025, and the US Government is investing £7 billion until
2018. Unfortunately the UK has been ranked 14 th in the world in terms of broadband
29 ‘Second consultation on assessment of future mobile competition and proposals for the award of 800 MHz and 2.6 GHz
spectrum and related issues’ – 12 th January 2012, Ofcom.
30 ‘Broadband: Steps for an Incoming Government’ - November 2010, FSB.
31 Yearbook of Statistics Telecommunication/ICT Indicators 2000-2009 - February 2011, ITU.
32 ‘India in Top Three Countries for Global Broadband Growth’ – March 2011, Broadband Forum.
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and telecoms infrastructure. 33 This is primarily because the other countries are
investing more in a FTTH network.
2.2 The Government has already recognised the insufficiency of its own investment in a
letter sent to MPs on 14 th June 2011 by the Culture Secretary, Jeremy Hunt MP. In the
letter Mr Hunt stated that: “We will then provide 50% of the public funding required to
make the necessary investments viable to commercial providers. Local authorities and the
Devolved Administrations will need to provide the remaining funding from their own resources,
European programmes, or other funding sources.” We do not believe that this is a realistic
expectation, especially at this time of economic downturn, cutbacks in local authority
funding and turmoil in the Eurozone.
2.3 A study for the Organisation for Economic Co-operation and Development (OECD) 34
found that through a fully funded FTTH network financial savings of between 0.5%-
1.5% could be made over a 10-year period particularly in the electricity, health, energy
and transportation sectors. The benefits of higher productivity, increased innovation,
improved access to new markets and new business opportunities will be lost without
sufficient public investment. It has been estimated by the London School of
Economics 35 that increased employment from investment in superfast broadband
would be 280,000 jobs. The EU Digital Agenda Commissioner Neelie Kroes has made
it abundantly clear that universal broadband offers benefits well beyond the telecoms
sector (such as reducing the number of car journeys made, both through home
working and areas like online shopping) and as such there is a significant role for public
sector funding to ensure a rapid deployment of a universal service.
3. Will the Government’s targets be met and are they ambitious enough? What
speed of broadband do we need and what drives demand for superfast
broadband?
3.1 The Government’s targets might well be met if more public money is invested. The
CWU considers that the current targets are not ambitious enough if the UK is to
remain globally competitive. The EU targets by comparison for 2020 are for 50% of the
population to enjoy 100Mbps and 50% to have 30Mbps or over again primarily on a
FTTH network. The total of up to £830 million of UK public funding could be spent on
networks that deliver only half the minimum speeds of our European competitors.
Recent research by Akamai 36 (the US computer technology company) revealed that
the UK is placed in 17 th position for broadband speeds in Europe with an average
connection speed of 5.1Mbps. In February 2012 Ookla (a web-based speed testing and
diagnostics firm) found that the UK came in 32 nd place globally for downloading speed
and 57 th place for uploading with an average of nearly 12.4 Mbps and 2.11 Mbps
respectively. This leaves the UK lagging behind countries with faster speeds such as
Rwanda, Kyrgyzstan, Kazakhstan, Russia and the Ukraine.
3.2 Demand is driven by the services on offer and a good level of knowledge of what is
available; demand will increase when speeds are faster and more content can be
accessed over those services. This can only be delivered through a FTTH network; the
33 ‘2010 Digital Economy Rankings’ – June 2011, Economic Intelligence Unit.
34 ‘Developments in Cable Broadband Networks’ – March 2010, OCED.
35 ‘The UK’s Digital Road to Recovery’ – April 2009, LSE and The Information Technology and Innovation Foundation.
36 ‘State of the Internet Report 3 rd Quarter 2011’ – 1 st February 2012, Akamai.
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Communication Workers Union (CWU) – written evidence
role of e-Government is crucial in this process as a driver of content and content
availability.
4. In fact, are there other targets the Government should set; are there other
indicators which should be used to monitor the health of the digital economy?
What communications infrastructure does the UK ultimately need to remain
competitive and meet consumer demand over the next 20 years?
4.1 The CWU considers that there are other targets and indicators the Government
could use primarily in relation to internet literacy and usage by vulnerable people, such
as those on low incomes and with disabilities. It is paramount that to achieve all targets
the deployment of superfast broadband takes place on a cohesive basis throughout the
nations and regions of the UK. The promotion of media literacy is a key driver that
gives people the opportunity to develop competence and confidence to participate in
digital society and informs and empowers people to manage their own media activity.
It is by increasing internet fluency amongst consumers that further demand and usage
will be generated. That means positively addressing the profile of digital content users
to ensure it encompasses a higher profile of users from DE socio-economic groups
rather than an over-concentration amongst ABC1s. It is also important to monitor
access for those with disabilities and recognise the importance of access to facilitate
social interaction and easier access to goods and services. More generally, those on
low incomes and those living in remote rural areas also need access to affordable
broadband services through a FTTH network in order to fully participate, as the
Government wishes, in a more prosperous and fairer society.
5. How will individuals and companies use cloud services for distributed storage
and computation? What network properties are required to enable efficient
provision and use of such services?
5.1 With the passage of time it is not unreasonable to assume that Communication
providers will market Cloud Services for digital storage and access to the latest virus
free computing applications. This will require a broadband network not only with
significantly greater capacity than is the case but networks capable of speeds far
greater than the governments target of 2Mbps. Yet again from a cohesive efficient
market place as well as a digital inclusiveness there will be large swaths of the UK and
Northern Ireland that will not have access to these products and services due to the
current Government’s Superfast Broadband Strategy
6. To what extent will the advent of superfast broadband affect the ways in which
people view, listen to and use media content? Will the broadband networks have
the capacity to meet demand for new media services such as interactive TV, HD
TV and 3D content? How will superfast broadband change e-commerce and the
provision of Government services?
6.1 The CWU considers that the roll-out of superfast broadband has the potential to both
change and increase the use of new media services but only if the issues of traffic
management and capacity are effectively addressed. Traffic management is currently
performed through the differentiation of services, on the basis of the prioritisation of
traffic through pricing mechanisms. However other forms of prioritisation currently
takes place such as slowing of download speeds for the streaming of video content and
for content downloading between users. Capacity restrictions only exacerbate the
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problems of offering a high standard quality of service. Therefore the CWU would
wish to see the introduction of minimum standards based on the ‘end-to-end’ principle
through regulatory enforcement. A minimum prerequisite is for network wholesale
carriers to demonstrate that they are not favouring their retail operations in the
priority and carriage of network traffic. This will support an increased number of
internet services and will work to further reduce cost.
7. Will the UK's infrastructure provide effective, affordable access to the 'internet
of things', and what new opportunities could this enable?
7.1 No response.
8. How might superfast broadband change the relationship between providers and
consumers in other sectors such as content? What aspects of this relationship are
key to enabling future innovations that will benefit society?
8.1 In relation to content the CWU recognises that network providers and
communication providers have more potential with superfast broadband to increase
and expand their range of content provision. Already BT through BT Vision and Virgin
Media through its Tivo product are offering customers a greater variety of choice to
access content. What is currently lacking in the industry is a level-playing field
especially for premium content. The CWU is concerned in this regard about the
potential for unfair competition or market share abuses by Sky TV through the
monopoly power it exercises through Pay-As-You-View television.
9. What role could or should the different methods of delivery play in ensuring the
superfast broadband network is fit for purpose and is as widely available as
possible? How does the expected demand for superfast broadband influence
investment to enhance the capacity of the broadband network?
9.1 The CWU’s preferred delivery method for superfast broadband is FTTH deployment
by those telecoms operators who possess significant market power and are able to
realise considerable economies of scale and deliver a truly national network. The
CWU is concerned by the Government’s preferred option of the sale of 4G spectrum
licences, as mentioned in response to question one, which proposes to implement
‘spectrum floors’ which allow each bidder to emerge from the auction with a
reasonable amount of new capacity. This will allow bidders to acquire spectrum at a
knock-down rate which Ofcom itself has estimated as a cost to the taxpayer of £1
billion.
9.2 The Government is giving winning bidders a public subsidy by driving down prices, a
move which is anti-competitive against fixed broadband technology. The House of
Commons Culture, Media and Sports Select Committee argued on 22nd June 2011
that following Ofcom’s decision to allow network operators to trade mobile airwaves
the money realised from such sales should be invested in the FTTH deployment of
superfast broadband to rural areas. This is because companies such as Everything
Everywhere benefited from having these airwaves given to them for free back in the
1980s and they stand to make a profit of over £300 million. This profit should instead
be re-invested into superfast broadband FTTH deployment.
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Communication Workers Union (CWU) – written evidence
10. Does the UK, for example, have a properly competitive market in wholesale
fibre connectivity? What benefits could such a market provide, and what actions
could the Government take to ensure such a market?
10.1 The CWU does not consider there to be a properly competitive market in wholesale
fibre connectivity because obligations are placed only on those telecoms providers that
have significant market power across the whole market. However the CWU strongly
argues that obligations ought to be placed on other providers and executed through
commercial contracts recognising a reasonable rate of return for the assets used. For
example Virgin Media (as its cable network now covers just under half of the UK) and
other providers should have to provide open access to their ducts and infrastructure,
as BT, if competition is not to be distorted in their favour and against BT’s or any
other operator.
11. What impact will enhanced broadband provision have on the media and
creative industries in the UK, not least in light of the increased danger of online
piracy? What is the role of the Government in assuring internet security, and
how should intellectual property (IP) best be protected, taking into account the
benefits of openness and security?
11.1 No response.
13 March 2012
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Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249)
Communications Chambers and FTTH Council Europe – oral
evidence (QQ 136-249)
Evidence Session No. 4. Heard in Public. Questions 136 – 249
TUESDAY 24 APRIL 2012
Members present
Lord Inglewood (Chairman)
Lord Bragg
Lord Clement-Jones
Baroness Deech
Baroness Fookes
Lord Gordon of Strathblane
Lord Macdonald of Tradeston
Bishop of Norwich
Lord Razzall
Lord St John of Bletso
Earl of Selborne
Lord Skelmersdale
________________
Examination of Witnesses
Mr Chris Holden, Chair, Policy and Regulation Experts Group, FTTH Council Europe; and
Mr Robert Kenny, Founder, Communications Chambers
Q136 The Chairman: Well, good afternoon, and a warm welcome to Chris Holden and
Robert Kenny. Thank you both for coming along and talking to us this afternoon. As I think
you know, we are adopting a slightly unusual procedure here in having two witnesses whose
perspectives are, I think, different in some respects—although perhaps not as different as
they may look at first blush—giving evidence simultaneously. I trust the experiment will
work smoothly, and please feel free, if you think something is going slightly out of sync, to
interject.
First, before we start, I will just ask each of you, if you would—and I will take you in
alphabetical order, to start with anyway, for as good a reason as any—to introduce who you
are and your background. That is as much for the benefit of those who will be reading the
transcript. We are on the internet, we are on the feed, and there will be, I suspect, many
more people watching outside than there are inside the room.
Perhaps without any further ado—we have had CVs from you and we have read the
evidence that has been submitted already, so I hope you can take that background as read—I
could just start with Chris Holden, if you could just tell us all who you are and make any
opening remarks you might wish to make, and then we can go on into the hearing proper.
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Mr Holden: Okay, fine. Up to last month I was President of Fibre to the Home Council for
the last two years which is a member organisation containing 150 member companies, all of
which are in the telecommunications industry. After two years we have to change
presidency. In those two years, I was doing quite a bit of work with the European
Commission as well as looking at funding issues and regulation and policy. Now, at the end
of that term, I have moved on to the regulatory and policy advisory group within the Fibre
to the Home Council of Europe to carry on moving those things forward.
The Fibre to the Home Council is really there to accelerate the adoption, promotion and
communication of fibre to the home networks. It is not unsurprising, because it is the Fibre
to the Home Council, that our main raison d’être is fibre to the home rather than other
solutions, so you will have to excuse me for that one, but I think we have good reason for
saying that. Every year we complete a panorama of the whole of the world. There are three
other key Fibre to the Home Councils in the world. There is the APAC Council and the
North American Council, which includes South America, and the Middle East. Together we
look at what the environment is like.
It is interesting as of the end of last year the US have 9.7 million subscribers to fibre to the
home; APAC has 58 million, and Europe in total only has 5.7 million, so we are falling behind
a reasonable amount. But if we also look at other areas, what we see actually is Eastern
Europe is growing faster than Western Europe for a number of reasons. In particular, Russia
now has 4.5 million subscribers. They have leapt up the league chart very rapidly. The Middle
East is starting to grow now where they have seen a recognition, so they now actually have
just over half a million subscribers.
What is also significant in Europe—I know we are about the UK, but just to put the climate
around it—is when we look at that league there are some countries that are not doing very
well. In particular, there are three countries that have not actually made the ranking yet.
Now, if you take the ranking is any country with more than 200,000 households and actually
more than 1% penetration, if you do not meet that you do not actually hit the target. Three
countries in particular—Germany, Spain and the UK—are still not on that ranking, which is
very disappointing, but actually we see Spain probably will be on the ranking the next time,
we do them every six months.
So, how is the UK doing anyway? We also think it is slipping a little bit behind on upload.
We have a target of being the best country in Europe by 2015, but if we look at upload
targets and capabilities then actually we rank 56th at the moment in the world, which is a
long way behind everybody else. That is based on driving out targets based on what the
European Commission has set in what they call their digital agenda. In that they have set two
targets. They have set a 30 Mbps target available to all households by 2020, but the more
significant one is the 100 Mbps target for 50% of households subscribing to that by 2020.
Now, we believe there are a few things missing. One is it is a very open target and there is
no reference at all to upload. Upload we see as being significant in the future when you look
at some of the new services that are coming along.
There is also one extra thing I am just going to mention, and that is the fund that the
European Commission has talked about of basically setting out capabilities of funding for
Europe for building networks. It is effectively state aid. That has been talked around at the
moment. It is €7 billion probably to infrastructure; €9.2 billion is the fund. The Commission
have been talking of leveraging, using financial instruments, pushing that up maybe to 50
billion. At one time they talked of €100 billion, but let us say €50 billion. That is also
additional funding that could be available to meet infrastructure. Subject to it being approved
in Europe, then one of the things to get that approved in Europe is obviously going to be the
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ability of them to get it through the parliaments and then the national Governments
themselves need to actually endorse that as well. We see a reluctance from national
Governments to endorse telecoms. They would rather spend more money on other
infrastructures, which we think is perhaps a little bit short-sighted.
Q137 The Chairman: Thank you very much for that very helpful opening statement, and
if I can now turn to Robert Kenny and give you your opportunity to do whatever you would
like similar.
Mr Kenny: Thank you. My name is Robert Kenny. I am a founder of a telecoms and media
strategy and policy consultancy called Communications Chambers. I have spent pretty much
the entirety of my career in the telecoms industry working for companies such as Hong
Kong Telecom, which was one of the first companies in the world to take fibre to the home,
though not at that time for the internet. I also worked for Level 3, the largest internet
backbone provider in the world, and I worked for Reach, which at the time was the largest
internet backbone provider in Asia. I was also founder of a venture capital fund that invested
in the internet, so despite my views on superfast I am in general quite an internet enthusiast.
I guess my particular interest in this topic of superfast broadband and Government
interventions around it crystallised in a paper I wrote with my brother, who is an economist,
about 18 months ago called Superfast Broadband—is it really worth a subsidy?, which set out
our stall as to why we felt perhaps it was not. The paper ended up attracting quite a lot of
attention and, indeed, quite a lot of citations and good reviews. The relevant journal named
it the paper of the year yesterday, which was very flattering. That is just very briefly how I
come to be interested in this topic.
Let me just pick up a couple of things in what Chris just said. First of all, I should say I am
grateful to the FTTH Council for those annual surveys they report. They are some of the
solidest data on what is going on internationally with FTTH and are very helpful in that
regard. He said he was not entirely happy with the Commission’s targets. Nor am I, although
perhaps for slightly different reasons. I am not happy with them because they are mad. They
are mad for two reasons. Firstly, because they are completely unrealistic. There is an
infinitesimal chance that we will have 50% of households subscribing to broadband speeds in
excess of 100 Mbps, which is the target. It is just not going to happen by 2020. We can
certainly talk about why I think that in more detail later if that is of interest to you. Secondly,
they are mad because they are a completely technology-out view of the world. It is a
besetting sin of the telecoms industry, of which I have been a participant, that we tend to
start with technology and work back to what consumers or end users might actually like.
The companies that have been really successful have worked the other way round. That is
companies like Apple, for example.
A hundred megabits per second is a completely arbitrary target and I have not seen anything
solid that says why 100 Mbps is the target. If somebody were to make me an EU
Commissioner—perhaps not imminent—I would start with thinking about what do we
actually want to be able to do with the internet and then say, “Okay, given that set of
ambitions for the internet, for applications for the internet, I think we need a bandwidth of
X”. For what it is worth, my number probably would be closer to 10 Mbps than 100 Mbps.
Again, I can perhaps talk about that in more detail later. But that does not seem to be what
has happened. We have just been given this 100 megabit number, which sounds good but
does not seem to be anchored in any particular set of applications; in particular, any
application with externalities.
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I will say one final thing before I stop. In considering Government intervention in the realm
of superfast, for me there are three acid tests. I think we can all quickly agree it is not
actually about a physical connection to the home; it is about the applications that ride on top
of it and what you can actually do with that connection, not the fact that you have an
arbitrary amount of traffic moving back and forth. For applications to justify Government
intervention, if you are subsidising superfast to the home, that application must pass three
tests.
Because you are subsidising it, it must bring externalities. For instance, you cannot be talking
about HDTV or 3D TV when you are trying to justify Government intervention because it
does not bring externalities. There is no particular reason to expect the taxpayer to pay for
that rather than the consumer end user. Secondly, if you are subsidising superfast, it has to
be an application that absolutely needs superfast broadband in order to work. You cannot
be talking about applications that work on superfast but would also work on basic
broadband. This is an error that is made time and time again. Indeed, I am afraid the DCMS
paper, Britain’s Superfast Future, is rife with this muddlement, where they talk extensively
about the things that basic broadband can do and say, “That is why we need superfast”. That
is just bad logic. Thirdly on subsidising superfast to the home, if you are subsidising telecoms
networks to the home, it has to be applications that take place in the home. You cannot fold
in wonderful things that hospitals may be able to do with great connectivity or wonderful
things that schools may be able to do with great connectivity because there is no earthly
reason to wire up suburban residential streets because you can do something wonderful in a
hospital. Hospitals, many of them, already have fibre connectivity. It is quite separate.
As you all wade through the voluminous material that there is on this debate, I would
encourage you to have those three acid tests in mind as you read justifications for fibre. Is it
an application that truly brings externalities? Is it an application that not just can ride on
superfast but depends on superfast? Thirdly, is it an application that depends on connectivity
to the home?
Q138 The Chairman: Thank you both very much. Perhaps it would just be helpful to the
Committee if each of you just say quickly what your background is. You described your
brother as being an economist and you have said you have worked in the industry a long
time. Are you scientifically based or economically based? Just where do you come from, like
that?
Mr Holden: I have been 20 years in telecoms, basically, starting with the copper side of the
telecoms and then moving to the optical fibre midway. Most of that has been in technology,
so it is technology driven as far as passive infrastructure is concerned.
Q139 The Chairman: You are a scientist, are you, by background?
Mr Holden: I am an engineer, not a scientist. It is the practical implementation of the passive
infrastructure mostly. I worked for Corning, which is on the list, and Corning obviously is
the inventor of the fibre, and so are the leader in this field.
Q140 The Chairman: Robert Kenny, are you an engineer as well?
Mr Kenny: I have no such expertise, I am afraid. No, my background is strategy, so the
commercial side and also the policy and regulatory side of telecoms.
Q141 The Chairman: All right; fine. Thank you very much. If I could just get the debate
we are going to have underway by asking each of you—we talk about superfast broadband
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and I know that is a very arbitrary description. It is almost, in a sense, a random figure, the
100 Mbps, but thinking about the world we live in today and bearing in mind that there are a
number of other forms of civil infrastructure that acquire the characteristics of utilities,
what, if any, characteristics of the broadband network do you think will meet the definition
of being a utility? What is, as it were, the minimum requirement that you would think was
appropriate to have generally available across society as a whole given its current
characteristics and the way things are moving? Do you want to start there?
Mr Holden: Okay. Can I just come back to one other point before I start? One hundred
megabits was really set by the Commission, we believe from conversations we have had with
the European Commission, on the basis that they were looking at a future-proof solution.
They did not really see extending copper and trying to squeeze it a little bit more as being
future-proof. But they are bound by the rules of technology impartiality, so they set a target
that they assumed would drive fibre rather than copper. Unfortunately, they did not specify
it well enough so actually you could squeeze a little bit of copper into 100 megabits if you
only considered download.
Q142 The Chairman: But it would not work on upload?
Mr Holden: But it would not work on upload at all, no. This is a problem here that we say
is technology neutrality gone mad, really. You need to set a target for something you want
to aim for rather than doing it the opposite way round.
To come back to your question, we still think 100 megabits but with some symmetry is what
should be a future solution set that would be sensible to look at all things. It is not just
speed, it is latency as well, as I know you said in some of your responses. Latency is critical,
and upload is going to be critical as well. When we see things like cloud computing coming
around now—there are already cloud computing services, and I know you have mentioned
some that have been around a long time—but I know a lot of people who have actually
taken out cloud computing services and cancelled them, basically, on the simple premise or
fact that they cannot upload fast enough the data they want to upload now. That is just
looking at uploading data on to the cloud without everything else that happens in the home
simultaneously. We still think 100 megabits is maybe okay, but maybe by 2020, which is the
target that is set, it will be nowhere near enough, because something else could come along.
Q143 The Chairman: Anyway, Robert Kenny, what do you feel about that?
Mr Kenny: Well, it depends a little bit what we are going to do with this, having decided
that that is a utility level, what is behind the definition of utility.
The Chairman: Do define it in terms of your answer.
Mr Kenny: Yes. I think if you wanted to go for a basic lifeline level, what is minimum as
opposed to desirable, I think the Government’s number of 2 Mbps is perfectly sensible. It is
worth just a very brief recap of how we got to where we are today. The first wave of the
internet was dial-up in the late 1990s—I am talking consumer internet here—which was an
incredibly cheap upgrade to the telecoms network, with about $150 of equipment at either
end of the existing telephone lines. You got amazing stuff with dial-up. None of us would go
back to it now, but you got amazing stuff with that. That got Amazon going, it got social
network going, it got eBay going and a whole set of applications were possible over dial-up.
We then come to DSL and its great surge in, in particular, the first half of the last decade,
where again an upgrade of about the same cost brought a whole wave of new things. It made
the existing stuff better, but it enabled YouTube and so on. It enabled a plethora of services.
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The worry about the next upgrade is that it is going to be fundamentally more expensive
because you are not just putting new equipment at either end of existing copper. You are
actually digging up the roads, and it is the roads that are the really expensive bit. Corning’s
products are extremely good value and are not expensive at all; it is the digging up of the
roads in order to blow Corning’s fibre through the ducts that is really expensive, which has
not been necessary in previous upgrades but will be in the next one. Pick a number—it very
much depends on geography and so on—but instead of spending, as it might be, 150 bucks,
you are in the realm of spending $1,500. You are looking at a much more expensive
upgrade.
I think the problem particularly in making the case for the upgrade is that the internet is so
good today. So much is possible even through a 2 megabit connection, which I described as a
kind of lifeline service. You can get basic YouTube through a 2 megabit connection. A lot of
those videos run at 500 kilobits per second. Now, I could see a case to say, “Let’s be a bit
more ambitious than that and let’s set a target for most of the country of, say, 10 Mbps”,
which is enough for two people simultaneously in the same household to be using quite high
quality video through a 10 Mbps connection. But beyond that, in particular if you are looking
at things that would justify Government intervention, applications that bring externalities, I
just do not see much material past 10 Mbps. I know Chris will disagree with me, but that is
my view.
Q144 The Chairman: On a quick point, can you upgrade from your 2 Mbps to whatever
it is—10 Mbps or whatever you think is appropriate—without a lot of capital expenditure
on the infrastructure itself?
Mr Kenny: I am doing my best not to introduce complexity, but I am afraid the answer is it
depends. It depends how far you are from the exchange. If you are a long way from a
telephone exchange and, therefore, there is a long twisted copper pair between you and the
exchange, it will not be an easy upgrade from 2 to 10. The performance of DSL, while it has
improved year by year, does drop away with distance. If you are relatively close to the
exchange, it will not be expensive at all. If you are a long way from the exchange, it will be
more expensive and likely, if you are going to do it in a fixed way—that is, not wireless—will
involve taking fibre closer to the customer because the effect of that is to shorten the
amount of copper in the circuit and, therefore, it is as if you were closer to the exchange
again because you have fibre doing the kind of heavy lifting on at least part of the distance.
Of course, if you are in very rural areas the answer may actually be a wireless solution
rather than a fixed one, which gets you into a whole set of economics. As I say, I am afraid
the answer is: it depends.
Q145 Baroness Deech: Is it the case—and I am no scientist—that Britain has always
made the mistake of lagging behind when it comes to pure science? I think this is the issue
between you. Should we not just go ahead anyway in blind faith and wait for the applications
to come later, which I think is what Mr Holden is saying, rather than what Mr Kenny is
saying, which is, “Let’s see what people want to do and then provide it for them”? The only
bit of science I know about is lasers, and people went ahead developing lasers not knowing
what would happen. I think in medicine Britain has often invented something, others have
taken it and run with it, and we have not used it. Is not this a kind of philosophical debate
that one should go ahead in faith and then wait for the applications to come later? No one
would have known 10 years ago what they would be doing with broadband now. Would we
not be making a fundamental error if we took the Kenny line, if I can so describe it?
Mr Holden: Perhaps you can go first on that one.
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Mr Kenny: To disaggregate your question a little, it depends what kind of technology we are
excited about here. There is the physical telecoms technology—the smart and ever smarter
bits of equipment that sit at either end of the fibre or the copper as it may be—in the
physical connections themselves. The fibre itself is also quite sophisticated technology, so all
sorts of stuff, if you like, in the physical layer of the network is one kind of technology. Then
the other side of it is the applications layer, which is the stuff that is going on on top—
everything from Facebook to Spotify to doing your taxes online—which involves quite
different kinds of technology with quite different drivers. Now, the UK does not have a
particularly strong position in the first, given that the big manufacturers are Alcatel out of
France, Corning out of the States and Cisco out of the States. For a lot of the stuff that is
about moving packets from A to B, it is a big challenge for us to capture a market-leading
position in that particular market, and there is no particular reason, even if we threw a lot of
money at fibre, that we would. We would create a UK customer for that kind of product,
but would we as a matter of industrial policy say, “Build that fibre, oh and by the way, buy
equipment from a nascent UK industry in that sector”? That seems like a surprising
approach to take and, even if we did, we would still be a small part of the market overall
globally because this is a fundamentally global market. These technology companies work
globally. I am not sure it brings much benefit there.
On applications, one of the ironies here is we worry about how good we are on the access
network, but on the applications level we are actually doing very well. There is work by
BCG—and I will try to get these rankings right but forgive me if I am just slightly astray—
which, from memory, looked at 34 OECD countries. They rated them in three different
ways: how they were doing in various elements of telecoms infrastructure, including
broadband; how they were doing in economic use of the internet, so the level of
e-commerce and the level of online advertising and so on; and, thirdly, how they were doing
in what I think they termed “engagement”, which was kind of a catch-all category for just
how much stuff the country does on the internet. There was a range of applications. It was
civic, government, social, a whole set of things. We did pretty rubbish on access speeds,
upload and download. I will check the numbers, but let us just say we were about 23 out of
34. We were down the bottom of the pack. That sounds pretty bad, but that is an input—it
is an input. The reason you have the telecoms infrastructure is not so you can admire your
shiny bits of telecoms equipment but so you can do stuff with it. On those other two
dimensions, the economic and engagement ones, we were, from memory, second in both.
We are doing very, very well in our use of the internet.
There just is not a simple correlation between quality of fixed-line broadband connectivity
and how much a country is getting out of the internet in terms of its applications. That link is
just not there. To take another example, in the US, which I think we could all agree leads
the charge on internet applications—Facebook and Twitter and Google and all the amazing
stuff that many of us use—the internet actually does not have a particularly good fixed
broadband infrastructure. Again from memory, they were around about 13 th , I think, in the
rankings, behind countries like Latvia and Belgium. Indeed, Silicon Valley itself, even within
the US, does not have a particularly good broadband infrastructure. There is no simple cause
and effect where, if you have great internet infrastructure, you suddenly get great
applications coming.
The final thing I will say on this is: take a look at Korea and Japan. The two countries that
fibre enthusiasts have greatest superfast envy of are Japan and Korea. How many global
internet application companies can we name out of Japan and Korea? It just has not done it
for them. It has not delivered that kind of technological advantage in the applications layer.
Indeed, one of the fascinating things—and this is from an Informa report I saw this week—is,
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if you look at the actual usage of the internet for the amount of traffic that travels across the
internet in Japan, even though they were one of the first countries in the world to push fibre
and they have quite high penetration of fibre, with a lot of people on 100 Mbps and so on,
their actual usage, in megabytes per household, is lower than ours. We are using it more
heavily than they are. On this “build it and they will come”—or “trust that the killer app will
appear”—it is worth having a chat with the Japanese about how they feel that is going.
Q146 The Chairman: Now, Chris Holden, I am sure you have some thoughts about this
before we move on to Lord Macdonald, but if you have not, do not—
Mr Holden: Yes. Just to come up with what Robert was just saying, if we look at Boston
Consultancy Group this week, the UK is top in G20 internet apps to gross domestic
product. If it was a sector, it would be fifth in the sector and it would be ahead of health,
education and construction, so it is big money for the UK. What a shame if it disappears,
when suddenly services come that need bandwidth and we have said, “Two megabits is fine
for us; we don’t need it because there is no requirement here”. That would be a real
tragedy.
But standing back from that, as far as the industry is concerned, I do not think necessarily
the active providers of telecoms are a reason for putting in networks. It is certainly not the
reason why I am here. I am here because I am passionate about fibre, to be honest. But
there are a lot of jobs involved in building networks, and that is the civil infrastructure and
the passive element where there is a lot of work necessary that provides people with good
money and boosts the economy. The actives actually are quite a small part—a very small
part. They will be constantly changing as technology changes, but they will not be constantly
changing if the basic infrastructure behind it is not in place. So, yes, I think we are crazy if we
just say, “Look, we cannot see anything for it at the moment, let’s not do anything”.
Then if we look at the US, which we mentioned, the US actually has an enormous gigabit
network that connects all universities. There is a number of what they call gigabit projects
ongoing. There are a number of organisations doing a lot of work at universities, with
something like 17 gigabit projects being worked on by one of those organisations already
with various universities looking at every area—health, transport, health and safety, services,
communications. All those areas are looking at gigabit services now that are going to come
in the future. They can do that, and the reason they can do that is there are a number of
gigabit cities. Google is building theirs; Chattanooga is another one. There are a few others
that already have gigabit capability and a university link, which means they can try out their
software. When this is available, it will be something people want. If you do not have
infrastructure in place for it, then you will be in trouble, basically, and, yes, we will lose out
in the future.
But one other point, just to come back to what you have just mentioned, is the fact that we
are talking here of whether we should spend money to build a network. What we should
not forget is at the moment we are already spending money to build an extension to the 10
Mbps, the 20 Mbps and the 40 Mbps. We are already driving fibre out to the cabinets, so a
substantial part of that work is already happening anyway. We are a strong believer in
competition, so in the main cities where competition will take place let us not put
Government funds in. No, we should not spend our money on that. Competition should
drive bandwidth, which it is doing. We can see that between the cable people and BT. BT
are doing a mixture of VDSL and fibre, fibre where they have to, where they cannot
compete.
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But when it comes to rural communities, this is one chance to update the network. We have
to update it. Do we update it so someone has something that is going to run out of steam
straight away, or do we spend a little bit more money and actually give them a future-proof
solution? I think Government funds, if they are spent, should be spent looking into the
future, not looking at sunk investments in a very short period of time.
Q147 Lord Macdonald of Tradeston: Just to pick up on how Government money is
spent, obviously the Government is putting a great deal of emphasis at the moment on
infrastructure investment generally. We were interested in the relativity of broadband and
its importance to, say, investment in water, which is probably taken care of by the regulatory
regime. Similarly, energy is probably being looked after by two national monopolies.
Telecoms—well, if we take broadcasting, that has its towers already in place with Arqiva,
and it has the satellite. Probably one of the areas you would look at for relativity would be
transport. If you are going to spend £33 billion on a high-speed rail line as compared with
putting the money into broadband, when we asked a Finnish politician about this, she said—I
think she was a former transport minister—“Definitely put it in broadband”. That is because
of the impact on the gross domestic product. That is what is generally argued: that you will
get the biggest boost from broadband as opposed to putting it into surface transport. Do
you, Robert Kenny, have a view on your priorities among infrastructure of systems?
Mr Kenny: I know nothing about transport, so I shall keep my mouth shut on that. I do have
a narrower view within the internet, which is you use broadband there. I think if you are
looking at what pays dividends, what gives bang for the taxpayer pound in terms of where
you might spend money in the area of the internet, I would absolutely spend it first on
getting people who are not online online before I would spend it on getting people who are
already online and enjoying all the benefits on to superfast. In this country, it is between 20%
and 30% of people who are not yet online. To me, if you look at the step-up in both quality
of life but also the externalities from taking somebody who is not online to being online,
they are massive—the ability to access Government services online, or the ability to do your
shopping online. There is plenty of research that says once people have access to that they
save a lot of money because they are no longer dependent on local suppliers, the ability—
and, in particular, it is the aged who are not so much online—to be in touch with friends and
family easily around the world. I probably do not need to belabour this point, because I think
it is obvious that there is a massive benefit to getting somebody online. Now, there are
various reasons why people who are not online are not online, but it is definitely not that
they say, “I would go online if there was more bandwidth”. That is not their answer. They
say they find it confusing or they do not quite see what is in it for them. A few of them say
price. But if you can help people over that hurdle and get them online, I think that brings
fabulous benefits.
Q148 Lord Macdonald of Tradeston: How much would it cost to get people up to,
say, 10 Mbps if you wanted that generality you are talking about, universal provision?
Mr Kenny: At this point I am not talking about anything that is to do with infrastructure. I
am talking about training and mentoring and that kind of educational programme, so
somebody who may be living right in the middle of London but just does not have the
technological savvy to get online.
The Government has encouraged some efforts in this. There is a programme called Race
Online that does exactly this. One of the things, if I am reading it right, that is a tragedy
about the current policy is that Race Online, which has very little funding from the
Government, is being encouraged to divert its resources from helping people who are not
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online at all to instead doing demand building, pre-registering people who might be
interested in superfast, to help the economics of superfast provision. That to me is a gross
misallocation of resources, and it is one of the problems I have with Government
intervention with superfast, not the commercial rollout that, as Chris rightly says, is going on
particularly in big cities—and more power to their elbow. But once Government starts
intervening, Government intervention with superfast to my eyes is deeply, deeply regressive.
The households who will benefit most from very high-speed connectivity are the households
with a lot of gadgets, multiple TVs, multiple computers. The only way you can fill up 100
Mbps is by having a lot of people doing a lot of high-powered stuff simultaneously.
Q149 Lord Macdonald of Tradeston: Sorry, I am still not clear. Would it not cost
quite a few billions just to get a universal application of 10 Mbps? How much would that
cost? Would you be in favour of that one?
Mr Kenny: No, we do not need 10 Mbps. I think the benefits of—my first scenario is not
about changing the infrastructure at all. It is about helping the people who have access to 2
Mbps or 10 Mbps or maybe even 50 Mbps today to start using it who at the moment are not
online at all. There is no investment in infrastructure; it is purely investment in training and
mentoring.
Q150 Lord Skelmersdale: Sorry, does that not mean that it is dependent on the
individual in the household or in the office or whatever to make use and be properly
mentally, if you like, equipped to use this particular technique? What investment is required
to achieve that?
Mr Kenny: Yes is the answer to the first part of your question, though I think Governments
can help. Indeed, in places like Portugal and Korea there have been quite active programmes
to do exactly that, training and mentoring. It is indeed what Race Online is doing. Race
Online works with community champions—I believe that is what they call them—who are
basically local enthusiasts. They may well be retirees—in the jargon “silver surfers”—who
have become familiar with this stuff and are enthusiastic about it, and on a volunteer basis go
out and help people in their neighbourhood and say, “Look, it is not that hard, let me show
you how it works”, and hand-hold them through it.
It is also getting easier because user interface is getting much better. If you think about
something like the iPad, whereas once upon a time getting online was a really complicated
job, it involved securing a broadband subscription from some provider, having a modem and
keeping it working, having a computer, knowing how to use a computer—a whole set of
hard stuff if it was not an area you were familiar with—now, if you have an iPad that has
come with connectivity pre-installed, it is so intuitive. I have to say personally I find it quite
inspiring. There is fabulous footage of people who have never used a computer before in
their late 90s being given an iPad that they have never seen before and just getting it because
it is so intuitive and starting to use it. If I could spend money, I would spend it on that side of
things, helping those people get online, not on super-serving the more prosperous
households with ever faster broadband so they can watch 3D TV.
Q151 Lord St John of Bletso: You make a very good point about the uses of
broadband, but if I can go back to Lord Macdonald’s question about the cost of putting in 10
Mbps or 100 Mbps, we have heard a raft of different numbers from our witnesses as to what
the real cost is going to be whether you are putting in 50 or 100 megs, but with the
advances in technology is that cost likely to come down in the future? Is it likely to go up?
What is the realistic cost, because right now it is unlikely that the money that has been put
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aside by Government is anywhere near to what we need to put in the infrastructure
required?
Mr Kenny: Sorry, I did inadvertently duck Lord Gordon’s question—my apologies. Again, it
depends where you are talking about, because the answer is different in rural and urban
areas. Ofcom’s view is the difference between fibre to the home and fibre to the cabinet is
roughly three or four to one. It is at least three times more expensive to take fibre all the
way to the home rather than to the cabinet. If you take fibre to the cabinet, you get a lower
speed. However, what BT has this last month rolled out is a fibre to the cabinet service that
is 80 Mbps down, 20 Mbps up. That is a lot. You have to work quite hard to fill up 80 Mbps
down, 20 Mbps, and obviously it is pretty close to 100 Mbps that is a standard benchmark
for fibre.
Now, Chris will say, and I agree with him, that fibre is in a physical, fundamental sense
superior, that while 80/20 for copper is at the current technological limit of what is
deployable—there is other stuff in the lab but in terms of what is deployable 80/20 is the
limit—100 Mbps is by no means the limit of fibre. You could have easily gone way beyond
100 Mbps. The trouble is there is diminishing returns with each incremental megabit: the
step from zero to 56 kilobits per second, up to dial-up, fabulous, with huge returns per
megabit for that step; from 56 to 2 Mbps, pretty good return per megabit; from 2 Mbps to
80 Mbps, diminishing; from 80 Mbps to even 100 Mbps or to 1 gigabit per second, really
marginal. Because the cost of enabling that 100 Mbps is three times the cost of enabling the
80 Mbps, you have to be very, very confident you will deliver the incremental benefits.
Q152 The Chairman: Are you done with this—
Mr Kenny: I think I had better shut up because I think Chris—
The Chairman: Well, Chris Holden and then Lord Gordon.
Lord Gordon of Strathblane: Well, I could save it for my question later, but I will try to
remember about cost.
Mr Holden: I had almost forgotten the question there, but I have not. Yes, there is going to
be a cost for doing VDSL rollout to 10 Mbps. Yes, BT are offering an 80 Mbps/20 Mbps
service and, yes, probably 15%, maybe 10%, of the population can actually get that. It is an
“up to” service. It is an “up to” as long as you have a very short copper link to your home. It
is “up to” based on the fact that you are using bonding, probably, which means—
Q153 The Chairman: When you say “short”, one of the things that a lot of the
discussion about using copper is how much you can use it for and how far from the cabinet
it is going to give you decent volume of access.
Mr Holden: If you are talking about an 80 Mbps service on copper, then 400 metres, I
believe, is the maximum limit now using the latest technologies that have not actually been
deployed yet.
Q154 The Chairman: Do you anticipate that is going to improve or not?
Mr Holden: No, I think you are pretty much getting near the end of the line. That is the
point. This is the whole crux of the matter, really. Are you going to spend money? Are you
going to spend money to do that? This is new technology you are going to have to install in
the cabinets. It is a capital expense and you know you are going to spend three times the
amount later to put it back to fibre. You will have sunk costs into cabinets, this seems like a
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waste of money to us. There are technologies called bonding and vectoring that are driving
these upgrades, but they are state-of-the-art technologies. When you talk to people who
have tried it, you still need good-quality copper in the right place for the right length to be
able to obtain the best performance.
To me, the tragedy in the UK is this “up to”. We have to get away from “up to” and be
honest. If you got away from the “up to” and were honest about what the capacities were,
then it would look a completely different picture. I am one of the fortunate ones. I actually
have fibre to the home and I have my 100 Mbps, which is actually more like 96 Mbps, and I
have a 13 Mbps upload. I can tell you from the public’s point of view I would not go back to
copper. I would pay more money for it now I have it.
Q155 Earl of Selborne: Could we know what you use it for?
Mr Holden: I am not sure I can tell you that. It might be confidential.
The Chairman: Do you want to follow his lead?
Mr Holden: I do not download videos and I do not play games; there is one thing I do not
use it for. But actually I work from home a lot and part of my role is marketing and
communications. There is many a time when I have tried to work from home and upload
some work I have done overnight and actually not had time to complete it. I have ended up
going into work and downloading in the office because it took so long and it was so complex
to do it at home. I have a standard-size family who use downloading—they use iTunes, and
they use iPlayer. I am doing work at the same time, and actually it takes quite a small amount
of people to use the bandwidth now. Interestingly, when you talk about the iPad, the latest
iPads now need 4 Mbps to download their HD video service, so even those are above the 2
Mbps. They are using 4 Mbps now.
Mr Kenny: Just to clarify, I described 2 Mbps as a lifeline, absolutely essential service. I
accept that most consumers are going to want more than that. I do accept that. But let me
just say everything you have said about your household, Chris, I could say about mine
exactly the same. I work from home all the time, I do not even have an office, and I use
cloud services all the time. I have multiple people in my household watching video. I have the
option of faster speed because I am on Virgin, on the cable network. I take their 10 Mbps
down/1 Mbps upload package, and I actually have not felt the need. Maybe I am just not
adventurous enough, but anyway, it sounds like we both practise what we preach, so that is
good.
Q156 Lord Clement-Jones: I might as well put my two pennyworth in because it just
means that I do not have to ask the whole question because we have gone to and fro. It is
the cloud point. Are not we all going to be storing information on the cloud eventually?
Therefore, is not the speed of the upload going to be very important, and is not that one of
the reasons why more than your package will be ultimately desirable and, therefore,
superfast should be desirable?
Mr Holden: Yes, and superfast then needs to have the upload as well. I think you are right.
There is talk with Google bringing out notebooks and the notebooks will not have the hard
drives in them; you would use the cloud. When you get on a notebook, even when you are
working at home I am sure, and you are doing some work, you expect to save a file and it
saves pretty quick. I get frustrated now with 100 Mbps/13 Mbps up when I am waiting for a
file to save on the file server via VPN back in my office. If you imagine that everything was
done like that and there was no local saving, people would get very frustrated very fast if
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they did not have a better latency and a better speed to do this type of work. But I am not
saying that I need 100 Mbps now because I utilise all of it all the time. What I am saying is
that the principal point I am making here is things are developing all the time. Higher
bandwidths are being used. As they are used, if you are going to put in new infrastructure,
put in the right infrastructure. Really spend your money wisely is what I am saying.
Mr Kenny: Yes, there are a couple of things to pick up on there. Cloud services is a very
important point, as is, I guess, future growth in usage. I will come back to that in a second.
A way to think about cloud services is: at the moment, you have a keyboard, you have a
screen and they are both connected to a local box—all in one, obviously, if it is a laptop—
and then you have a pipe that goes out to the internet and all sorts of stuff happens on the
internet. One way to think about the cloud is that the box moves out to the other end of
the internet connection. The actual processing of whatever the data is—the presentation of
a picture—now sits out on a cloud server somewhere rather than in your home. You have a
connection that is from your keyboard and mouse to the cloud, up to the cloud, and you
have a connection to your screen that is down from the cloud. Now, that actually is a world
in which everything exists in the cloud. If the files you are manipulating are in the cloud,
nothing needs to be uploaded. I am going to come back to some important caveats, but
nothing needs to be uploaded except the keyboard and the mouse clicks. You control the
document or whatever it is that sits in the cloud. You do not need to upload the document
to the cloud because the document is already in the cloud. That is the very nature of cloud
services.
With something like Gmail, for instance, if you are working on an e-mail or on a
presentation with Google documents—to take another cloud service—all that information
sits in the cloud. You manipulate the information via your keyboard, but you do not need to
upload. Ironically, at maturity cloud services actually arguably decrease the need for upload,
not increase, because you are not creating a local file that you craft lovingly over weeks, as it
may be, to create your beautiful presentation or video, and then you suddenly upload it. It is
there uploaded in the cloud the whole time from the get-go and accumulates there.
An example of this or a parallel to this is online gaming services that exist entirely in the
cloud. All they do is take keyboard and mouse clicks up from your computer. In the cloud
they do all the figuring out about whether you have shot space aliens or whatever it may be
and then present the result back to your screen. That is an incredibly intense application.
Latency matters a lot, otherwise you might shoot the wrong space alien. It all has to happen
very quickly. It is highly visually rich because that is the nature of these games. There is a lot
of rich detail in the video, so it is a very demanding application. What these companies
specify is their need for bandwidth is 5 Mbps down, and they do not even bother specifying
an upload requirement because they do not need it.
Q157 Lord Clement-Jones: But what about the back-up if you are going to back up
from the cloud? Is that not going to—
Mr Kenny: Back-up from the cloud? If you have created your documents in the cloud, they
are already backed up. They are in the cloud. None of us who use Gmail worry about
backing up Gmail, because it all sits in the cloud and Google backs up Gmail for us. With my
accounting service, which is a cloud-based service, I do not worry about backing that up
because it sits there with FreeAgent. The data is in the cloud, and FreeAgent are worrying
about backing it up.
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Now, there are occasions in which you will want to upload things from home, even in a
future scenario. Let us say you have just come back from holiday with a video camera full of
video images, and you want to get those up to some cloud-based site. That absolutely does
require upload. You might find it a bit annoying to have to wait for your holiday videos to
upload over time, but that is quite a specific-use case, and it does not feel like it is worth
rolling out a whole specific infrastructure for. Moreover, I would say as wireless networks
mature, more and more of these things are going to upload in the background.
It is already starting to happen with photos. Photos are another example where you might
come home from holiday with a whole lot of digital photos you have taken and you want to
upload them. More and more as you take the photos, as soon as you have taken it your
camera or your iPhone or whatever it might be starts uploading in the background. Off it
goes, and next time you log in it is already there. It has happened wirelessly. Because it has
happened in the background while you were off doing other things—eating the next gelato
on your holiday or whatever—you do not worry about the upload time because you were
doing something else. I think it is not at all obvious to me the cloud says we need much
greater upload speeds.
Q158 Lord Clement-Jones: Chairman, can I just take this opportunity to declare an
interest—which I inadvertently failed to do so on previous sessions—as a member of the
International Advisory Committee of Huawei.
Mr Holden: Yes, I know. They are a member of our organisation, by the way.
The Chairman: Thank you for declaring that.
Q159 Baroness Fookes: I think this is directed more to Mr Holden, please. I came
across the term “externalities” for the first time reading up for this. I thought it was the
most hideous piece of jargon I have seen in a long time.
Mr Holden: I agree.
Q160 Baroness Fookes: I take it that means a benefit that goes beyond the immediate
recipients or givers of a benefit to other people, other parties. Can you give any specific
examples of these third-party benefits, as I would prefer to call it, which come from having
the superfast rather than basic broadband?
Mr Holden: Okay. There are a number, actually. E-health is starting to use higher
bandwidths if you want to take it to its limit. I was at an interesting conference, actually—in
Greece, funnily enough—a year ago with some of the people thatwere developing software.
What they are doing now is looking at remote diagnosis, looking at people who are ill and
aged. One of the things you need for that is very high-definition, live feed because, as a
doctor, to diagnose them remotely, you need to have a pretty good view of what they are
like—their colour, and whether they are shaking etc.—which is not very easy on a lowdefinition
screen. This requires using higher bandwidth. This also helps society as well
because it means that more people can live at home.
In fact, interestingly, the other one where you see the benefit of high bandwidths is,
obviously, in remote communities. We always assume that the people in the city are going
to get high bandwidth because they are greedy and they have a lot of money, but the people
who would probably benefit the most are probably the people in the rural communities that
need to try to keep their community together. That is what I call a real externality as well.
You see people using things that people have said do not work such as remote schooling.
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There are places in Scandinavia where this already happens and it is pretty good quality, with
real one-to-one interaction with a whole class. Now, in a sense each activity does not need
huge bandwidth, but if you are going to start getting high-definition pictures and content
coming through as well, then it might. If you go into 3D and into new scientific advances, you
are looking at much higher bandwidth.
But there will be, we are sure, more services that come out that need high definition. With
the aged, where you are having to try to monitor lots of rooms and see if they have fallen
and are they really unconscious, these are elements where you are looking at high-definition
cameras. Many of these early services that are being developed are based on low definition
because they cannot do anything else because there is no infrastructure to support it, but
they are not gaining the real benefits they might.
I mentioned earlier the gigabit cities in the US where they are looking at services in
universities and looking at gigabit-based services that will help communities. These are not
necessarily developed yet, I will be honest. I cannot say you must have 100 Mbps because
you are going to use this bandwith. There is an element of faith in here, but new advances
are coming along all the time. These things are being worked on.
Q161 Baroness Fookes: But they sound to me—perhaps I am being simplistic—like
direct benefits, not one that spins off.
Mr Holden: Well, the externality, I guess I would say here, is if you can keep more people
in a remote village in Scandinavia, then the whole community spirit improves. You have
more people, so the externality is greater. People come back home, then they can work
from there as well. There is one of our case studies in the Fibre to the Home Council where
a film director used to spend something like 80% of his time travelling to major cities to do
film work with film studios in the US, but now he has fibre to the home in his village and he
spends most of his time at home with his family. Now, I know this is not a case for putting
fibre everywhere—
Q162 Baroness Fookes: Which we assume to be a benefit if they all get on?
Mr Holden: Yes, precisely. If they do not, you would not do it, I am sure.
Mr Kenny: Let me partially agree with Chris, but you will not be surprised to hear there is a
sting in the tail. I think remote medicine is an example where there can be real externalities.
Clearly, there is a direct benefit to the aged person living at home, but there can also be
cost savings potentially for the healthcare system, which benefits us all as taxpayers. I do
believe there are real externalities there. But the aged woman living alone is someone who
inherently is going to have low-bandwidth usage because she is perhaps less likely to be using
the internet anyway, and she does not have lots of kids running around watching video and
so on. For that high-definition video feed requiring 5 Mbps, we are a long way from that
delta between 5 Mbps and 80 Mbps—and I accept Chris’s point that not everybody can get
80 Mbps from FTTC, but even if we say 40 Mbps, which is a much safer benchmark—or 100
Mbps, which is the typical benchmark for fibre. That is the first thing to say.
The second thing to say is there is quite a lot of evidence that basic broadband can bring big
benefits to the medical system. Indeed, there has been quite a lot of evidence that the
internet can bring benefits to the medical system for over a decade now. The interesting
thing is that despite that evidence the medical system has not leapt at this with open arms.
They have not said, “Gosh, that’s fantastic, we’re off, we are going to start keeping the aged
at home and monitoring them remotely. We’re going to start monitoring diabetics”. There
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are a lot of reasons, not least that the medical systems are big, complicated and slow to
change, and there are human factors and a million things.
Indeed, the healthcare sector is, I think it is fair to say, notorious for being really bad with
the big technology projects. We just have to look at some of the struggles they have had
with even making electronic patient records, which you might have thought was a thing
more in their control. Another thing to keep in mind when we talk about these potential
things is that—and I know this is not what Chris was saying—it would be hubristic of the
telecoms industry to say, “Ah, we are the centre to this problem. If we just provide fibre, all
these things will follow”; not at all. There still needs to be a major re-engineering of how the
medical system works, which is by no means a given. There is huge downstream risk. One of
the things that suggests that is a real risk is, despite the fact that a lot is possible with basic
broadband and the potential is proven to be there, it has not happened. I do not see more
bandwidth being the answer there; there is something more complicated within the NHS or
the national health system.
Mr Holden: Can I just plug into that one? I agree with you 100%. One of the tragedies I may
put to you, is the fact that what we see is the European Commission has a vision. They have
a vision to where the future goes and, to be fair to Neelie Kroes and her cabinet, they are
saying, “Look, we want 100 Mbps, and then you can do all kinds of things in the future”.
One of the things we talked about among the benefits and externalities here is making use of
the health service, making use of unemployment, making use of schools and remote teaching
and learning, and even—coming back to your first point—basic internet skills. The tragedy is
the Commission put out this target and said, “Now national plans should be developed to
set out how they are going to get there, where they think they need to go, and what else is
going to come on top to utilise these services”. Most national Governments have done
nothing yet that really does anything substantial. The possibility and the benefits that could
be had by utilising this internet space and high bandwidth, for the other services, could give
enormous savings, particularly at times of recession. But nobody is doing anything about it,
and that is a real tragedy, I think.
Q163 The Chairman: Can I use my position as Chairman to ask a question that I think is
relevant in terms of the inquiry we are conducting? If you have a network that certainly has
copper at the end of the line, and if you are going to upgrade it, is it a sort of step-change:
you are either on copper and you have relatively low bandwidth, and then on the
assumption that if you changed it—forget about radio and all these other things—but if you
have copper you presumably would upgrade copper to fibre, would you not, if you have that
sort of physical link? Would you go straight from copper to fibre when you are upgrading, or
are there intermediate steps, because if you have fibre, it seems you have potentially almost
limitless capacity? So is in a sense the discussion about if you stick with copper, and
equivalent-type things, you are constrained to have a relatively low bandwidth—relatively—
and then if you move you are going to jump up to something with much, much more
potential?
Mr Kenny: I think Chris and I can agree on this one. If it is a fixed connection for, as it were,
a given metre of the fixed connection, it is copper or fibre—there is no other technology.
The Chairman: Exactly, yes.
Mr Kenny: That said, there are still some interesting wireless technologies in the States, but
set those aside for a minute. Where the non step-change comes is: how far out do you push
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the fibre from the exchange? So you actually have a reasonable amount of discretion: you
can do none; you can stick entirely with current copper; and—
Q164 The Chairman: But if you have a fibre node and you roll copper out, it is not all
that far before the amount of bandwidth you can get reduces very substantially. Is that not
right?
Mr Holden: It is a function of length.
Mr Kenny: It is a function of length.
The Chairman: Yes, but it is quite short distances.
Mr Holden: If you want the high bandwidth, yes.
The Chairman: Yes, if you want high bandwidth.
Mr Kenny: Yes, but that is true if it is a measure of distance. Let us say you have a house
that is—I do not know, but this might be the typical number in the UK—about 3 km from
the exchange, and you say, “We’re not getting great bandwidth over our 3 km of copper.
Let’s push the fibre closer to the household”. There is not a fixed cost per kilometre as you
get closer to the customer households, because it is like a branching tree. It is relatively
cheap to replace the trunk because you just dig up one bit of road and that gets you a third
of the way. As you push out, there is more and more capillarity in the system. The further
you push out fibre the more expensive it gets, and that is why fibre to the node—which
actually, just in terms of meters, goes quite close to the home—might, say, take you from
having 3 km of copper down to 400 metres of copper, or less even. It costs you a third of
the cost of taking fibre all the way, because so much of the expense is in those last few 100
metres.
Q165 The Chairman: It is in the digging and the burying and the—
Mr Kenny: It is in the digging. That is one of the reasons, by the way, why we should not
expect costs to necessarily come down a lot.
Q166 The Chairman: Yes. But it also follows, does it not, that where for some reason
or other copper needs to be replaced, for whatever reason, the opportunity cost of putting
in fibre instead of copper is pretty well nothing, but the benefit that accrues under the
circumstances I have described is very considerable, is it not?
Mr Kenny: Depending what bandwidth the copper was delivering, but if it was—
Q167 The Chairman: Most copper is relatively restrictive compared to what you can
get on fibre. If you want to get 10 Mbps, could you get 10 Mbps basically with fibre to the
cabinet and then—
Mr Kenny: Fibre to the cabinet will give you 40 Mbps easy and 80 Mbps—
Q168 The Chairman: Yes, but then you have to go from the cabinet to the home or the
works.
Mr Kenny: Sorry, the 40 Mbps or 80 Mbps for fibre to the cabinet is an end-to-end
connection. From the exchange to the cabinet you will have some vast amount of bandwidth.
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Q169 The Chairman: Limitless capacity?
Mr Kenny: That is right, because it is fibre, and fibre has huge—
The Chairman: Yes.
Mr Kenny: The constraining bit of fibre to the cabinet is the copper.
The Chairman: It is the end section—the end bit.
Mr Kenny: That is what sets the 40 Mbps or the 80 Mbps number, depending on the
equipment at the other end and the quality of the copper and so on.
Q170 The Chairman: You would agree basically with that, do you?
Mr Holden: Pretty much, but the point you made is a valid one. It is cheaper to install fibre
than it is to install copper these days. So if you are going to replace the copper, for heaven’s
sake, do not do it; replace with fibre.
Q171 The Chairman: Yes. But then if you have the copper connections at the end of
the network, and you wanted—for want of a better word—to put in 50 Mbps through to
most houses, is that a runner?
Mr Kenny: You can always push the fibre a bit further out. I must admit this is not a
question I have looked at in detail, and it will get more expensive. But the constraint is the
length of copper, and if you push fibre further out into the network, then you lessen that
constraint, and you can get higher speeds. Before—
Mr Holden: You are putting more cabinets out because you still have—
Mr Kenny: Yes.
Mr Holden: Remember you are designing a network here. So the cost rises because you are
looking at the density of the population: how far do you push it and how many people can
you cover? If you push it out further then you are probably going to need another cabinet
somewhere, and then you have doubled the cost of the cabinets.
Q172 Lord Clement-Jones: What length of copper can you have and get 50 Mbps, as
the Chairman has said?
Mr Kenny: It is a moving target.
Mr Holden: It is a bit of a moving feast at the moment.
Mr Kenny: Yes.
Q173 Lord Clement-Jones: So there is no definitive answer to that?
Mr Kenny: No.
Q174 The Chairman: Is it easier to get more bandwidth from copper than it used to be?
Mr Kenny: Absolutely, yes, and we have been through these generations DSL, ADSL—
Q175 The Chairman: Do you concur with that?
Mr Holden: There have been generations, like you say, ADSL, ADSL2+, VDSL and VDSL2+.
Then there has been bonding, which is actually using spare copper pairs when you have
them, which gives you some extra performance. Then there is vectoring, which can be used
if there are no spare pairs, and now they are talking of phantom mode.
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Q176 The Chairman: Sorry, phantom what?
Mr Holden: Phantom mode, which is a combination—
The Chairman: For the uninitiated, could you please explain what that amounts to?
Mr Holden: No, frankly, I do not think I can to do it justice. Basically, it is combining
bonding and vectoring to get very high bandwidths. But the costs and the risks are extreme,
and you will not find any guarantee of performance.
Q177 The Chairman: Is all this commercially realistic in the world we actually live in?
Mr Holden: No, not at the moment.
Mr Kenny: Sorry, all which?
Mr Holden: Phantom.
The Chairman: The increasing capacity upgrade in the copper to give you—
Mr Kenny: It has been going on for a decade. I mean, we started—
Q178 The Chairman: Is it going up to meet the sort of requirements? In a sense, I think
both of you agree that somewhere in between 2 Mbps and 100 Mbps there is a point where
sort of—
Mr Kenny: Where that point is is incredibly important and so, if I may, let me spend a
minute on that. Usage per household has been going up over time at a fairly brisk clip. There
are a number of reasons for that. People are spending more time online, so just the average
household is moving more traffic back and forth because people are plonked in front of the
computer more often. More people per household are online, so there is more
simultaneous usage now. Thirdly, they are doing more bandwidth-intense activities for every
minute they spend online.
The first two of those clearly have a natural limit. You reach a point where there are no
more hours in the day, or at least no more waking hours at home in the day to spend online
and, given the amount of time people in the UK are spending online already, we may be
approaching that. The second is the number of people online. Again, there are only so many
people in a household, and the point they are in online growth must stop along that
dimension. It is worth bearing in mind that the average household size in the UK is about 2.5
people per household, including infants, so two people on line simultaneously is a kind of an
average number. Of course, there will be households with higher. So those two dimensions
we are going to hit a natural limit; maybe not today or tomorrow, but we are going to hit a
natural limit.
The third dimension is the intensity of usage—the bandwidth-intensity usage—where we
have been on a steep upward curve: e-mail at an incredibly low intensity; streaming audio a
bit higher, at 64 kbps perhaps; YouTube, higher again; and iPlayer, higher again. But this, too,
is a thing with a natural limit, because humans are only capable of processing so much input
from whatever is coming down the pipe. We have talked about whether the weak link is the
copper or the fibre, but there comes a point where the weak link is actually the human eye
and brain.
People used to joke about extreme audiophiles, where we were investing in hi-fi equipment
that was of such quality that the human ear can no longer distinguish. Well, we are going to
get to that point with video imagery online. The bandwidth of the human eye is—and I am
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certainly not qualified to judge—according to the medical literature, 9 Mbps. The amount of
information an eye can process is 9 Mbps. So if you are asking me, “Where is it between 2
Mbps and 100 Mbps?”, I think at the point at which the two or three people in the
household are all online, all using the natural limit, which is the capacity of their eyesight.
That feels to me like the natural limit.
Q179 The Chairman: But is there not—and I come back to Chris Holden—a point here
that, as we have talked about the tree and the branches, if it is a tree between the cabinet
and the household, in fact, one of the constraints on what you can get is the trunk further
down, and as part of this process you do not get houses by themselves and businesses by
themselves? In fact, they are all scattered together and mixed up. That has an impact on the
capacity that you need to go on the fibre to the cabinet model out from the cabinet.
Mr Kenny: From the exchange to the cabinet is not a bit of the network where people
worry about the capacity—
The Chairman: No, because that is, on the whole, fibre.
Mr Kenny: Because that is on the fibre and you—
The Chairman: Yes, the bit beyond when you have—
Mr Holden: That is not actually true.
The Chairman: Oh dear.
Mr Holden: You will find already that BT are throttling sometimes some of the services
they have because their backhaul is not capable of taking the capacity.
Mr Kenny: I think we are saying the same thing. The backhaul from the exchange into—
Mr Holden: Yes, but also sometimes running from the cabinet. If there are a lot of
businesses on there they can be given—
Q180 The Chairman: Even the fibre is getting overwhelmed by the—
Mr Holden: The fibre can take as much capacity as you like. It is how you then split it out
and break it out to the different customers. So it could be that it is the other technology
that is the limiting factor.
Q181 The Chairman: So in other words, it is the middle-mile stuff is copper, but it is a
different—
Mr Holden: It is fibre. Most of the middle-mile stuff is going to fibre now.
Q182 The Chairman: Let us get the terminology right. From the exchange to the
cabinet, we are talking about.
Mr Holden: Yes.
The Chairman: Is that the final mile or the middle mile?
Mr Holden: A final drop is from the cabinet to the customer. If you take the part from the
cabinet from the exchange, what BT are doing a lot of now is driving fibre to these cabinets.
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Q183 The Chairman: Yes. So you have almost limitless capacity into the cabinet. So lots
and lots of stuff can go into the cabinet, go out of the cabinet, but you have the copper
constraint between the cabinet and the end-user?
Mr Holden: The copper constraint is the constraint from the fibre to the home for the
individual users.
Q184 The Chairman: Yes. But when you have a cabinet with copper coming out of it, it
starts off being a wire, as it were, and then it subdivides, because it is going one to a house
that way and one to a house this way, it divides again, there is a business off here, and so on.
So the characteristics of the copper are quite complicated. It is not what goes into each
house that matters; it is in a sense what goes into the cabinet or out of the cabinet, and the
use collectively over the whole of that that is the pinch point, is it not?
Mr Kenny: I think Chris will agree with me. That link between the cabinet and the exchange,
it is certainly possible that that can be congested at any particular point in time if they
overuse it, but if it is it is fundamentally BT being cheap rather than any fundamental
problem.
Q185 The Chairman: It is not the fundamental problem that we are talking about; it is
the last bits, really?
Mr Kenny: No.
Mr Holden: It is the actives on either end that tend to throttle the service. The fibre is like
you say—on a piece of fibre you could do the whole of the UK, probably, as far as
bandwidth is concerned—but it is the actives on either end that limit what you can do and
the splitting capabilities.
Mr Kenny: Since we are in this area, it might be worth talking for a second about what
happens from the exchange off to the rest of the network, because that is an area where
almost all ISPs apply what they call—sorry, another bit of ugly jargon—contention ratios,
which basically means they assume not everybody will be online at the same time, and so
even though they have offered in aggregate a sum total of whatever it might be, 200 Mbps to
their customers, their link in from the exchange to rest of the internet is not 200 Mbps, but
10 Mbps. That is completely standard telecom planning, statistical planning, because you
know not everybody will be online at the same time. However, in the busy hour, the time of
day when most people are online and for residential users it is about 11 o’clock at night,
there can actually be some congestion there, and at least some of the time when people
complain about the quality of their internet connection, the problem they are experiencing is
not with this last mile that we have all been very focused on, but actually with the stuff in
from the exchange because their ISP has not invested enough capacity there.
If we are coming up with applications that mean that people do need tens of megabits per
second, not only will we have to spend to upgrade the access network but also that backhaul
network. I am happy to say it is a smaller part of the puzzle, but there will be another spend
there.
Q186 Earl of Selborne: Just to follow up the Chairman’s last point on this, we have
agreed, I think, that fibre optic cable to the cabinet is not the constraint and it can take as
much information as you want. It is the branches beyond the cabinet that are the problem. If
you do away with the cabinet and you have fibre optics straight to the individual houses, you
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are going to run into a problem that, as you have more and more branches, so the cost of
trenching increases.
We had evidence a few weeks ago from somebody who had effectively set up a sort of
village co-operative, and they were appalled at the monopoly that BT exercise. Because we
are talking BT here; we are talking about rural areas, where if they were allowed to do the
trenching themselves they could do the installation at a fraction of the cost. That was the
evidence we were given. But BT are not regulated in that sense. Ofcom have no authority to
scrutinise the cost of the trenching that is charged by BT. Is this an area that you think could
be usefully regulated by Ofcom in order to bring the cost down, because this seems to be
the critical expense?
Mr Holden: Ofcom obviously are limited for—they can only regulate someone who has
SMP, which in this case is either Hull, which has its own little network, or it is BT. Outside
there they do not have the powers to regulate anybody at the moment, so that would be a
change. We are looking at Europe where there have been discussions that up to €300 billion
is how much it would cost to meet the digital agenda with fibre.
We have done our own modelling in the council, with various consultants as well, and think
it is more like €192 billion. That €192 billion to do Europe as a complete overlay—in other
words, a brand new greenfield site. There are enormous opportunities for infrastructure
sharing, and the tragedy is there have been missed opportunities that have come up. You
may have spoken to one of the companies that wanted to build a lot of the rural network
with Fibre to the Home, and were prepared to do that provided they could get access to
share the infrastructure at a reasonable price.
I know later on in the questions you have PIA systems, so BT have reduced their price a
little bit, but there are still discussions going on with some of these companies about
whether it is too high. But the discussion is all around using the BT infrastructure. There is
the cable out there as well. There is a cable industry that has probably better ducts and
infrastructure and free space than, say, BT has. So there are lots of other opportunities to
use sharing of infrastructure.
Then, particularly when you come to the rural communities, why are we not sharing
infrastructure with the other utilities like the power companies, when you have poles? I
know we do not like putting things on poles, but actually modern cables are pretty small.
Often you cannot even see them they are that small now. So sharing some of those
infrastructures would greatly reduce the cost.
Q187 Earl of Selborne: Would it be practical to put fibre-optic cables on poles?
Mr Holden: Yes. They do it in America, they do it in Japan and they do it in many countries
around the world. Interestingly, when you look at the cost to do the final drop, I think the
UK has 40% of its households covered by poles to the final drop. So there are potentials for
saving: ducting is expensive; civil engineering is expensive; hanging on poles is not necessarily
so, as long as you can get access at a reasonable rate, from more than just BT from the
other utilities and the other telecoms businesses as well.
Q188 Earl of Selborne: If trenching is the cost, as I think we have established from the
questioning, why do we bother to trench? Why do we not use overhead poles and get on
with it?
Mr Holden: A good question. Many people have asked that, but again it is how do you
regulate it and where are they available.
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Q189 The Chairman: You can use sewers as well, can you not?
Mr Holden: You can use sewers, yes. There is a company in the UK that was going to do
that in Bournemouth.
Q190 Lord Macdonald of Tradeston: Who is stopping the poles and the cables? Why
has it been stopped in the past?
Mr Holden: BT has certain rules and certain regulations and the PIA now is opening up the
BT poles with access to other third parties. I was looking at—
Q191 Lord Clement-Jones: Sorry, who is opening up?
Mr Holden: British—Openreach. Sorry, Openreach, not BT.
Lord Clement-Jones: BT’s wholesaler?
Mr Holden: Yes. Well, no, BT’s infrastructure arm, really. Openreach was structurally
separated from BT.
Lord Clement-Jones: Yes.
Mr Holden: But there are other utilities, like the power companies, but they are not
regulated in the same way, so Ofcom cannot do very much. If Ofcom had more rights to go
out and actually look holistically and say, “How can we reduce the cost of deploying fibre to
the home in the UK?”, there are lots of examples and lots of models from around the world
that could be used. There are a lot of communities that are actually laying their fibre. If you
look at—I think, it is the B4RN project—the farmers there are so desperate to get fibre
they are laying fibre in their own ground. They are buying fibre and taking it right to an
interface so they can be connected, and they are willing to do that.
In Scandinavia people are paying to build their own network. The municipalities are building
the network, using contractors, and then connecting in.
Q192 Earl of Selborne: But is it not the case that if farmers in this country try to do
that, they are told by BT that the specification is not compliant? Is there any way it can be
demonstrated that they have met the adequate standards? BT at the moment seems to have
the power of veto.
Mr Holden: I cannot speak definitely for that. I know that some of the rural communities
are looking at other suppliers, other than BT, to link their networks into. There is a
problem, to be fair. You can make too much of it, but the problem is: if something goes
wrong with a connection, who is responsible and where is the failure? It is very difficult to
manage a network with a multiplicity of different techniques and solutions, and actually
building into that network. So there is a real problem there. But there is no reason why
there could not be a standard and a recognition you do it in the standardway.
To be frank, if a farmer has put a fibre connection through his field, why does BT care?
Because if the failure is in his ground, it is the same as if your pipe fails for your water main
in your house—it is your responsibility—and BT would very quickly find that is the issue and
say, “You fix it”. So I think there are ways around a lot of this. We could really reduce the
cost of rural and villages—I am thinking here of installations—if we utilised the resources
that are already available by sharing ducts, poles and sewers possibly. Although sewers have
their issues.
Lord Razzall: Rory Stewart.
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Bishop of Norwich: Rory Stewart is going to give evidence to us to this effect. This is all
part—
Lord Razzall: I imagined he would, yes.
Bishop of Norwich: In which he wrote a piece the other day.
Lord Razzall: Yes.
Q193 The Chairman: Robert Kenny, do you have any points about this before we move
on?
Mr Kenny: Some small ones, but on this I am broadly in agreement with Chris. My sort of
beef with FTTH is not that it is inherently bad, just that it is expensive for the incremental
benefits it delivers. But if you can make it cheaper, great, and there are lots of situations
where fibre can definitely be the right answer. Certainly if you have a greenfield site, I would
definitely be building that greenfield site with fibre not copper. That is clearly the right
answer.
Q194 The Chairman: From your perspective, do you think it is the case that there are a
lot of constraints on putting fibre in that are essentially artificial? They are regulatory. They
are bureaucratic. From the perspective you are looking at this, do you think that if you
actually enable people who had get up and go to get on and do it, you would find a lot more
could be laid than has been the case?
Mr Kenny: I do not claim great expertise in this area, but what I will say is that the things
that look great in PowerPoint end up hitting real problems on the ground that are nothing
to do with regulatory issues, bloody-mindedness by incumbents or any of those. The sewers
were being used in Paris, but the glow rather went off that. Mercury, when it started rolling
out its network here in London, had this cunning idea of using the former hydraulic pipes
that were used to operate lifts and so on in London, which seemed like a great idea at the
time, and they brought the London hydraulic company. When you get down there it
suddenly gets really messy when you are on the ground.
There is a relatively recent Ofcom study about BT ducts, where they looked at the practical
issues with end-to-end availability, because of course what you want to be able to do is get
fibre from your exchange to the node or the house, as it may be, and you need all the ducts
in between to work just to be able to quickly blow fibre through. But there are a million
problems. The key to the manhole cover will be lost, the manhole will be flooded, a
particular duct will be jammed halfway down, or it will not have enough kind of apertures in
the wall. I mean there is just a lot of stuff. So I absolutely think it is worth exploring these
things and keeping BT honest. I think it is absolutely worth—for instance, when new roads
are built—the marginal cost of laying a good-sized duct along the road so that, if later you
wanted to put something down that pipe such as fibre, we would have no marginal costs.
Great. Why not? It is cheap to do. It creates option value for the future, even if you do not
need fibre today. So I am all for that if you can bring the costs of this stuff down.
Q195 Bishop of Norwich: Why is wireless not a cheaper and more straightforward
answer, given all these complexities about laying trenches or poles or fibre all over the shop?
In many cases it surely must be cheaper and more straightforward.
Mr Holden: So in the council we are kind of mixed on this because, as I said, I am in the
Fibre to the Home Council so therefore I talk about fibre. But actually we see 4G mobile
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phones and wireless as being complementary to fibre. The two go hand in hand. The
problem when—
Q196 Bishop of Norwich: Do you need both?
Mr Holden: Inevitably you are going to have to, because if you look at 4G services, already
the first thing they are desperate to do is get it off the airwaves and get it on to a fixed line,
and those lines—nearly all antennas now are fed by fibre not by copper because of the
bandwidth and capacity. So what we foresee is when you have everybody in a village with a
4G phone, and they have their graphics and they are watching their movies on them, for
some reason—I do not know why, but children do that—then the available bandwidth
reduces enormously, much faster than is claimed, and the first thing you have to do is offload
on to a fixed line. So you are going to see fibre actually driven closer and closer to the
home. If you look at an MDU, large buildings like that, you are probably going to need fibre
to feed the wireless service as well. So you are almost at fibre to the home anyway, so the
two actually go hand in hand.
Q197 Lord Razzall: Moving on and looking at the discussion from a slightly different
perspective, this is really to both of you and I suspect that you will disagree. Clearly there is
a balance the Government has to strike in allocating resources between stimulating basic
broadband and stimulating supply of superfast broadband. Do you think that the
Government currently has that balance right or wrong? Just as a slight supplemental to that,
what do you think of the idea that, rather than having targets for superfast broadband, which
many people think will not be met realistically by 2020, it would be better to have the USO
for improved levels of basic broadband at this stage?
The Chairman: Can I just interject? We seem to be going relatively slowly through our
agenda, so can everybody try to be concise, both with questions and answers?
Lord Razzall: We may be about to have a vote as well.
The Chairman: We shall see. Anyway, on we go.
Mr Kenny: All right, a brisk answer: universal service obligation of 2 Mbps? Yes. Is the
balance right? No, because, essentially, near zero is being spent on encouraging adoption as
opposed to hundreds of millions on shiny superfast.
Mr Holden: A 2Mbps universal service? Waste of time. Two megabits is dead already.
Nobody wants that. You speak to all the rural communities, 2 Mbps is absolutely—
Lord Razzall: Yes, it could be 10 Mbps, or it could be 8 Mbps.
Mr Holden: Could be 10 Mbps, or could be 8. Are we spending too much money on nextgeneration
networks? We are not spending enough money doing next-generation. It is the
future, we should be spending more money as well on education. We are spending no
money on education of telecommunications, the benefits, or the services that run on it.
Lord Razzall: I think on that point you both agree, I gather.
Mr Holden: Yes, we do.
Q198 Bishop of Norwich: I think I read somewhere in one of the submissions that in
Korea, where there is the wide availability of very high levels of megabits per second—
Mr Holden: Gigabits.
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Bishop of Norwich: Well, whatever.
Mr Holden: They drive in gigabit now.
Bishop of Norwich: Right. There is only about 30% take-up in households, and it has
levelled out. Does that not give evidence that people will not actually pay for superfast
broadband while there are no real applications that would require such high speeds?
Mr Holden: I think one of the big issues at the moment is take-up. Take-up is used by the
incumbents, and everybody else is saying there is no need to drive fibre out because people
will not take it. They are quite right. I have a 100 Mbps service. I am not using 100 Mbps
most of the time, so why should I pay for that extra service? But the question is I know, I am
very confident in my own mind, that when services come along now I have 100 Mbps service
and I am going to be able to use them. I will not be disadvantaged. So yes, there is an issue
that not everybody is going to pay.
I would suggest 30% take-up is quite a good model, and if you look at the business models
for where they built you would probably find 30% is profitable. The other way to do it is to
build out to homes (passed) and then connect customers on demand. Where the models
work very well is when they go out and canvass and say, “Look we’re coming into your area.
We’re going to give you next generation fibre. You sign up now you’d (probably) get the
installation for free and you get this performance”, and when the take-up is about right, then
we build it.
Q199 Bishop of Norwich: These are quite major subsidies that we are talking about,
which will come from the taxpayer as a whole, which for the foreseeable future are going to
benefit the wealthier members of the community. What are the social externalities of that?
Mr Holden: I find it hard to understand why you are only benefiting the wealthy part of the
community. Are you suggesting that farmers are wealthy? Some of them may be.
Bishop of Norwich: I think some are.
Mr Holden: I did answer that some may be. A lot of farmers are really hard-working and
struggle to make a living, but they find fibre essential.
Q200 Bishop of Norwich: What would be the social make-up of those who are using
the majority of the gadgets that are around?
Mr Holden: Mixed, I would suggest. You need to look at who buys 3D 50-inch plasma TV
screens. If you look at the market for that, you will probably find it goes across all people
even those who should not have the money to spend on them. They buy these types of
machines, perhaps because they cannot afford to go out and they spend all their time at
home. So I would be very careful in saying it is only for the rich. I do not personally believe
that is the case.
Mr Kenny: I am very glad you have raised this issue because it is an important one. One of
the great ironies here is that collectively all of us involved in this debate are figuring out ways
to fund something that companies say they cannot make a profit out of, in many
circumstances, and which consumers—the great majority—say they do not want. It is an
odd starting point that we are trying to square that particular circle.
On the Korea thing, for penetration of 100 Mbps the curve is absolutely flattened. It is about
30%. I think they made about 1% progress in terms of penetration in the last year. Even that
is illusory because in Korea 100 Mbps is actually, for most people, cheaper than 10 Mbps.
The people who rolled this out have found they absolutely cannot charge a premium. They
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have to give it away at exactly the same price as the lower bandwidth in order to get any
uptake at all. It is a rational decision to do that, because once you have put the money down,
once you have rolled it out, that is sunk cost. You are stuck with that. There is no way you
can get that back. So even if you have to give it away cheap as chips, that is a commercially
rational thing to do, and it is one of the things we are highlighting about the risk of this
investment. All the cost is upfront; the money back—if it comes—comes over decades.
So, Korea is saturated at 30% even though it is offered cheaper. In Japan, 43% of people who
have taken those superfast services say they did so because it was cheaper. Again, they have
had to price very aggressively on those superfast services to get any uptake. In Europe JP
Morgan said only 5% to 25% of customers seem to be willing to pay a €10 per month
premium for superfast. €10 per month is trivial in terms of funding these investments.
In the UK—coming closer to home—Virgin Media has been out with superfast services
since, roughly, 2008 from memory, and they have had until relatively recently, effectively, a
monopoly of that. The penetration of their 50 Mbps to 100 Mbps services, after all that time,
in their own covered areas, is 1.6% of households. To give you a third party, Graham Finnie
of Heavy Reading, a respected commentator—indeed, he does work for the FTTH Council,
as I understand it—gave his view as: “There are no really compelling applications that
require a fibre connection. There has been painfully slow new customer acquisition in many
countries, and overall forecast is down significantly on last year”. That was in a presentation
he gave just a couple of months ago.
Q201 Bishop of Norwich: I am interested that the money all has to be provided upfront.
We have had, over the past 10 years, endless private finance initiatives where the money is
not upfront. If this is such a good bet for the future, why is private finance not being
invested?
Mr Holden: I think it can be, and there are plenty of funds available. As long as you get the
right regulatory framework with the right frameworks, they are happy to invest. At one time
there was a rash, or perhaps I should say a lot, of pension funds that were very happy to
fund the passive infrastructure—not the actives, but the passive infrastructure—of a
network because it is a long-term investment, and some of that funding is still available. I
think the answer is: where do they spend that money? It is fraught and it is very complicated
at the moment with state aid rules that are not easy. So things are slow, but I think you will
see investment models coming up, where you will see these funds being used.
Q202 Lord Razzall: Presumably, one of the reasons is because there is some doubt as to
the revenue model, so people do not want to invest. Most of the PFI schemes—and Lord
Macdonald knows better than most—are based on a robust revenue model with a long-term
revenue flow. Well, where is it?
Lord Macdonald of Tradeston: The Government decided over 10 years ago that you
should not get involved in IT for a PFI because the technology changed too quickly, so you
could not have a long-term 20, 30, 40 year financial model with disruptive technologies
coming in so quickly.
Mr Holden: That is the reason you notice I was very careful in what I said. Pension funds
were happy to fund the passive infrastructure—in other words, the civils, the fibre in the
ground—but not the actives, because the actives were changing rapidly. For instance, now if
you drive fibre out and then put a cabinet in and you know it is going to be replaced pretty
soon when the bandwidth needs to be bigger, that is sunk cost. Actives either end are
changing. They are the limiting factor that control what is happening now on the fibre, so
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they can change. But if you can fund the passive infrastructure, which is actually getting most
of what you need in place, then maybe obtaining funds for that will be easier.
Lord Macdonald of Tradeston: Pension funds are among the most cautious capital that
you would find as well.
Mr Holden: Yes. They are. That is right. The other thing is risk. At the moment where do
you go? Is the UK Government going to give more than the £540 million or are they going
to remove it? When they put the infrastructure in, is it going to be overbuilt by somebody
else who is going to take away their profit? There is no co-investment at the moment. The
European Commission may provide up to €100 billion, now maybe €50 billion—in financial
support? Is that coming? If I am going to get a share of €50 billion, do I want to spend my
money at the moment? So there are all kind of reasons not to invest at the moment, I think.
Q203 Lord Gordon of Strathblane: Could I take us back to costing just very briefly? It
seems to me that we are not comparing like with like. We are comparing the cost of doing
things to the end of copper connections with laying fresh fibre optic cable. I think, Mr Kenny,
you would agree if we were starting from scratch, as all third world countries are, we would
lay fibre not copper?
Mr Kenny: Yes.
Q204 Lord Gordon of Strathblane: I think you would also agree—and I think you have
already said—if you are replacing copper, you would replace it with fibre. So I am struggling
with finding your cut-off point and what the reason for the cut-off point is. You were saying
that we are better continuing to improve copper, as we have done quite remarkably, rather
than investing in fibre?
Mr Kenny: As it were, the copper is already there. In the same way that we might say,
“Well, if we didn’t have an underground system here in London, what we would build is one
that looks like Hong Kong”, we do have the one we have, and it works pretty well, so we
live with it.
Lord Gordon of Strathblane: Yes, but it has limitations at some point.
Mr Kenny: Yes, but the issue is that the benefits are inevitably incremental because we have
something that works to a level and we can only look at the incremental benefit. The costs,
absolutely; you have to take into account all the costs.
Q205 Lord Gordon of Strathblane: Can I just suggest something is not only imminent
but is already happening, which changes the ballpark a bit, and that is internet broadcasting? I
only become conscious of megabit speeds when you are trying to download something in
iPlayer and you suddenly get jumping. Now, if somebody is doing a live broadcast and that
happens while Usain Bolt is crossing the line at 100 metres, I am not going to be best
pleased. BBC are now doing broadcasting, particularly during the Olympics, using broadband.
That is going to show up any deficiencies in bandwidth speed, would you agree?
Mr Holden: Yes, absolutely.
Mr Kenny: As a technical statement, yes, but what the iPlayer says is the necessary
bandwidth—and I speak from memory here—is in the realm of 2 to 3 Mbps.
Lord Gordon of Strathblane: Absolutely.
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Mr Kenny: As I think I have already indicated, I have a lot of sympathy with the people who
are struggling on less than 2 or 3 Mbps. I just do not think that is a very large part of the
population.
Lord Gordon of Strathblane: I think you might find it is much larger than you think.
Mr Holden: They call it blocking; you are watching a video, and it blocks, it stops and it
freezes. I get that sometimes, and I have 100 megabits, but my 100 megabits is not constant;
it also varies when there is a lot of traffic.
Q206 Lord Gordon of Strathblane: This also brings in the point you mentioned earlier
about contention ratios. You can afford to promise people a lot on the basis that a lot will
not want it at once, but if it is a television programme, they might all want it at once.
Mr Kenny: If it is a live broadcast and it is, say, Usain Bolt running the 100 metres, there is
something called simulcast, which means that rather than sending everybody in the country
their own specific video you branch it out. As it were, you have one version per branch of
the tree. So that need not be a problem.
Mr Holden: It still can be on a copper solution.
Mr Kenny: The copper solution, as it were, is specific to the household. It may be a
problem, but multicast shifts the problem—if there is one—out to the copper—
Mr Holden: Multicast works by broadcasting one thing, but when you are doing multiple
channels, which you would in the Olympics, it is a different situation.
Mr Kenny: Yes. But the other thing worth saying—
Mr Holden: At the Olympics everybody wants to watch something different, not everybody
is watching the same thing.
Mr Kenny: Yes.
Q207 The Chairman: But if you want to watch Usain Bolt run, it will not matter
watching it 10 seconds later, will it?
Lord Gordon of Strathblane: For the avoidance of doubt, BBC are using conventional
technology for the 100 metres, I think.
Mr Kenny: Yes. At the risk of getting too technologically sophisticated, we have a solution
for getting live broadcast of Usain Bolt to all the population in the UK. It is called television.
We do not necessarily need a new one.
Lord Gordon of Strathblane: Yes, that is what I say.
Mr Kenny: But to pick up on your point about how many people have 2 Mbps, if I recall,
Ofcom says that the average speed in the UK—and of course there will be variations—is
about 7 Mbps these days. So I think again I have a lot of sympathy with people with less than
2, but I think that is an increasingly rare case.
Q208 Lord Gordon of Strathblane: One of our witnesses who came I think from
Kent—was it not?—most of his county, or an area around about him, was under 2 Mbps.
The Chairman: They had a particularly bad problem. That is right.
Mr Holden: Can I just say we should be looking at the future. Everybody thinks that mobile
is the future and wireless. None of us can do without our phone, wherever we go. I cannot
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live without this. They need to get that signal back into a fixed line as fast as possible. What
they need is more spectrum. So you could foresee where your BBC broadcasting actually
could be put on fixed line, releasing that spectrum for more mobile use, and then you would
have a huge opportunity. But you cannot do that if the fixed line is not capable of taking that.
So who knows what could happen in the future; that is the point.
Q209 Earl of Selborne: What would be the opportunity cost to the United Kingdom
awaiting for killer applications to emerge; in other words, waiting for demand to stimulate
market investment in infrastructure?
Mr Holden: If you mean the opportunity costs of not building the infrastructure in place and
then this demand comes along—is that what you mean?
Earl of Selborne: Yes—waiting, yes.
Mr Holden: Yes. What you are going to do is you will continue to build out the copper and
do the extension to it, and then you are going to have to pay three to four times as much
money later to go to fibre, and you will have missed the time slot, probably, when other
people have advantage of that capability and your population do not.
Q210 The Chairman: Robert Kenny, what do you think?
Mr Kenny: With respect, I think it is a slightly odd question. Say you said—oh, I do not
know—“We need a new road between London and St Albans, and we were thinking we
would build a two-lane road, but actually there might be a killer load of traffic, and a huge
number of people want to travel back and forth on that route, so to be on the safe side we
will build a six-lane motorway to St Albans”. That is a bad example—there is one; it is called
the M1—but you know what I mean. The idea that you can invest hugely just in case demand
materialises later—yes, you avoid the risk of slightly delayed investment if there does turn
out to be a demand. On the other hand, you take on a potentially massive waste of cost if
there does not turn out to be demand. I would contend that the evidence from markets that
have rolled it out, and have found that essentially consumers have blown it a bit of a
raspberry, suggests that the risk is much more investing too early than investing too late.
I particularly think that, given that the uses there might be for the really fast speeds need to
be ones—to use the ugly jargon—with externalities. You know, it may be a bit sad that a
given household cannot get 3D “Avatar” on demand this year and has to wait a couple of
years for it, but I do not think we would see that as kind of a market failure or a failure of
Government. So I am not too worried about the—
Q211 Earl of Selborne: Can I just propose to you what might have happened had we
not done just this for the universities? We had this JANET network and then the
SuperJANET network, and what of course that did is enabled higher education and research
to grab an opportunity that probably had not been identified. You now have it in the hospital
service, in the National Health Service; you have genome sequencing, a vast amount of data
that has to be captured and moved around, and again I suspect that without dedicated
networks this is not possible. Are there other such uses that we have not yet thought of but
which are going to be needed by other users, maybe businesses and maybe even the farmers,
who we have heard about, who are nowadays using an enormous amount of data in order to
determine where to put their spraying, what square metre of ground? This is a sort of highdata
network system that of course will not be possible if we do not have the infrastructure
in place or the network rather in place.
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Mr Kenny: I suspect—and I do not speak from great knowledge here—the issue with
farmers is not so much that they have a desperate need for a lot of bandwidth but they are
really annoyed by having very little bandwidth. So by definition farmers are rural. They are
likely to be further from the exchange. They are probably in that category of people who
have been struggling by on sub-2 Mbps, and if you are running what is effectively a small
business, I can see that is very frustrating and the solution is to bring fibre closer to you. But
the fact that farmers are interested in solving that current copper problem does not
necessarily mean it proves there is huge demand for superfast.
I come back to the issue of how many people sit within an individual home and how much
can they possibly use. If you are already delivering an HDTV stream to every individual in a
house, and let us say it is quite a big house—it is five people—that is 6 Mbps for an HDTV
stream, so that is 30 Mbps for HDTV simultaneously for every user in the house. What kind
of information flow can a given the individual in the house absorb that is more than an
HDTV screen? How much information can a human process? For universities and for
hospitals, where you have a lot of people and potentially really big data sets, it is a very
different thing, and I would be the last person to argue against high bandwidth for those
kinds of premises. But for me that does not carry over to saying, therefore, there is likely to
be superfast demand in homes.
Q212 Earl of Selborne: Going back to the rural communities, most villages try to keep a
primary school going. A primary school is going to need an enormous amount of data
crunching. You look surprised, Mr Kenny, but is that not correct?
Mr Kenny: I smile only because the empirical data from the rollout of broadband to schools
in the US is that actually quite often it has had—and indeed to homes— a negative impact on
test scores. When you look at what broadband is primarily used for, in a way it is not
surprising because huge amounts of time that teenagers spend online is Facebook and online
gaming. That has to come from somewhere. TV consumption has not particularly dropped.
So it is not beyond the realms of possibility that where it has come from is homework.
There is no great empirical data that says bringing broadband connectivity to home and
schools has positive educational outcomes. If anything, the evidence is slightly the reverse.
Mr Holden: I would agree to differ. I think it is very naive to assume that we are not going
to progress at the rate we have progressed in the last few years. Who would imagine that
the mobile phone would have taken off the way it did? Who can imagine when iPads came
out that people would buy them? The new iPad 4 that is hardly any different, apart from the
fact it needs twice the bandwidth, has sold millions over the first weekend. It does not take
very much to suddenly bring something out that is going to use more bandwidth.
Mr Kenny: The iPad is a great example of precisely my point, actually.
Mr Holden: But if you then look at houses and homes, you look at all the other things that
are going to be connected. While it sounds quite small, add them all together—then you can
end up getting quite a large bandwidth. I go back to all these university projects that are
going on with services that have externalities; in other words, services that give benefits to
society, or big projects using big bandwidth. A lot of projects going on at the moment—I
cannot believe none of these are going to come into fruition.
Mr Kenny: The reason the iPad is such a useful example here is the reason the new iPad
requires more bandwidth is because it is a much higher-resolution display. It can display
much higher-resolution video, and that requires more bandwidth. Apple’s name for that
display is the retina display, and the reason they call it that is because the resolution of that
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display is as good as the human eye. So where do we go beyond that? Is the next version of
the iPad going to have an even higher-resolution display that the human eye cannot even
determine? If not, if we have arrived at our destination with the retina display, how is the
next iPad necessarily going to use more bandwidth?
Q213 Baroness Deech: I am sure they had a similar debate 90 years ago about radio, but
anyway.
Mr Holden: And the railway.
Baroness Deech: Absolutely. Absolutely. “This electricity, what are we ever going to do
with it?” Yes. If the demand for superfast emerges, how do you evaluate the current
Government rollout plans in terms of the ability to upgrade in the future?
Mr Kenny: I think it is perfectly sensible to create the option value to upgrade to FTTH
later because while I strongly feel it is unlikely to crystallise, I claim no crystal ball, and it may
do so. In particular, if we are doing things like rolling out ducts in support of fibre to the
cabinet, to make sure there is plenty of space so that you could if you wanted later add
more fibres to that, that is perfectly sensible.
The estimates are that if you invest in FTTC—and this is a Value Partners’ view—roughly
half of that investment is redeployable to fibre to the home. Not all of it is. That investment
that goes into the cabinets would be lost investment, if you subsequently upgraded to FTTH.
The fibre between the exchange and the cabinet, and in particular the dealing with the ducts,
is potentially redeployable. But anything you can do to ease that upgrade path I think is well
worth doing.
Mr Holden: You are not talking of much there. You are just talking about the fibre and the
duct for upgrading. I think it is a bit unfortunate, in a way, the way the money is allocated—a
lot of people have been waiting a long time to get projects rolling. The money is being put
out to different counties, which is probably a good idea, but what it means now is each
county is responsible for putting bids together as to how they are going to spend that
money and what projects are going to go ahead. It just misses, I think, the holistic approach.
So maybe BDUK has lost an opportunity to say, “Let’s have a look at the whole country.
Where do we want the country to be? What is our vision for it in the future? How do we
get there and how do we make this work?” What they tend to do now is throw some
money at different counties and say, “Off you go, you decide what you want”.
Q214 Lord Macdonald of Tradeston: The Broadband Delivery UK is the agency
obviously with oversight of rolling out this whole policy and of spending the Government’s
£500-plus million here. You mentioned it is probably rather a good idea that they were
basing it on counties. But we have had evidence that says counties are so varied in their
nature that they do not really make up useful economic units if you are trying to get people
to invest in them, and it would be much better rather than being stuck with archaic county
boundaries—as a definition—to go for franchise areas that would be marked out in terms of
what would be affordable for all the peculiarities of geography and demographics, and
everything else in the franchise area rather than the county. Would you agree with that?
Mr Holden: Yes, I do.
Q215 The Chairman: Robert Kenny?
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Mr Kenny: Yes, also. The key dimension here is crudely population density. In highly dense
areas copper is likely to work better, but also you are likely to have Virgin already there and
BT running out its own stuff, and there is no need for Government intervention. In the
super-rural areas, FTTH is going to be fantastically expensive. I think we both agree, and
wireless is probably the solution there. That middle ground is the interesting area; I think to
look at it through that prism rather than through county boundaries is certainly right, and I
think it is particularly puzzling that the Government was investing in superfast cities, because
that feels like people who already have quite a lot being given even more rather than
focusing on the places where the Government investment could have the highest marginal
impact.
Q216 Lord Macdonald of Tradeston: It may be a bit unfair of us to ask this of you, but
what do you think the possibilities are that the Government or BDUK will change its policy
from counties over to franchise areas?
Mr Kenny: I have absolutely no idea. Pass.
Q217 The Chairman: But you would not say it was a bad idea?
Mr Kenny: I would not say it was a bad idea.
Q218 The Chairman: Would you, Mr Holden?
Mr Holden: I would not say it is a bad idea. I cannot say how difficult. It seems to me they
have only just moved—they were struggling to allocate the funds and get agreements in
place and it seemed like—
Q219 Lord Macdonald of Tradeston: You are not close enough to the process to
know whether there ought to be change?
Mr Holden: Correct. It just seemed to me like using the counties was an expedient way of
saying, “We’ve now released the funds”.
Q220 Lord St John of Bletso: We have heard that at least 85% of the UK has access to
fibre optic within one mile. Is this the case?
Mr Kenny: Pass—no knowledge.
Mr Holden: Possibly. I would not like to promise.
The Chairman: One of the great things nobody knows is how much dark fibre there is,
where it might be.
Q221 Lord St John of Bletso: Yes. A supplementary question is: is there a
comprehensive inventory? How could one find out? We know that the fibre optic is under
the motorways and railway lines, but how can one find out an inventory about where that
fibre optic is?
Mr Holden: It is extremely difficult at the moment, I think is the answer. There was a lot of
discussion, again when we came back to Ofcom. Does Ofcom have a role here? I know it
has been debated in the past: why do the regulators not have a role of actually being
responsible for mapping out what fibre is where, how it is utilised and who owns it?
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Q222 Lord Skelmersdale: On that subject, we have been told that electricity companies
have a fibre optic loop between their miscellaneous power stations and substations. Is that
right? Do you know?
Mr Holden: Some do. I am not sure if they all do. Some do. That is why in some parts of
Europe the people that have built fibre infrastructure are actually utility companies, not the
incumbents. In fact, if you look at most of the fibre that is laid and built in Europe it is not by
incumbents, it is by utilities and municipalities.
Q223 Lord Macdonald of Tradeston: It is quite an important security issue in not
making public where a lot of those fibre connections could be, because they are obviously
essential to your basic utilities.
Mr Holden: Is it? Why?
Lord Macdonald of Tradeston: I think after 9/11 one of the concerns was that there
were nodal points that could be attacked, and so much of the traffic on the internet went
through just a few nodes that we would not want people to know where they were, and I
hope that since then they have been dispersed.
Mr Holden: But frankly I am sure if a terrorist wants to upset a network he has plenty of
means of getting into the power utility to find out where that is.
Q224 Lord St John of Bletso: The obvious question has to be: what measures can be
taken to get better use of that dark fibre, and not just that but what are the technical
constraints to getting access to that fibre?
Mr Kenny: What problem are we trying to solve with this dark fibre?
Mr Holden: I guess you are saying if there is fibre there, why should we not use it better
rather than build it new.
Lord St John of Bletso: Exactly. Yes.
Mr Kenny: Yes. But where there is no fibre, if you like, is in the last half kilometre, generally.
Where there is fibre is in BT’s network and Cable & Wireless’s network, the mobile
networks and power utilities, but that is all trunk-of-the-tree stuff. The trunk of the tree is
not where the cost issue is for FTTH. It is out at the leaves and tips of the branches. You
may get lucky and it may happen that a particular fibre strand goes past a particular building
you are interested in, but it is going to be absolutely marginal in terms of really solving the
edge problem that drives the cost issue.
Q225 Lord St John of Bletso: We have heard so many different cost estimates, to go
back to my original question about what it is going to cost to lay out this grand superfast
infrastructure, and the real question I am getting at is, if we have part of that solution at
hand, surely there has to be a better way. You mention the economies of scale, of getting it
into households with telephone wires and sewerage. There have to be other ways of doing
it, and that is what we are trying to discover here: how we can get our arms around it all.
Quite clearly in the future, for the better infrastructure we can provide, despite what you
are saying about what the applications are, the long-term solution is to provide something
with your existing infrastructure.
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Mr Holden: Yes. I am not sure how bad the dark fibre is. I would imagine most of the dark
fibre is owned by somebody and they have a very good map of it. You are ex-Level 3, so you
have better knowledge than I do.
Mr Kenny: Absolutely. All of these companies will have incredibly sophisticated inventory
systems that map it, so it is not that the data does not exist; it is just that it is fragmented,
and it is in all of these companies, so you need to somehow persuade them to disgorge it. It
is not that those companies are necessarily unwilling to release that fibre. Indeed, they make
their living by selling their services, so that is why they have it—for the telcos at least. You
can phone up Level 3 today and have a conversation with them about using their dark fibre,
so certainly for the telcos it is not necessarily a problem of access there. It is possible the
power companies who are not in that game are sitting on fibre they laid a while back and
have found no use for. Even if you solve that problem you are dealing with a tiny percentage
of the total cost problem of fibre to the home, because the cost problem is out at the edge,
not in the core where the dark fibre is needed.
Q226 The Chairman: Absolutely. I think the crucial point, and you are both saying it, is
that in terms of getting to the last mile, the dark fibre is probably a mere irrelevance,
because the places where the last mile is problematic are places where the dark fibre is not
going to be. Is that correct? We did hear evidence about effectively a main fibre running very
close to a lot of areas where otherwise connection was more or less impossible. This was in
rural Kent.
Mr Kenny: Definitely yes to the first part of that. There would be no reason for a fibre to
be running down Acacia Avenue in Northampton, and that is where you need the fibre to be
if you are going to provide superfast to the householders.
Q227 The Chairman: The example we were given was rural Kent, where it was said
that a main cable of fibre was running surprisingly near to this community but it was not
possible at that point, rather like a motorway junction or railway station, to get on it.
Mr Kenny: That is true. You would want to solve that problem, but you still have the big
cost problem of wiring up the particular community, and I take the point that you may solve
some particularly egregious circumstances like Kent, but in terms of what you then have to
go and do, all that does is bring Kent to a situation where it has the same problem that
everywhere else has, if you see what I mean in terms of the cost.
Mr Holden: I see the point you are taking here. I am not sure of the village, but I believe it
was a village community that were prepared to put the infrastructure into the village to
cover all households, but then they have to get back to an exchange and that was the big
cost. They were saying when they came out of their village on to a main highway, that is a
major route for fibre network, so if they could link into that they could get to the exchange
economically and be more viable. I am sure there are situations like that.
Q228 The Chairman: Do you think in the overall scheme of things they are relatively
immaterial?
Mr Kenny: Yes. I have not seen the numbers, but I suspect so.
Q229 Lord Skelmersdale: It seems from what you have said over the last almost two
hours, for which many thanks, that you both agree that there is nothing regulatory which
will help this particular situation. However, if in its forthcoming Business Connectivity
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Market Review, Ofcom was to compel BT to allow its PIA customers to sell fibre back on to
businesses as well as domestic users, would that get your approval?
Mr Kenny: Sorry, that is not a topic I have knowledge of. I go back to your opening
comment, that there is nothing regulatory to be done. I would not be as strong as that. I am
not aware that the major problems are regulatory, but to say there is no regulatory thing
that could make it better I could not claim, although I do think the main problem is that
customers do not want it very much.
Q230 Lord Skelmersdale: Would you agree?
Mr Holden: No, I could not agree.
Lord Skelmersdale: Agree with your colleague or agree with me?
Mr Holden: We sometimes agree. No, I could not agree with the statement that you made
that there are no regulatory issues that would make an improvement. I think there are a
number of regulatory issues that could make an improvement.
Q231 Lord Skelmersdale: Such as?
Mr Holden: There are two things. One is the way in which the regulator sets the rules. One
of the things that is stopping some deployment is probably incumbents are very keen on
deploying PON networks, and PON is very difficult to unbundle, which is not helping
competition.
Q232 The Chairman: Sorry, what sort of networks? Pond?
Mr Holden: PON.
The Chairman: PON. Can just explain that to us?
Mr Holden: Basically it is a splitter type solution where you have a small number of fibres
that split to feed the customers. What that means is it is harder to unbundle, so you have to
unbundle basically with a bitstream product, which means other people who at the moment
unbundle on the copper infrastructure where they can add value can no longer add value
because they are beholden on the infrastructure that is there. Whereas a point-to-point
you can completely unbundle, then people take individual fibres and provide services on
those. Then you get a more competitive situation where competition drives down prices.
There is a thing called a ladder of remedies and regulation where you can have more choice.
Ofcom have also put in place a thing called VULA, which is a new way of putting a physical
attribute into a bitstream product. The regulator at the moment is limited on SMP so he can
only regulate BT and Hull.
Q233 The Chairman: Do you think that regulatory scope ought to be enlarged?
Mr Holden: No, I am in a fixed mind here. At the moment most of what is driving fibre is
competition, and the competition usually comes from the cable company. If cable had
DOCSIS3.0, they could do the 100 Mbps, so the likes of the incumbents have to upgrade to
keep on a par to offer the same services.
If you open regulation to everybody, then everybody gets regulated heavily and maybe the
competition from cable goes away as well.
Q234 The Chairman: Quite a lot of the country, as we have heard, is not subject to the
coverage by the cable company, so it is a BT monopoly on the infrastructure.
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Mr Holden: I would suggest that one of our favourite models is Portugal. Portugal also has
cable as a competitor which made them drive what they drove, but they had a regulator
there that drove effectively duct sharing. They have a very good duct-sharing product, and
they do not offer a bitstream product at the moment. The European Commission would like
them to do that because they would like to see a full set of remedies, but that has driven
competition because by giving a duct product it means you get more than one infrastructure
built, which means you then get competition, which is good for everybody.
Q235 The Chairman: Do you think that is the way around it?
Mr Holden: I think that is a potential way around it. I think it depends where it is. It only
works where there is competition so it is only in what they call the black (urban) areas.
Q236 The Chairman: Yes, but in order to have competition you must have at least two
potential players in the game, and one of the problems I sense about quite a lot of what we
are talking about in this country is that we are not necessarily in that position. Certainly not
in terms of the infrastructure; there may be in terms of wireless and other things.
Mr Holden: We are, because we have cable and we have—
Lord Gordon of Strathblane: It is only in about 50% of the country; that is the problem.
Mr Holden: Yes, but it is the black areas still. If you remember, when I started what I said is
that you have the black zone which is the cities where we have competition because of
cable, and that is driving growth, innovation and prices. Then what we are talking about here
is the funding, because the funding is effectively state aid; state aid only applies where there
is no competition. Then there are still things the regulator could do, and I come back to the
sharing of infrastructure and being able to share infrastructures other than just BT’s. It
would be an enormous advantage in reducing the cost of deployment. So that is why I do
not necessarily agree with what you said.
Q237 Lord Skelmersdale: The trouble is, it is not in the current regulatory strategy’s
armoury to do that.
Mr Holden: Correct. That is up to the British Government. If they wanted to give them
that, they can do it. If you take France, ARCEP have a certain mandate from the French
Government, and they are the most innovative regulator probably in the whole of Europe at
the moment.
Lord Skelmersdale: We will have to see if we can put that into paragraph 130 of our
report.
Q238 Lord Macdonald of Tradeston: Your presence today is an embodiment of the
arguments that are still going on internally in all of this. It is an early stage of our inquiry, and
we usually start off fairly confused, but in this one I feel probably more confused as things go
on, which alarms me a bit. Do you think that there is a coherent strategy here that has been
followed by Government or industry, or is it so fragmented that people really have to go
back and have a very fundamental look at all of this before they stumble on spending
hundreds of millions of pounds?
Mr Holden: Do you want to lead that one, while I think of an answer?
Mr Kenny: The fundamental problem here, the nut of this issue that makes it so hard—and I
have done in the past projects for clients, before I became such a cynic, about how this
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could be co-funded; it is really, really hard—is that consumers will not pay for it. All of this
would be easy if there was real consumer demand there and people willing to pay a good
premium for broadband. None of us would need to have this conversation; BT would be
busy rolling it out; other people would be busy rolling it out. The fundamental problem is
that the cost to do this is a lot more than consumers want to pay—a lot more.
You can do stuff at the margin about the cost and in particular geographies that may help,
but the reason the problem is so hard is because that evil problem lurks at the heart of it. In
time that may change. Perhaps these applications will come along, and perhaps consumers
will see the light and suddenly start saying, “Great, I want it.” But what is not at all clear to
me is why you have to wrestle with that black, evil problem today rather than waiting a bit
and seeing.
It is not as if there is going to be no opportunity for that demand to crystallise, because
there is going to be some superfast. There is going to be superfast in other parts of the
world. We have had the better part of a decade to see if some applications emerge in
Korea. They have not yet, but maybe they will, and then we can import them. Even in the
UK we are going to have superfast because Virgin is busy rolling it out, and sooner or later
perhaps a few more customers will be persuaded to buy it.
That we are rushing to force superfast out elsewhere while there is still no consumer
demand for it creates this devil of a problem, and it means it is really hard and you go round
in circles trying to solve it. That is why I think it gets more confusing as time goes by and not
less, because that is the fundamental problem.
Q239 Lord Macdonald of Tradeston: So it is not a strategy that can add up? So it is
unlikely that whatever the target is of this strategy, it is not going to be met?
Mr Kenny: That is my view.
Q240 The Chairman: That seems to be the view you both thought at the outset, is that
right? Whatever is going to happen, the Government strategy is not going to be
implemented?
Mr Holden: Frankly, I am not sure the Government has a strategy. What is superfast
broadband, can you tell me?
The Chairman: We have been told by them it is 100 Mbps.
Mr Holden: No, you have not because what they say is it is anything above 24 Mbps, which
is Ofcom’s definition of superfast, and I understand the Government say 25 Mbps.
Q241 The Chairman: Would you say that 25 Mbps was superfast?
Mr Holden: No; superslow, I would suggest.
Q242 The Chairman: Where would you put it?
Mr Holden: I would say you want 100 Mbps at least, and you want a certain element of
symmetry if you are looking at a superfast network.
Q243 The Chairman: What do you think?
Mr Holden: Bearing in mind the superfast definition, a superfast network, not whether you
need 2 Mbps or not.
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Mr Kenny: I think we are starting from the wrong end of the telescope. To begin the
discussion about how many megabits do we want and how technically do we get there
seems perverse to me, because megabits are only a means to an end. It is as if you started
the debate about should we build a particular road by discussing what kind of asphalt it was
going to be. Start with what we want to be able to do.
I think what you have heard from Chris and I, and I do not want to put words into his
mouth, is that as of today we have no idea what we would want to do with a higher bit rate.
I would start with looking a few years ahead. I am not saying there is going to be no further
growth and we should just stand pat where we are. Look ahead a few years, see what we
think in a few years the demand will be, and then say, “Okay, fine, our need is for 10, 24,
whatever the number is”, once you have started from applications. Then say, “All right, we
want to plan to be able to deliver that set of applications”—which by the way is a bit of
boring Excel work—“we have figured out it is 24 Mbps and now we will design a network
around that”, rather than starting with megabits per second. That is a really odd place to
start the conversation.
Q244 The Chairman: It is a very easy way for politicians, though, to present their case,
is it not? That is a different point.
Mr Kenny: Well, there is a meta-question about why we have arrived where we are in this
debate, and that is because big numbers sound better. Big numbers sound better. If 2 Mbps
is good, 10 Mbps must be better, 100 Mbps must be fantastic and a gigabit, gosh, that is the
second coming. That is pretty exciting. There are diminishing returns to the numbers,
severely diminishing returns, so I would start from applications and work in. The reason why
I say look a few years ahead is we have had a bit of a conversation about the potential waste
of rolling out FTTC and later over-building with FTTH. FTTH is so much more expensive
than FTTC that even if you push it out just a little bit, the time value of money means it is
the right answer.
There are some numbers on my blog, if you are interested. The back of the envelope says,
for the people who know finance in the room, at a discount rate of 10%, if rolling out the
FTTC delays the need for FTTH by just three years, it will be worth doing. Even though you
will write off some of that investment, pushing out the huge amount of money that it costs
to roll out FTTH today is worthwhile, not because FTTH gets cheaper, but just because you
do not have to spend the money now; you can spend it later. So, three years is not very
long. It is one thing to say, “At some point in the future something will come along that will
need FTTH.” It is quite another that says, “We will definitely need it within three years.”
Three years is not very far out, particularly when FTTC can already do full—
Q245 The Chairman: Would it be fair to say, going back to the tree metaphor, that you
are for shortening the length of the branches?
Mr Kenny: Roughly speaking, yes.
Q246 The Chairman: I think we are coming to the end. We have overshot our time.
Mr Holden: Just to say I disagree, obviously. I think competition works in the cities, and it
will drive the technology as necessary. I think the target of 100 Mbps is forward-looking, and
it is partly set to say, “Where is the next technology that is going to drive us and be futureproof
and does not sink costs that are going to be wasted?”—in other words, go to a fibre
network rather than a copper network and keep on trying to squeeze a bit more out of it. I
think the services will follow. We should be looking at systems that mean you can deploy
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that as cheaply as possible. We should have joined-up thinking from the Government so you
are sharing facilities and infrastructure wherever possible, and you should have a roll-out
model that says, “Let us drive fibre to this village”, but you get the providers to sign up.
They are prepared to commit so they will pay some extra money to take on that service—
and you will be surprised. People will take it up. There is a huge education gap.
Q247 The Chairman: What sort of timeframe do you see this approach delivering?
Mr Holden: There is a 2020 target set out there from the European Commission and the
Government has to have a—
Q248 The Chairman: We heard your views on the European Commission’s policies
earlier on, and I did not get the impression that you thought they necessarily had it all right.
Mr Holden: No, because they do not have any uploading.
Q249 The Chairman: I am not interested in what other people think. Where do you
think in the real world it is realistic, if we do what you suggest, that we get it effectively
complete? I am not interested in the minutiae.
Mr Holden: Probably 2020 is a very hard target to hit, because of the volume that would
have to be deployed. The big point I am making as different here is that if you spend that
money now and squeeze a bit more out of something else, it is going to cost you a lot more
in the future and take even longer, and is that something you should do with state money?
The Chairman: That is the big question which inter alia we are all going to have to
address. So all I can say to both of you is a very big thank you very much. Thank you for
going head to head. The fact that we have gone on a bit longer and everybody is still cheerful
is a sign that we have had a successful session. Thank you.
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Communications Consumer Panel – written evidence
Summary
� The Panel believes that everyone should have access to a good level of broadband
service so that consumers and small and medium-sized businesses (or SMEs) in all parts
of the UK have equal opportunity to carry out essential online activities in a reliable and
consistent way. A robust broadband infrastructure must be inclusive and aim to
maximise digital participation;
� The Panel has developed a Consumer Framework for Digital Participation that brings
together all the different elements that are needed to provide the help and support that
people need to get online, stay on-line and get the most value and benefit from the
internet;
� 20% of UK adults say they do not use the internet at all. The most frequent reason for
not getting the internet at home relates to a perceived lack of need. 16% of respondents
from the Federation of Small Businesses report that they don’t use current generation
broadband - 27% of those respondents reported that they had no business need;
� The drive to attain greater speeds must be complemented by work to convince people
who are currently offline of the benefits of going online and to enable them to gain the
necessary skills;
� There are a number of important safeguards required if the Universal Service
Commitment (USC) is to be implemented in a way that meets the needs of consumers;
� There is particular concern for SMEs that fall within the 10% likely to be unable to
access speeds significantly greater than 2MB and that 2MB may be insufficient for
consumers in future as new, bandwidth hungry, services become the norm;
� Around 5% of residential UK broadband connections had a headline speed over
24Mbit/s in November 2011. Enders Analysis estimate that only 15% of households with
a broadband connection would be willing to pay an additional £5 a month for higher
connection speeds;
� Value for money and concurrency were the most important reasons for consumers
choosing their current super-fast broadband service. New services will drive uptake but
this also requires empowered consumers. People will need to understand what these
new services offer and their potential to improve their lives compared to current
generation broadband;
� The Panel’s current research looks at how people in low digital participation groups
across the UK can get the most out of being online and how they might increase their
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breadth of usage. This will specifically look at the issue of low uptake in areas of
Glasgow.
� In-home hardware and set-up will also affect the speed experienced by the end-user;
� Enabling consumers to make an informed choice between the packages and service
offered by different providers, and making it easier to switch between them, encourages
competition and investment; and
� Effective mobile coverage is essential for growth in rural communities and businesses.
Introduction
1. The Communications Consumer Panel welcomes the opportunity to contribute to
the House of Lords Select Committee inquiry into the Government’s superfast
broadband strategy.
2. The Communications Consumer Panel 37 is an independent group of experts
established under the Communications Act 2003. Its role is to provide advice to
Ofcom to ensure that the interests of consumers, including small businesses, are
central to regulatory decisions. The Panel also provides advice to Government and
champions consumers' communications interests with industry. The Panel has
members representing the interests of consumers in Scotland, Wales, Northern
Ireland and England.
3. In this response we address levels of take-up in the UK, the Panel’s work on a
consumer framework for digital participation and communications services for the
future.
Broadband availability
4. The Panel believes that everyone should have access to a good level of broadband
service so that consumers and SMEs in all parts of the UK have equal opportunity to
carry out essential online activities in a reliable and consistent way. The UK
Government’s aim for 90% of UK homes and businesses to have access to super-fast
broadband by 2015 and the commitment to ensure that virtually all homes will have
access to a minimum level of service of 2Mbps by the same date provide a sound
framework for progress. While 2MB may provide an adequate baseline residential
user experience, there is concern for those SMEs that fall within the 10% likely to be
unable to access speeds significantly greater than 2MB. Also 2MB may become too
low for acceptable service to consumers as new, bandwidth hungry, services become
37 http://www.communicationsconsumerpanel.org.uk/
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widely available. As the strategy notes, the European Commission target is for all EU
citizens to have access to a basic level of broadband (2Mbps) by 2013, 100% access
across Europe to at least 30Mbps by 2020, and for 50% of EU citizens to subscribe to
100Mbps services by the same timescale.
5. However, in order to benefit from these advances, the drive to attain greater speeds
must be complemented by work to convince people who are currently offline of the
value of going online and to enable them to gain the necessary skills to exploit fully
the advantages of staying on-line.
6. The Panel is also clear that there are a number of important safeguards required if
the Universal Service Commitment is to be implemented in a way that meets the
needs of consumers. The Panel has developed a set of principles to guide
implementation.The Panel's principles are as follows:
• The Universal Service Commitment should enable consumers to carry out the
online activities that they consider to be essential or will soon.
• The Government should define the Commitment in a way that ensures quality
and reliability of service.
• The Government should help consumers to do what they can themselves to
optimise their broadband connections.
• The Universal Service Commitment should benefit people in all parts of the UK,
using different types of broadband connection where necessary.
• The Government should be proactive in identifying the parts of the UK that
would benefit from the Commitment.
• Consumers who benefit from the Commitment should ideally have a choice of
service providers.
• The Government should ensure that the Commitment keeps pace with
consumer demands over the years ahead (especially given the growing take up
and reliance on smartphones. It needs to be future proofed. And it needs to be
capable of providing essential government services such as connected health
even in remote parts of the UK.)
• The Government should deliver the Commitment using next-generation
broadband where practicable.
7. The Panel has emphasised the need for the implementation of the Commitment to:
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• be in line with consumer needs, as set out in the Panel’s principles;
• be equitable across the nations; and
• be future-proofed so that consumers are not left behind.
8. Ofcom published information relating to national broadband measures in its
Infrastructure Report 38 in November 2011. The key metrics are summarised in the
table below.
9. The information in Figure 4 is based on data collected from the UK’s broadband
infrastructure providers (BT Openreach, Virgin Media and Kingston Communications
and from the largest retail ISPs) about modem synchronization speeds – and as such,
represents the line capabilities, or maximum speeds which consumers are able to
receive.
10. In Ofcom’s research on actual broadband speeds published in February 2012 (and
based on data collected in November 2011), the average actual UK residential
broadband speed was 7.6Mbit/s. 39
Broadband take up
11. A robust broadband infrastructure must be inclusive and aim to maximise digital
participation. It must ensure that disadvantaged groups can access and utilise digital
communications, particularly as more and more public services migrate online.
12. The Communications Market Report (CMR) data from Ofcom 40 show that compared to
2010, broadband take-up across the UK has increased from 71% to 74%. Latest
38 http://stakeholders.ofcom.org.uk/binaries/research/telecoms-research/bbspeeds2011/infrastructure-report.pdf
39 http://media.ofcom.org.uk/2012/02/02/jump-in-uk-broadband-speeds/
40 Communications Market Report, Ofcom 2011 http://stakeholders.ofcom.org.uk/market-data-research/marketdata/communications-market-reports/cmr11
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data 41 shows UK take-up at 76% (October – December 2011 fieldwork). However,
the CMR highlights that there are significant variations in levels of take up across the
UK - 61% of Scottish homes have broadband access (either fixed or mobile),
compared to 71% in Wales and 75% in Northern Ireland.
13. Broadband take-up is not evenly distributed throughout the population. Looking at
groups that have lower levels of broadband take up across the UK:
• Of the over-55s, 55% have broadband at home in the UK
• Among DE socio-economic groups across the UK, 55% have broadband at home
• Of households with incomes less than £17.5k per annum, 52% in the UK have
broadband at home
14. According to the Communications Managers Association/Federation of Small
Businesses Internet Opportunity Survey, 16% of respondents from the Federation of
Small Businesses report that they don’t use current generation broadband. Although
this is partly explained by geographic availability, the survey found that there was also
a lack of knowledge of the benefits of broadband – 27% of those respondents not
using current generation broadband reported no business need.
15. The Panel’s concern therefore focuses not so much on issues of availability, which
are nonetheless important, but rather on take-up. These lower levels of broadband
take-up mean that people are at an increased risk of exclusion from the social and
economic benefits of being online, particularly as more public services are put online.
Take-up of super-fast services remains low
16. Despite the growth in availability of super-fast services and the range of services that
are available, Ofcom research into broadband speeds found that in November 2011
only around 5% of residential UK broadband connections had a headline speed over
24Mbit/s.
17. Ofcom analysis indicates that a premium of at least £5 a month is generally charged
for super-fast broadband services. Enders Analysis 42 estimate that only 15% of
households with a broadband connection would be willing to pay an additional £5 a
month for higher connection speeds.
18. At present, concurrency appears to be a key driver of the take-up of super-fast
broadband. The CMR notes that “The range of internet-connected devices available
to consumers has increased significantly in recent years. Indeed, our research into
the reasons for taking super-fast broadband services found that the desire for “good
41 http://stakeholders.ofcom.org.uk/binaries/research/statistics/2012jan/Ofcom_Technology_Tracker_Wa3.pdf
42 UK residential high speed broadband outlook: leading the horse to water, Enders Analysis July 2011
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Communications Consumer Panel – written evidence
simultaneous performance on different devices” was the most common
performance-related reason cited by consumers (second overall after “the deal I was
offered provided good value for money”)”.
19. Currently, 40Mbit/s allows consumers to experience concurrency, multiple HD
streams, video chat and gaming whilst allowing for spare capacity. It is estimated that
by 2015, 40 – 50Mbit/s will be required by consumers. It is also worth noting that inhome
hardware and set-up may affect the speed experienced by the user – from the
wireless standard employed to connect to the router, to the wiring or placing of the
router within the home.
20. An Ofcom/YouGov survey of superfast users reported in the CMR found that while
over 90% used their broadband connection for sending/receiving email, purchasing
goods/services/tickets and web browsing, and over 80% used their broadband service
for banking, just 47% said that they used their connection to download large files.
Comparing these results with usage among all internet users revealed higher use of a
number of services; some of the biggest differences were: watching short video clips
(76% compared to 40% for all internet users), banking (84% compared to 60% for all
users) and purchasing good/services/tickets (91% compared to 71% for all users). It is
pointed out however that these differences are likely to be due to higher levels of
digital engagement among these consumers, as well as differences in the demographic
profile of super-fast broadband users compared to all internet users 43 .
21. The CMR notes that Ofcom/YouGov research into users of super-fast broadband
services indicates that the largest increases in reported use relate to streaming TV
programmes or full-length films; nearly two-thirds of respondents said that they had
increased their levels of streaming high-definition content and more than half had
increased their streaming of standard-definition content (Figure 5.13). There were
also notable increases in some services which are less mainstream, including filesharing
and online gaming. The lowest increases were for those services where use
was already high, and which typically benefit less from having faster speeds: sending
and receiving email, purchasing goods/services/tickets and banking.
43 Super-fast broadband users in the survey were more likely than all internet users to be male and to fall into the
ABC1 social group; they also tended to be older and were less likely to have children living at home.
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22. The development of new services that allow consumers to take advantage of the
opportunities offered by increased bandwidth will undoubtedly drive uptake.
However this also requires empowered consumers – who understand what these
new services offer compared to current generation broadband.
23. According to the Internet Opportunity Survey, 7% of respondents from the
Federation of Small Businesses report that they use superfast broadband. Amongst
those that don’t, and have no plans to, the stated main reason preventing them is
geographic availability (35%). However 22% of these micro and small businesses that
don’t and have no plans to use superfast broadband, state that they don’t know
enough about superfast broadband.
Mobile broadband access
24. The CMR reports that the proportion of UK households relying on mobile as their
only means of voice telephony was 15% in Q1 2011. One percent of households have
neither fixed nor mobile telephony.
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25. Ofcom’s recent Infrastructure Report 44 states that the use of mobile networks for data
is increasing, driven by the take-up of mobile broadband ‘dongles’ and smartphones.
It reports that there are now 33m subscriptions to 3G services and 7% of homes in
the UK rely solely on mobile broadband services (rather than a fixed line).The CMR
notes that of the 17% of households that had a mobile broadband connection in Q1
2011, the majority (10% of all households) also had a fixed-line broadband
connection.
26. Recent Ofcom data 45 shows that 40 per cent of UK adults now own a smartphone.
Some 34% of UK adults use their mobile phones for internet access. The CMR found
that a third of smartphone users agreed that their smartphone was more important
to them for accessing the internet than any other device, with the proportion rising
for younger users.
27. According to Ofcom’s media literacy research 46 , only 2% of adults in the UK who go
online only access the internet by a means that is not a PC/laptop at home.
Therefore, the majority of mobile internet usage is complementary to home access
rather than replacing it.
28. Take-up of mobile broadband lies at 17% in the UK overall – although again there are
significant variations across the UK.
People who remain offline at home
29. The CMR found that 20% of adults in the UK say that they do not use the internet in
any location.
30. While costs are undoubtedly a barrier to take up for some, the most frequently
stated reason related to a lack of perceived need. The table below examines the top
four main reasons given by people in the UK who said they would not get the
internet at home in the next 12 months.
UK - % of those not intending to get the internet in
the next 12 months.
No need 29%
Too old to use the internet 15%
Don’t want a computer 15%
Don’t know how to use 14%
computers/the internet
44 http://stakeholders.ofcom.org.uk/binaries/research/telecoms-research/bbspeeds2011/infrastructure-report.pdf
45 http://stakeholders.ofcom.org.uk/binaries/research/statistics/2012jan/Ofcom_Technology_Tracker_Wa3.pdf
46 http://www.ofcom.org.uk/static/stats/MLAudit2010Adult.pdf
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What consumers say they need to get online
31. The Communications Consumer Panel has developed a Consumer Framework for
Digital Participation 47 that specifically addresses the issue of what consumers
themselves have said they need to get them online.
32. Targeted at governments and industry, the framework brings together all the
different elements that are needed to provide the help and support for people to get
online and get the most benefit from the internet. It is intended to be used to identify
the gaps and overlaps in provision, target new provision and can be used to assess
progress. We would encourage government and providers to continue to use the
framework to assess progress made and address gaps.
Consumer Framework for Digital Participation
33. In an update to this work, the Panel has recently commissioned a research project to
understand how people in low digital participation groups across the UK can get the
most out of being online and how they might increase their breadth of usage. The
study will also examine whether there are key barriers to digital participation
amongst people offline in an area of extreme deprivation (other than financial
deprivation). Fieldwork for this element will take place in areas of Glasgow. The
47 http://www.communicationsconsumerpanel.org.uk/smartweb/digital-participation/the-consumer-framework-fordigital-participation
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Panel would be pleased to share the results of this work with the Select Committee
when it is published in Spring this year.
Decision making
34. Broadband users must also be able to easily switch between services and competing
suppliers. Enabling consumers to make an informed choice between the packages and
service levels offered by different providers encourages competition and investment.
Consumers can make such informed choices only if they can easily compare the
different packages and providers. However, the Panel does have a concern that
greater transparency is too often seen as a panacea to meet all kinds of consumer
concerns. Whilst transparency is very important, there are a number of limitations to
transparency for both consumers and citizens. Transparency relies on consumers
being able to access, understand and compare information about actual broadband
speeds (as opposed to advertised “up to”) and traffic management weigh this up
against other information relevant to their purchasing decision and potentially switch
their communications provider. If successful, transparency (although not by itself)
facilitates individual consumer choice. However, the aggregate of individual choices,
while possibly appropriate for each individual concerned, may not result in outcomes
that are beneficial for society as a whole.
35. It is important that research is carried out to examine the way consumers and
citizens make decisions about broadband services and the extent to which they
understand the information provided to them about such services. It is important
that policy makers take into account the way consumers make decisions and use
information about broadband generally, to ensure that any remedies are useful to
people in the round. In considering how best to present information to consumers,
policy makers should bear in mind that consumers need clear explanations about the
content and services they will – or will not - be able to access and when. Small
businesses are also likely to experience many of the same issues as consumers. Both
need a clear understanding of post-sales service commitments and provision.
36. The Panel has welcomed the improvement in average broadband speeds reported by
Ofcom in new research, but remains concerned that many people with ADSL-based
broadband connections continue to experience much lower average download
speeds than the headline “up to” advertised speeds. New advertising rules 48 were
issued in September (and will come into force in April) relating to broadband speed
claims and the use of “unlimited” claims in telecoms advertising with a two-fold aim;
to help advertisers comply with UK Advertising Codes, and to protect consumers
from misleading claims. The guidance requires that at least 10% of an internet service
provider’s (ISP) customers achieve the ISPs speed claims. Only where a significant
48 http://bcap.org.uk/Media-Centre/2011/Changes-in-advertising-of-'unlimited'-and-broadband-speed-claims.aspx
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proportion of people are unlikely to receive a speed close to the one advertised will
further qualifying information be included.
37. The Panel believes that the additional qualifying information should be equally
prominent to consumers when they are thinking about which broadband package to
buy. The Panel will continue to monitor developments in this area closely.
Communications services for the future
38. The Communications Consumer Panel is campaigning for major improvements to
mobile and mobile broadband coverage. The two go hand in hand and the Panel
argues that effective coverage is essential for the growth of rural communities and
businesses. The Panel has been concerned for some time about poor or non-existent
coverage creating significant problems for small businesses, as well as for people
living in not-spots, the people passing through them and passengers on the rail and
London tube networks. This concern embraces broadband availability and usage.
39. To tackle the problem, last year in response to Ofcom’s consultation on the 4G
mobile spectrum auction, the Panel asked Ofcom to consider setting coverage
obligations for each of the UK nations and some English regions, or for money to be
retained from the spectrum auction and a reverse auction run to upgrade rural
coverage. Earlier this year, Ofcom set out a number of new proposals for making 4G
mobile spectrum available in the UK. This includes introducing new measures
expected to extend coverage to at least 98% of the UK population (coverage
obligations relate to indoor coverage by population). The Panel also welcomes the
Chancellor’s recent pledge to inject up to £150m of new funding into extending
mobile coverage, but waits to see the detail of how the intervention will work.
Depending on the extent of this first intervention, it may still be necessary to use
some of the money raised by the 4G spectrum auction in order to raise mobile
coverage in the UK to a level that satisfies the reasonable aspirations of citizens and
communities.
40. Research from the Communications Consumer Panel found that consumers and
small businesses in the UK have persistent problems making even basic voice calls.
Over half of consumers questioned (56%) had difficulty with mobile coverage – 33%
on a regular basis 49 . Almost all small business 50 respondents in the UK overall (91%)
had experienced problems with reception, over a third of them (34%) regularly.
Conclusion
41. In summary, the Panel would highlight that:
49 http://www.communicationsconsumerpanel.org.uk/Mobile_coverage_consumer_perspective.pdf
50 http://www.communicationsconsumerpanel.org.uk/Mobile_coverage_small_business_perspective.pdf
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Communications Consumer Panel – written evidence
� The Panel believes that everyone should have access to a good level of
broadband service so that consumers and small and medium-sized businesses (or
SMEs) in all parts of the UK have equal opportunity to carry out essential online
activities in a reliable and consistent way. A robust broadband infrastructure
must be inclusive and aim to maximise digital participation;
� The Panel has developed a Consumer Framework for Digital Participation that brings
together all the different elements that are needed to provide the help and
support that people need to get online, stay on-line and get the most value and
benefit from the internet;
� 20% of UK adults say they do not use the internet at all. The most frequent
reason for not getting the internet at home relates to a perceived lack of need.
16% of respondents from the Federation of Small Businesses report that they
don’t use current generation broadband - 27% of those respondents reported
that they had no business need;
� The drive to attain greater speeds must be complemented by work to convince
people who are currently offline of the benefits of going online and to enable
them to gain the necessary skills;
� There are a number of important safeguards required if the Universal Service
Commitment (USC) is to be implemented in a way that meets the needs of
consumers;
� There is particular concern for SMEs that fall within the 10% likely to be unable
to access speeds significantly greater than 2MB and that 2MB may be insufficient
for consumers in future as new, bandwidth hungry, services become the norm;
� Around 5% of residential UK broadband connections had a headline speed over
24Mbit/s in November 2011. Enders Analysis estimate that only 15% of
households with a broadband connection would be willing to pay an additional
£5 a month for higher connection speeds;
� Value for money and concurrency were the most important reasons for
consumers choosing their current super-fast broadband service. New services
will drive uptake but this also requires empowered consumers. People will need
to understand what these new services offer and their potential to improve their
lives compared to current generation broadband;
� The Panel’s current research looks at how people in low digital participation
groups across the UK can get the most out of being online and how they might
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Communications Consumer Panel – written evidence
March 2012
increase their breadth of usage. This will specifically look at the issue of low
uptake in areas of Glasgow.
� In-home hardware and set-up will also affect the speed experienced by the enduser;
� Enabling consumers to make an informed choice between the packages and
service offered by different providers, and making it easier to switch between
them, encourages competition and investment; and
� Effective mobile coverage is essential for growth in rural communities and
businesses.
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David Cooper CEng MIET – written evidence
David Cooper CEng MIET – written evidence
1. The evidence referenced in this document is derived from data and observations
within Surrey. The author is submitting this paper on an individual basis and has a
telecommunication engineering/technology management background mainly in the
electricity supply industry, with more recent experience with the South East England
Development Agency, working on broadband policy and funding related to economic
development. Since leaving SEEDA in September 2010 the author has worked as a
freelance broadband consultant; now retired but maintaining an interest in local
broadband matters.
2. Not all questions raised by the call for evidence are addressed by this short paper.
However, reference is made to other documents that do address most issues raised
by the call for evidence.
What changes in the use of digital communications can be anticipated over the
next 20 years, and how should these affect strategic investment in our digital
infrastructure?
3. We can already see that the future of digital communication will need to be a two
way affair by, for one example, the rise in the use of social media applications in the
business world as well as for personal use. The current asymmetric infrastructures
favour data download with limited data upload capability thus stifling innovative
applications, some existing now and some unknown now, but certain to require
symmetrical capability. This key requirement always seems to be overlooked in most
policy statements, including the brief for this inquiry and is being “overlooked” by the
current commercial infrastructure deployments with the high likelihood that it will
not be included in the public procurements.
Is the Government’s investment being effectively applied to develop maximum
social and economic benefit?
4. The investment being implemented by individual local authorities does not seem to
be an effective process. Press releases from local authorities have already raised
expectations of superfast broadband to high proportions of their populations. This is
only based on them having securing the funding with procurement yet to finalise, so
the claims seem to be politically driven ambitions rather than being based on practical
well engineered plans. This approach from the politicians may be just for public
consumption as it is clear that in some local authorities officials are gathering data to
prioritise deployment for a maximum social and economic benefit, although these
may be defined differently in different areas. This prioritisation seems to
acknowledge the real world difficulties (e.g. insufficient funding, low demand,
potential “white elephant”, mismatch to supplier business models etc.) in procuring
near ubiquitous superfast coverage and therefore the likelihood is that the stated
coverage and Government targets will not be met, or more likely will be fudged.
5. The key to effective investment is that any deployment should be future-proof.
Current Fibre-To- The-Cabinet (FTTC) asymmetric services are very poor short
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David Cooper CEng MIET – written evidence
term solutions with severe limitations and no practical upgrade path. Given the poor
condition of rural telephone lines from the cabinet to the premises in many of these
areas, those who already have sub 2Mb/s download speeds will not see a significant
improvement. This conclusion is based on evidence for Surrey here 51 , in particular
Section 3.
6. Given the tactics that BT have used to put their business in a good position to secure
the public funding (current limited deployment locking out any other company, cosy
NDAs to protect their commercial position at the expense of smaller providers and
other tactics) there is every possibility that the current round of public funding will
serve to reinforce their monopoly position rather than provide true future-proof
infrastructure with an upgrade path.
7. Further evidence in the attached letter (Annex 1) of April 2011 to Jeremy Hunt and a
related update note (Annex 2) for a subsequent meeting with him indicates the
concerns relating to the progress of a local project and the ramifications on
Government policy. Unfortunately, it seems that these predictions are becoming
reality.
The Way Forward
8. Remove barriers such as fibre tax, unreasonable wholesale charges, etc. This is
probably best achieved for the long term by a separate “Openreach” company
completely divorced from the BT Group. Functional separation is not working.
9. Regulate a separate Openreach in the same way as other asset based “wires”
businesses to ensure that adequate investment is maintained in the network.
10. Take a holistic approach to the “value for money” equation. Currently savings across
all public sectors are not included as part of the ROI of the public funding, instead
taking too much notice of the inflated estimate for true future-proof infrastructure
based on the preference of the telcos to retain their asset sweating strategy.
11. Someone needs to take a national leadership role. The telecommunications network
is a national strategic asset and policy needs to ensure that the network does not
fragment into many different local networks thus jeopardising future economic
development. The current policy which devolves responsibility to local authorities is
high risk and on current progress stands every chance of hindering rather than
helping economic development.
51 http://www.texp.co.uk/downloads/Superfast%20Broadband%20in%20Surrey.pdf
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David Cooper CEng MIET – written evidence
Annex 1
The Right Honourable Jeremy Hunt MP
2 Royal Parade
Tilford Road
Hindhead
Surrey
GU26 6TD
Dear Mr Hunt,
Broadband in Ewhurst, Waverley and the UK
I write as someone who lives in your constituency and an observer of the broadband agenda.
I am a chartered engineer having until last September worked for SEEDA and therefore I
understand how important good quality broadband is to economic development. I now
work as an independent telecommunications consultant and have recently worked with
Waverley Borough Council to help them to understand the options available to improve
broadband, especially in rural areas.
Your policy to bring fibre hubs to each rural community and to allow the community to
decide how they connect themselves to the national fibre network is admirable. However, I
am writing to make you aware of what is going on in your own backyard, as this could
jeopardise the policy nationally.
The broadband infrastructure in parts of Ewhurst is very poor with some properties
receiving no service and many others sub-standard. This is because the local telephone lines
are very long, of extremely poor quality and poorly maintained by BT. They are an example
of the 2% of premises in the South East with no service and at least 15% with less than
2Mb/s (SEEDA research). A community group in Ewhurst, using their own time and money,
put together an innovative project to provide a Fibre to the Premises solution to replace the
worst telephone lines. This attracted a written offer of EU RDPE funding from SEEDA that
has subsequently been hi- jacked by BT, who have manipulated the public sector by the use
of Non Disclosure Agreements with a promise of deployment of their solution. This is after
BT had refused over many years to work with the local community to reroute the local
telephone lines and stated in writing that they had no plans to invest in improvement of the
infrastructure for broadband. When the Ewhurst group went out to tender, the solution
they chose was that offered by Vtesse. BT did not even bother to submit a compliant
tender.
SEEDA are now unable to reinstate their grant offer because of a continuous delaying tactic
by BT, who initially promised to confirm their intentions for Ewhurst by an announcement in
February 2011, then mid March, then end of March and have extended this a further two
weeks from now until sometime in mid April 2011. My previous experience of this tactic
relating to other broadband projects when I was with SEEDA is that there will be a long
delay and that ultimately BT will not provide a solution for Ewhurst unless a subsidy is
provided.
Despite DEFRA, and in your department BDUK, taking the view that this is a local issue, I
believe that there is a bigger national impact. BT’s tactics are already leading to a realisation
by local communities that the “Big Society” policy in the case of broadband is not working
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David Cooper CEng MIET – written evidence
and communities are therefore loosing enthusiasm. Other infrastructure providers, who are
already trying to operate on an uneven playing field, are unlikely to bid if BT continues to
obstruct in this way. Further, the BT solution of Fibre to the Cabinet, once deployed is not
expandable to Fibre to the Home for technical and commercial reasons. Therefore, taking
Ewhurst as an example, such a BT solution will not improve the service sufficiently for the
outlying properties, especially as BT do not include any Universal Service Obligation for
broadband nor have any replacement or refurbishment strategy of their ageing local network
infrastructure.
BT treatment of projects such as Ewhurst is killing off the potential competition, killing off
innovative solutions and this will put the nation even further behind in the broadband league
table.
I hope that this makes some sense for you and that you appreciate that I am writing with a
passion derived from the frustrations of almost 10 years of watching the lost opportunities
for the development of improved broadband infrastructure in the UK, much of which relates
to the way the industry is organised and regulated.
I am sure that anything that you could do to free up the Ewhurst situation would at least
demonstrate to local communities across the UK that the “Big Society” is for real and will
provide an incentive to commercial operators to bid into the larger scale projects being
developed by local authorities in collaboration with BDUK.
Yours sincerely,
David C Cooper CEng MIET
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David Cooper CEng MIET – written evidence
Annex 2
Ewhurst update:
BT (Openreach) published information dated the 6th April 2011 that puts FTTC for Ewhurst
as some time in 2012. This announcement was in a new format to previous phased
announcements with Ewhurst included on a new format list titled, “Future Exchanges (firmer
dates to be provided nearer the time)”. ESHB had been pushing for March 2012 and have
currently accepted BT’s announcement in good faith.
However, confidence that BT can deliver is already decreasing, given the slip to other
exchange areas, observations of slow progress in Guildford (believed to be in phase 5b now
due in June 2011, was March 2011) and the fact that Ewhurst is programmed for the last
phase in the last announced programme, believed to be phase 7b.
In any case, regardless of timescales, BT’s proposed FTTC solution will not significantly
improve the Ewhurst outliers, who currently have no service, where long poor quality lines
connect them back to the cabinets. This is of great concern as BT (Openreach) has said that
once they have invested in FTTC they will not invest to improve or replace with fibre the
cabinet to premise lines. The solution proposed by Vtesse is designed both from a technical
and commercial aspect to be able to upgrade cabinet to premise lines as necessary.
Impact on policy:
BT are finding that take-up of their Superfast Broadband service is low. This is not surprising
as they have decided to compete with Virgin Media and not to invest in areas of pent-up
demand on the edge of towns and in rural areas that have always been poorly served.
Where BT do invest they do not enable every green cabinet in an exchange area nor do
they provide full capacity for every line in each cabinet seemingly ranging from 25% to 65%
of lines. This tactic blocks opportunities for other commercial operators. BT’s FTTC and
GPON FTTP solutions are limited stop-gap designs that will require expensive replacement
with point-to-point FTTP within 10 years.
With other broadband infrastructure companies finding it difficult to make a business case
given BT Openreach’s wholesale prices and restrictive practices, BT is likely to secure
significant public money to bring their FTTC solution to rural areas. Their solution is not a
flexible fibre hub as described by the policy that offers a community any choice in how they
wish the final leg to be delivered and further, will block progress to faster solutions for at
least 10 years. This scenario could see the benefit of public money being short-lived by just
reinforcing BT’s flawed business plan rather than provide a future-proof infrastructure to the
benefit of businesses and residents in rural areas.
Options for Ewhurst:
Wait for BT, with the inevitable delays and poor solution.
Reinstate SEEDA funding, or provide other funding, for the Vtesse solution unless BT can
provide a detailed programme of their intentions immediately including the provision of an
adequate upgradable solution.
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David Cooper CEng MIET – written evidence
Seek other alternatives to ensure a solution is available this year.
12 March 2012
215

Cotswold Community Networks Ltd – written evidence
Cotswold Community Networks Ltd – written evidence
1. Background
Cotswold Community Networks is a Wireless Internet Service Provider (WISP) established
in 2004, with the trading name Cotswold Wireless.
Our networks cover large areas of Gloucestershire, North Wiltshire, parts of Oxfordshire,
west to the River Severn and east to areas around Chipping Norton.
These networks have been providing fast broadband in rural areas for the last eight years by
extending the reach of conventional copper and fibre networks using wireless links to
remote communities. We use OFCOM Band C for Fixed Wireless Access in the 5GHz
band, supporting wireless bandwidths up to 300Mbps. We currently serve over 400
residential and business customers with ongoing support provided by two persons working
on a part-time basis.
Our customers currently receive an average speed of 10Mbps, this is only restricted by
available backhaul capacity and could easily increase to 20-30Mbps Next Generation Access
(NGA) speeds as extra backhaul capacity is added.
2. Technology
Fixed Wireless Access involves putting an external wireless receiver (the CPE) onto the
customer premises which receives a service from a local base station. The base station can
service a cell covering a 5-10km radius. Each base station can be located several wireless
'hops' from the wired point of presence, allowing a service to be cascaded over a
widespread area around the origination point.
We use technology developed by manufacturers in Eastern Europe and the Baltic states
where wireless has always been a fundamental part of the network infrastructure due to lack
of legacy wired networks. The equipment is fast, secure, reliable and low cost. A typical CPE
costs between €50-€70. A fully equipped base station/ router costs approx €250.
3. BDUK
When the Government announced the BDUK project we were encouraged by early
indications it would go hand in hand with the Government’s Big Society ambitions. The
concept of the 'Digital Village Pump' or Community Hub was promoted, and we have
already seen examples of communities digging fibre, unbundling roadside telecoms cabinets
(PCPs) and installing fibre networks, assisted by private sector providers.
Our vision is that BDUK will fund wholesale suppliers to provide fibre points of presence
within local communities which are then distributed by local providers using a mix of dug
and blown fibre, wireless or existing copper lines through roadside cabinet unbundling
(FTTC).
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Cotswold Community Networks Ltd – written evidence
We have been greatly encouraged by projects in Cumbria and North Yorkshire (NYNET)
where existing public sector data networks are being opened up to supply residential and
business customers. Public sector networks used by councils, libraries, schools, fire services
and surgeries operate at a fraction of their potential capacity and are often located in areas
which would be uneconomic for BT or Virgin Media to invest in NGA networks.
4. Funding Models
We do not intend to duplicate the content of the very detailed study published here:
http://www.culture.gov.uk/images/publications/BroadbandPilots_lessons_learnt-Dec2012.pdf
This report outlines the two funding models being adopted by local authorities - namely Gap
Funding and the Demand Aggregation or Community Based approach. Instead, we seek to
illustrate how both may work in practice by referring to locations we have researched and
budgeted for and present these as case studies for each funding model.
5. Public Sector Networks
We have recently made Freedom of Information requests to Gloucestershire, South
Gloucestershire and Wiltshire County Councils to discover the location, capacity and usage
levels of public sector fibre networks operated by these councils. These networks link
schools, libraries, surgeries and other public buildings within the Local Authority area.
So far only Wiltshire has provided a thorough and detailed response. From the figures
supplied we see that average usage across the council's fibre infrastructure in the towns of
Melksham, Trowbridge, Salisbury, Devizes and Chippenham amounts to no more than 6.5%
of the available capacity.
We believe that NGA can be best delivered to rural communities by employing a community
based approach using a variety of technologies and will provide evidence to support this.
Unfortunately, we are disappointed that the BDUK pilots in the Gloucestershire and
Herefordshire Borders and other South West local authority areas seem to be steering
towards the gap/match funded model by commissioning large providers such as BT, rather
than involving a mix of public and private sector resources as Cumbria and North Yorkshire
seem to be doing.
Public funds being made available subject to equivalent private sector match funding will
eliminate all but the biggest providers and will still fall short of the funding requirements to
provide NGA in rural areas. The £8.6m of BDUK funds made available to Gloucestershire
for example is targeted at 150,000 premises. This equates to £53 each. Even with match
funding, £106 per property is less than the cost of running in a single conventional BT
telephone line. Far short of the amounts needed to replace swathes of old aluminium cabling
in the BT network and dig and distribute fibre.
With many rural properties served directly from the exchange or many kilometres from
their local cabinet (PCP) it is likely that FTTC will only bring marginal improvements in these
cases. If NGA speeds are defined as 20Mb and above, then FTTC will not qualify once
distances from the PCP or exchange exceed 1km.
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Cotswold Community Networks Ltd – written evidence
We are also discouraged to see that consultation excercises and administrative bureaucracy
seems to be absorbing large amounts of the BDUK funds and that some providers have
already dropped out due to frustration with the procurement procedure.
http://www.bbc.co.uk/news/technology-16085823
6. Case Study 1
FTTC Gap Funded Model in a typical rural location
Didmarton, Gloucestershire. Local exchange serves about 700 premises, Market one
exchange BT only. No upgrade since 2006.
From BT’s SLU database we see that 220 premises are connected via three local PCPs
(street cabinets) the remaining 480 are connected directly to the exchange with no potential
benefit from unbundling due to line length.
In order to implement FTTC, fibre links would be required from the exchange to a DSLAM
in a new cabinet adjacent to each of the three PCPs:
1500m to Didmarton village centre. Cost to rent about £1500 p.a.
3100m to Badminton cost to rent about £3100 p.a.
3400m to Hawkesbury Upton cost to rent about £3400 p.a
A DSLAM costs about £60 per connection. For 220 connections DSLAM cost = £13,200.
For 3 cabinets + power supplies + engineering works allow £30,000. BT charges £78 per
connection for jumpering existing subscriber lines to the DSLAM - allow an additional
£17,600. Add £10,000 for equipment at the exchange and connection to the national
backhaul.
100Mb backhaul to London and data transit from this exchange would cost approx £25,000
per annum. So, looking at the impact on the 'gap funded' model being favoured by the Local
authorities and BDUK:
Capital costs approx £70,800 ( £13,200 + £30,000 + £17,600 + £10,000 )
Opex costs approx £8000 p.a. fibre rental, £5000 exchange rackspace annual rental,
Backhaul & data transit £25,000 p.a.
Funding = 220 x £53 from BDUK = £11,660 + MATCH = £23,320 Subtract capital cost of
£70,800 leaves a GAP to be funded of £46,680 + £38,000 for backhaul, fibre rental,
exchange space etc.
The monthly cost per subscriber based on a 5 year depreciation model is £17.50 p.m but
480 (70%) of subscribers will not benefit.
7. Case Study 2
Community Based Approach
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Cotswold Community Networks Ltd – written evidence
Cherhill, Wiltshire. Population approx 900, number of premises estimated at 300.
Connected to Calne exchange (LLU enabled) Current broadband speeds ADSL < 1 –
1.5Mbits. Distance from Exchange > 4616m
Cherhill has a CE primary school that benefits from a 100Mb EAD point to point fibre
connection provided by South West Grid for Learning (SWGfL). There is a PCP by the
school which supplies 114 subscribers. The remainder are connected directly back to the
exchange.
A wireless network here would therefore be able to supply >20Mb broadband to those
houses and businesses in and around the village whose lines are not connected to the PCP.
We estimate a 'cell' radius of 5-10km could potentially benefit up to 200 more properties.
For national backhaul, allow £25,000 p.a which would serve both fibre + copper connections
and fibre + wireless connections. Split the cost on a pro rata basis for each connection type.
This approach gives 294 connections and backhaul costing £7.08 / month / subscriber.
Eliminating the costs per km of duct and fibre by using the School's connection, the PCP
could be unbundled at the cost of a DSLAM, electrical and ground work and a tie cable to
the school's connection. Allow approx £20,000 plus £78 per connection x 114 = £19,000.
On a 5 years depreciation model £39,000 capital cost equates to £5.71 p.m for 114
subscribers.
Fibre + copper cost / month /subscriber is £12.79 inc backhaul.
For 180 premises connected via wireless an estimate of £2000 for wireless network
infrastructure and £12,600 for connection charges (based on £70 per subscriber) gives us a
total monthly cost per subscriber depreciated over 5 years of £8.43 inc backhaul. No gap
funding is required and if subscribers pay a market rate of £15 - £20 p.m this will adequately
fund fibre to the premises over time.
8. Spectrum
To deliver effective wireless services we use frequencies in the 5.8GHz Fixed Wireless
Access (FWA) band that are lightly regulated by OFCOM, subject to payment of a £50
annual licence fee. However FWA has effectively only 4 discreet 20MHz channels. With the
growth of road traffic monitoring, CCTV and other wireless applications, this spectrum
could become rapidly overcrowded in semi rural areas.
It is essential that any process to deliver rural NGA comes with protected but affordable
wireless spectrum, and that creative solutions are put in place to reuse analogue TV
spectrum as well as the 2.6GHz frequencies. The process of auctioning to the highest bidder
should be dropped in favour of an expansion of the OFCOM FWA frequencies, or the
registration process suggested by OFCOM where a database is kept of frequencies used in
particular areas to avoid one operator’s service from interfering with another.
OFCOM issued a spectrum consultation document 12 months ago to which we responded,
taking the above position.
9. Community Interest Companies
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Cotswold Community Networks Ltd – written evidence
Taking a Big Society approach to delivering rural NGA will require a formal framework that
community groups must follow. We envisage the use of community interest companies
which will be formed by local communities to manage and purchase high-speed network
services. A community interest company exists in a niche between a charitable organisation
and a normal for-profit business. A community interest company can be constituted in any of
the forms that a normal company could take, so for example it could be a cooperative or be
a limited company.
The key differences appear in the articles of association. These limit certain things that the
company can or cannot do, chief amongst these is the requirement to reinvest any profit
generated into the local community.
In terms of the use of these organisations in bringing high-speed networking to rural areas,
we envisage that they will be formed to undertake three tasks:
Firstly, to give some concrete expression to the demand in the community for high-speed
services by registering interest and potentially taking deposits for the provision of services.
Secondly, to provide some economies of scale, which should allow the purchase of goods
and services at realistic prices that the community can afford.
Thirdly, to enter into agreements for the supply, implementation and maintenance of highspeed
data networks for their communities with providers such as ourselves and others.
10. Conclusions
We have concluded that BDUK is failing to deliver an effective solution due to the following:
• Local Authorities are engaged in lengthy consultations leading to duplication of effort
and unnecessary costs.
• Local Authorities are taking a conservative approach by offering match funding to
large incumbent network providers (BT, C&W, Fujitsu etc) rather than encouraging
them to deliver wholesale points of presence to supply local providers who deliver
the ‘last mile’, where costs are highest for the traditional fixed line network providers
in sparsely populated areas.
• The BDUK approach was too open and market driven, which led to local providers
being excluded from the process early on. Now we have the big companies pulling
out of difficult areas, putting the whole process in doubt, or the scenario looked at in
case study 1 where the majority of subscribers get no benefit from the NGA project,
thus worsening the digital divide.
12 March 2012
220

The Country Land & Business Association – written evidence
The Country Land & Business Association – written evidence
Summary
• The Country Land & Business Association (CLA) is the only organisation
representing rural business and lobbying for effective and affordable universal access
broadband of at least 2Mb/ps;
• There is a clear and undeniable business case for broadband for rural communities;
• However, the rural-urban digital divide is still very much in evidence which the CLA
believes is completely unacceptable;
• Rather than seeking to implement a Universal Service Commitment (USC) there
should instead be a Universal Service Obligation (USO) which has the force of law;
• It appears likely that the Government’s objective of providing 2Mb/ps to all will not
be met by the 2015 deadline;
• The CLA does not believe that the broadband strategy adopted by Government –
where funding is allocated to local authorities and then to a successful procurer – will
actually achieve its set objective;
• Even with match-funding from local authorities, it is likely that the Government’s
commitment of £530m will be insufficient to build a future proofed superfast
broadband network, fit for purpose;
• The CLA believes that Defra’s Rural Community Broadband Fund is targeting the
wrong objective of superfast broadband in rural areas and is a missed opportunity
(some rural areas will never get superfast broadband);
• The CLA is advocating a patchwork quilt model where different broadband
technologies are deployed where they are needed in order to meet the 2Mb/ps
objective;
• The strategy of allocating funds to local authorities has been cumbersome and not
without its difficulties, particularly where there is little knowledge of broadband in
the local community; and
The CLA believes that the broadband strategy should have been centrally
coordinated to prevent mis-allocating funding at the local level which will invariably
lead to delay.
Introduction
1. The Country Land & Business Association (CLA) represents over 34,000 members in
England and Wales. All of the CLA’s membership will have an interest in, and be affected by,
the Government’s strategy to put in place a superfast broadband network.
2. The CLA has been at the forefront of the broadband debate for the last ten years.
Indeed, we have played a pivotal role in the first rollout of broadband to rural areas and we
have been instrumental in lobbying both government and the industry to put forward a
coherent strategy for the rollout of superfast broadband. We believe that the House of
Lords inquiry is timely and we welcome the opportunity to engage in the debate.
3. The CLA’s submission will focus on a number of areas identified by the Select
Committee as they affect rural areas.
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The Country Land & Business Association – written evidence
Background
4. The need for an effective and affordable broadband network for all rural areas is now
widely recognised. Indeed, the business case has been put and accepted that broadband does
and will act as an economic driver for both rural businesses as well as acting as a social
dynamic for rural communities.
5. Broadband can be provided via a telephone line (Digital Subscriber Line [DSL]), via
cable, via wireless and via satellite; and allows the user the ability to access the internet in
real time. Broadband for rural areas can have several advantages:
• The connection to the internet is always on, allowing for continuous internet
access. Using DSL means that the telephone line can be used at the same time,
unlike a dial-up connection;
• Its ability to handle large amounts of data. A large file that might take 10 minutes
or longer to download with a conventional narrowband dial-up connection of 36
kilobits per second (kb/ps), can be downloaded in less than a minute using
broadband;
• Broadband makes it much easier to upload information or update a company
website. This has a direct impact on productivity and makes it easier for the
company to operate and remain competitive. Uploading files to the company
website via a narrowband connection can be painfully slow and time consuming –
and often frustrating when the connection is lost;
• It helps Small and Medium-sized Enterprises (SMEs) achieve cost savings. Without
broadband, costs can be incurred through the postal service, particularly if
overseas customers are involved. Broadband can cut costs by enabling large
amounts of information to be transmitted quickly and easily;
• Using a Voice over Internet Protocol (VoIP) system allows telephone calls to be
either free (through the broadband connection) or at a significantly reduced cost.
For example, a fish business that imports stock from Thailand requiring at least
two telephone calls a day is actually able to save £15,000 a year in costs through
using VoIP; and
• Finally, staff will also see the advantages of using broadband by being able to work
more effectively and efficiently. More time can be spent online, such as
researching new products, or looking for new sales leads.
6. These advantages depend on a reliable, adequate and cost-effective broadband
connection, a situation with which many in rural areas still struggle. Three sectors illustrate
why broadband is essential to the economic prosperity of rural Britain: food, farming and
agriculture; rural business; and the rural community.
7. Given the current economic situation, a key government policy is to increase the use
of online resources. It is calculated that this could save at least £1 billion per year. However,
such savings cannot be achieved if rural business is not able to access and return data online
due to the lack of a suitable broadband connection. The line adopted, for example, by HM
Revenue & Customs regarding the completion of tax returns and PAYE online is that those
without a suitable broadband connection should use an agent. This misses the point entirely
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The Country Land & Business Association – written evidence
as using a third party increases costs to the business. This means that there are likely to be
additional costs without online provision.
8. Broadband should help rural businesses to compete on a more equal footing with
their urban counterparts. However, the lack of an infrastructure for fixed-line broadband
simply accentuates the rural-urban digital divide.
9. There is an argument that, in fact, everyone can access broadband through the use of
satellite. In the main this is true, but invariably the costs involved tend to be far higher.
When compared with other forms of broadband, satellite is still significantly more expensive.
Once more, this cost has to be borne by the business.
The Rural – Urban digital divide
10. Ever since the advent of broadband there has been a significant rural-urban digital
divide. This is based on those in rural areas who are unable to secure an effective and
affordable broadband connection. The CLA calculates that, currently, between 15 per cent
and 20 per cent of those who live in rural areas are unable to receive anywhere near the
Government’s stated benchmark of 2Mb/ps. Indeed, this has been confirmed by OFCOM’s
digital mapping process 52 . Such a situation is unacceptable.
11. The CLA has always advocated the adoption of a broadband Universal Service
Obligation (USO) and we remained concerned that the Government is only promoting a
Universal Service Commitment (USC) which has no legal sanction. We did not agree when
the previous Government advocated the USC and we remain concerned that a USC
provides government with a get out clause in the event that the 2Mb/ps benchmark cannot
be achieved by the stated deadline of 2015.
Government broadband strategy
12. The Government’s publication “Britain’s Superfast Broadband Future” in December
2010 set out their vision as to the best way of developing a future proofed superfast
broadband network. As part of that strategy, £530m (plus an additional £300m after 2015)
was made available to meet the Government’s two objectives:
• To put in place a Universal Service Commitment of at least 2Mb/ps by 2015;
• To put in place a superfast broadband network (with a minimum speed of
24Mb/ps) by 2017.
13. This money was to be allocated by Broadband Delivery UK (BDUK) to local
authorities where it would be match-funded. The local authorities were then tasked with
identifying those areas where there was no or little broadband connectivity and to put
together a local broadband plan to meet the Government’s objectives. Following this, a
procurement exercise would then invite infrastructure providers to tender for the monies
available and to build an effective and sustainable broadband network.
14. In practice it may prove to be very difficult for local authorities to meet the
imposed deadlines. In effect, it is very unlikely the USC will be met by 2015. Of underlying
52 OFCOM digital mapping process (http://maps.ofcom.org.uk/broadband/).
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The Country Land & Business Association – written evidence
concern is the perceived lack of understanding as to the needs of rural areas. The CLA
believes that the key is universal coverage. Whilst many rural businesses, at present, do not
need speeds associated with superfast broadband in order to operate efficiently, this will
change in the future and this is why it is essential that any broadband network is future
proofed.
15. The CLA’s goal is to help ensure universality by 2015. We do not believe that the
strategy advocated by Government through BDUK will work. The policy is too fragmented
and there is a strong argument that the contracts awarded by local authorities will actually
go to the biggest and most powerful players in the market. Irrespective of whether there is
adequate transparency, by the very nature of the procurement process and the methods
used by local authorities, the system appears badly skewed.
16. The CLA also remains to be convinced that the £530m committed (or £1.06 billion
when including match funding) is sufficient. Government and industry studies agree that the
costs of putting together a superfast broadband network are closer to £15 billion and this
indeed may be a significantly optimistic figure. Given this, too great a pressure is being placed
on the private sector to finance a superfast broadband network when broadband needs to
be regarded as a benefit to all in society.
The future needs of rural areas
17. The CLA accepts that greater speeds will be required in the future. The increasingly
sophisticated applications that are available today will undoubtedly increase in the future
meaning that more bandwidth will be required. In a sense, the concern is not so much speed
as to adequate infrastructure.
18. One of the CLA’s primary concerns relates to access. Even if superfast broadband
was made more widely available, there is every likelihood that rural areas will miss out
simply due to the costs of putting in a superfast broadband infrastructure. Infrastructure
providers will not fund projects in remote rural areas because there is no economic return.
Even the Government has recognised that 10% of rural areas – those living in the remotest
rural areas – will never be able to gain access to the superfast network. This means that
alternative broadband provision will need to be developed but the CLA sees no evidence
that this is being considered.
19. The CLA is not wedded to the idea of solely relying on a universal fibre network as
the best solution although we do accept that this must be considered the ultimate objective.
What is required today is a patchwork quilt model whereby other technologies, such as wifi
and satellite become widely available and widely used. As we have stated above, the essential
objective must be the availability of at least 2Mb/ps. We are not unduly concerned that this
has to be delivered through a fixed broadband network – what we want to see is that all in
rural areas have the opportunity to be connected.
20. It is on this basis that the CLA has serious misgivings regarding Defra’s Rural
Community Broadband Fund. We believe that it has missed a major opportunity by its
reliance on seeking only a superfast broadband solution. Quite simply, the effect will only be
to reduce the numbers in rural areas who have no connection rather than considering how
to ensure universal coverage.
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The Country Land & Business Association – written evidence
21. The CLA believes that providing a stable platform for infrastructure providers who
are seeking to develop superfast broadband networks in rural areas is crucial and we fully
recognises that the industry has to play its part. That is why we are engaged in discussions
with the National Farmers Union, subject to agreement from the Office of Fair Trading, with
regard to putting in place a national broadband wayleave agreement as soon as is possible.
Conclusion
22. The CLA’s key objective is to ensure that all rural areas receive at least a 2Mb/ps
broadband connection that is both effective and affordable as soon as possible. That is why
we have supported the Government’s principles set out in its broadband strategy.
23. However, the CLA believes that, although progress is being made, there is still no
cast iron guarantee that the Government’s broadband objectives, both in terms of superfast
broadband and the Universal Service Commitment, will be met on time. We remain
concerned that the actual mechanics being employed to roll-out superfast broadband will
not be fit for purpose and the aim of Britain having ‘the best superfast broadband network in
Europe by 2015’ will not be realised.
13 March 2012
225

Creative Coalition Campaign – written evidence
Creative Coalition Campaign – written evidence
1. Introduction
1.1. The Creative Coalition Campaign (CCC) welcomes the chance to respond to the
Committee’s call for evidence on this important issue. We particularly welcome the
Committee’s decision to explore the potential implications of superfast broadband
roll out on the creative content sector in the UK, especially in light of continued
high levels of online copyright infringement.
1.2. By way of introduction, the CCC is a partnership comprising trade unions
representing workers in the creative industries and businesses in the music, video,
film, TV, publishing and sports sectors. We have come together to articulate our
member organisations’ shared view of the threat that online copyright infringement
poses to jobs in the creative industries.
1.3. The UK has the largest creative sector in Europe and probably the largest in the
world in GDP terms. 53 It accounts for 1.5m jobs and contributes more that £36bn
to the economy in terms of value added. 54 However, a report by TERA Consulting
found that up to a quarter of a million jobs will be at risk in the UK by 2015 if
nothing is done about copyright infringement. 55
1.4. We fully support the roll out of superfast broadband as it presents huge
opportunities for content creators. However, there is a risk that a failure to take
action against online infringement in parallel with superfast broadband roll out could
exacerbate the risk posed to jobs and growth in the creative sector.
1.5. Below we have outlined our response to some of the questions raised in the
Committee’s call for evidence.
2. How might superfast broadband change the relationship between providers and
consumers in other sectors such as content? What aspects of this relationship are
key to enabling future innovations that will benefit society?
2.1. The internet is one of the fastest and most exciting growth areas in our economy. It
allows creators to reach entire new audiences in innovative ways and the content
sector is embracing these possibilities with a wealth of legal content available online.
2.2. The UK is one of the world’s most advanced markets for digital music and video
with well over 70 services legally offering music and almost more than 50 digital
video and TV catch-up services including iTunes, Blinkbox, Xbox Live, Netflix,
Lovefilm, BBC’s iPlayer, and 4oD to name a few. These services provide consumers
with access to a huge library of material at a reasonable cost through a number of
53 CBI report: Skills in the creative industries http://www.cbi.org.uk/media/1055419/2011.09-cbi-creative-skills-brief.pdf
54 Department for Culture, Media and Sport Economic Estimates: http://www.culture.gov.uk/publications/8682.aspx
55 TERA Consulting: Building a Digital Economy: The Importance of Saving Jobs In The EU’S creative Industries
http://www.iccwbo.org/uploadedFiles/BASCAP/Pages/Building%20a%20Digital%20Economy%20-%20TERA(1).pdf
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Creative Coalition Campaign – written evidence
different devices including smartphones, tablet computers, internet connected TVs,
set top boxes and games consoles.
2.3. Increased household penetration of superfast broadband has the potential to
provide a further boost to legal content offerings, making them more viable in
themselves and greatly improving user access and experience, which would stimulate
the demand for paid-for services. However, content providers need the right
regulatory framework and technological tools to flourish. They simply can’t compete
when illegal sites steal their content and offer it for free. If the continuing problem of
online copyright infringement is not addressed alongside the transition to superfast
broadband, the threat to jobs, growth, investment and innovation across the
creative sector will continue to grow.
2.4. Without the continued investment and innovation of content creators, the very
content which drives consumers’ demand for superfast broadband is put at risk.
3. Will the Government’s targets be met and are they ambitious enough? What speed
of broadband do we need and what drives demand for superfast broadband?
3.1. One of the key drivers of demand for superfast broadband is creative content.
Consumers increasingly expect to be able to access their favourite content online,
whether that be films, music, books, games, sport or television drama. The
expansion of superfast broadband will greatly expand the opportunity for consumers
to easily access high value audio-visual content. This will be one of the key areas
driving demand for internet services. This is illustrated by a report by ATKearney 56
which predicted that by 2014 video applications will account for 74 per cent of all
internet traffic. Much of this video traffic is from illegal sources which take up
valuable bandwidth to the detriment of quality for legitimate services.
4. What impact will enhanced broadband provision have on the media and creative
industries in the UK, not least in light of the increased danger of online piracy?
What is the role of the Government in assuring internet security, and how should
intellectual property (IP) best be protected, taking into account the benefits of
openness and security?
4.1. The internet is a vital engine for economic growth and the creative industries
embrace its huge potential to reach new audiences and promote innovation. Our
members do not just make movies, music and television shows, they innovate to
create content using ground breaking technology in formats which consumers want.
However, while criminals continue to steal the work of others and offer it for free
online, the creative sector will never achieve its growth potential.
4.2. The advent of superfast broadband will make it easier and quicker for consumers to
access content, both legal and illegal, more easily and quickly. This is a huge
opportunity for content creators, but also has the potential to exacerbate the
problem of online copyright infringement if decisive action is not taken by all
56 ATKearney: A Viable Future Model for the Internet http://www.atkearney.com/index.php/Publications/a-viablefuture-model-for-the-internet.html
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Creative Coalition Campaign – written evidence
relevant stakeholders, including internet service providers, search engines,
advertisers and other intermediaries.
4.3. Online copyright infringement harms investment and costs jobs – from the CGI
experts to scriptwriters and sound engineers who make British skills admired
around the world. Without decisive action, infringement risks choking off continued
future investment and innovation in new creative content.
4.4. The Government is committing £530m of public money to stimulate the roll out of
superfast broadband, which will offer considerable benefit to internet service
providers (ISPs). This significant public subsidy should be conditional on a strong
commitment from ISPs to live up to their responsibilities to help ensure a fair and
sustainable online environment.
4.5. This responsibility should include actively engaging with Government and content
creators to implement the notice sending provisions of the Digital Economy Act as
soon as possible and to take action against illicit websites which provide access to
copyright infringing material. We are not asking ISPs to police the internet but
simply seeking their assistance to deal with a major problem, which if tackled, will
help drive the development of a sustainable internet for the benefit of society as a
whole.
4.6. In addition to this, it is important that search engines, credit card companies and
internet advertisers also play their part. Search engines in particular frequently direct
consumers overwhelmingly to illegal websites in preference to legal services. Rights
holders have suggested a code of practice to address this issue which is currently
under discussion. Such a code would require search engines to live up to their
responsibility to help ensure a sustainable internet. In addition to this, work is also
continuing between industry and the Internet Advertising Bureau to reduce brand
advertising which funds illegal websites.
4.7. Full implementation of the Digital Economy Act is estimated to cost in the region of
£20m. This represents less than five per cent of the public money the Government
has allocated for investment in superfast broadband.
5. In fact, are there other targets the Government should set; are there other
indicators which should be used to monitor the health of the digital economy?
5.1. Most Government targets currently focus on the reach of broadband infrastructure.
However, an environment where criminals are able to make other people’s content
available for free for their own profit is not a healthy or sustainable situation. Under
the provisions of the Digital Economy Act, Ofcom is required to monitor the levels
of online copyright infringement. Implementation of the Act has so far been delayed
but once Ofcom commences this function it should be used as one of the key
indicators of the health of the digital economy.
13 March 2012
228

Creative Coalition Campaign – written evidence
The membership of the Creative Coalition Campaign includes the following organisations: The
Association of British Orchestras, The Alliance Against IP Theft, BECS, BECTU, BPI, British Video
Association, The Cinema Exhibitors’ Association Limited, Design and Artists Copyright Society,
Directors UK, Entertainment Retailers Association, Equity, Federation Against Copyright Theft,
Federation of Entertainment Unions, Film Distributors’ Association, Independent Film and Television
Alliance, Incorporated Society of Musicians, Motion Picture Association, Musicians Union, National
Union of Journalists, Pact, Personal Managers Association, PPL, Premier League, PRS for Music, The
Publishers Association, UK Screen Association, UK Music, Unite and The Writers Guild. It is also
supported by the TUC.
229

Cumbria County Council – written evidence
Cumbria County Council – written evidence
Cumbria County Council and partners, through the Connecting Cumbria Partnership Board,
welcomes this opportunity to contribute to the Select Committee’s work on superfast
broadband. Please find our submission below.
We have unique experiences of the opportunities and challenges of implementing the
Government’s “Britain’s Superfast Broadband Future” through being one of the 4 national
pilots.
The learning we are capturing as a pilot area will be valuable to all those areas that follow.
We ourselves have learnt from the experiences of other areas such as Cornwall and
Northern Ireland. We are already sharing our learning with others and hope that we can
play a key role in the future in providing advice based on our experiences to Government
and others.
Our vision is that everyone in Cumbria – every resident, business, organisation and visitor to
the county – has access to superfast broadband. Our vision for this is formally manifested in
our role as Accountable Body, and through our strategy which has been in place for nearly
six months. We are entering the final stages of our procurement to identify a delivery
partner. We are currently ahead of other pilot areas in the process of putting in place the
delivery arrangements.
I hope that the Committee finds our unique contribution based on our experience so far
valuable to their work and would be happy to respond to any further requests from
Members of the Committee. I would anticipate that we will have further useful input to
contribute as we complete the procurement phase over the next 3 to 4 months both in
terms of the process undertaken and the work in readiness for implementation and roll-out.
Councillor Elizabeth Mallinson
Cabinet Member for Organisational Development and Chair of the Connecting Cumbria
Partnership Board
1.0 INTRODUCTION
1.1 As one of the 4 pilot areas at the forefront of the delivery of the Government’s
strategy “Britain’s Superfast Broadband Future” Connecting Cumbria is progressing with an
approach based on a clear ambitious strategy, ambitious but achievable key objectives, wide
and effective engagement with all stakeholders and robust procurement. We have unique
experience of the opportunities and challenges to share with the Committee based on our
learning so far.
2.0 KEY MESSAGES
2.1 The Government’s strategy and the funding provided through BDUK have provided a
springboard for the development of an ambitious programme to deliver access to the
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benefits of superfast broadband to those people in Cumbria who otherwise wouldn’t have
access. Our programme and all underpinning activity is focussed on the delivery of long-term
outcomes including digital inclusion, economic growth and public sector efficiencies.
2.2 We have been able to make progress on our procurement process quickly and
efficiently with the full engagement of the market and individual bidders to be the most
advanced of the pilot areas across the country announced in 2010 in the process to roll-out
our strategy (attached).
2.3 We consider the key success factor for our Connecting Cumbria programme is
wide and deep engagement at the local level blended with a county-wide procurement
approach to secure the best value for money possible. Unified political support has also been
important.
2.4 We’ve placed communities at the heart of everything we do, making sure that
we engage with the widest range of stakeholders possible.
2.5 It is important that Government promotes this inclusive approach as other areas
put their programmes into place. We have a network of hub co-ordinators in place in
communities across the county working with their neighbours to identify what their
communities need and how it can be delivered. Students from schools in the county have
also been part of the Board’s work – sharing their experiences, the online services they use
and what they need to be able to use them.
2.6 Businesses are also central to the Connecting Cumbria work with representation
on the Connecting Cumbria Partnership Board and proactive support and engagement.
We’ve also recently surveyed 676 businesses to obtain their views on superfast broadband
as an obstacle and opportunity for growth – this will be part of the information we will use
with our provider to plan what happens next.
2.7 Identifying the appetite within the wider community is a key aspect of supporting
bidders to achieve the best for Cumbria. We are gaining wide experience of this through the
network of business and community groups.
2.8 The key challenge we have to achieving value for money is the operation of the
market. We would ask the Government to consider what they and the regulator, Ofcom,
can do to maximise competition in the market. Technology is moving faster then regulation
and will lead to a restricted and less cost effective solution for the country unless work is
undertaken to update the regulatory framework which our experience suggests would be to
the long term advantage of the market, providers and customers resulting in choice and
value for money.
2.9 Access to existing infrastructure and related investment plans, and the limited
removal of price regulation, would create a competitive market. We have seen some
encouraging moves by the regulator but discussions with bidders suggest that it is vital that
the Government’s aspirations for opening up duct and pole access are followed through.
Access to dark fibre would also negate the need for parallel infrastructure, which would be
wasteful of money and resources, and would have a significant benefit to our project.
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2.10 The rules around European Commission approval of state aid applications are
also lagging the technological developments. DCMS are instigating an umbrella application for
all UK projects which is welcomed, but probably a little late for us. Our experience of
working through the process is that it is a slow process as perceptions on what is eligible
have been informed by our dialogue process with bidders.
2.11 It is important to recognise that the ambition set out by the Government in its
strategy and the funding provided through BDUK and other public sources, partnered with
private sector providers, will not necessarily provide the benefits of superfast broadband for
everybody. There are real risks that a ‘digital backwater’ could still result from this work
despite the public investment and extensive community engagement in developing and
delivering solutions. Even with communities taking on a significant amount of the work
themselves, it is those of the greatest geographical isolation with some of the greatest need
for superfast broadband connectivity that could be left behind.
3.0 FURTHER INFORMATION
Engagement
3.1 Communities were placed at the very centre of Connecting Cumbria from day one.
There is in place a network of volunteers acting as community hub co-ordinators who work
in their communities raising awareness and engaging the whole community in the planning
for their area. Hub Co-ordinators are represented on the Connecting Cumbria Partnership
Board influencing decision-making and are being actively supported by the County Council in
its role as Accountable Body.
3.2 They work with broadband champions linked to parish councils and elected
representatives in their area to establish and represent the views of their community on
broadband services. This includes engaging with, and informing, the procurement process
ensuring the needs and views of communities are reflected in the process.
3.3 The unified support of MPs in Cumbria has played a significant role in raising
awareness and in promoting the communities who are already piloting solutions.
3.4 In addressing market failure, community resources are proving the vital tool. The
£17.1 million of funding secured from BDUK, and the other public funding, totalling a
proposed package of approximately £40 million is not enough to deliver access to superfast
broadband to everyone in Cumbria.
3.5 It is estimated that approximately £200 million would be required to deliver access
to all in Cumbria; however, we are aiming to achieve as close as access to all as possible.
Increased funding at this stage would allow more infrastructure to be put in place that would
meet future needs driven by technological developments, however, this funding gap, in stark
figures, highlights the importance of creativity in developing solutions to achieve our vision.
That is why we are working closely with communities across the county to develop
solutions using a mix of technologies to meet their needs.
3.6 However, even with a high level of community involvement in delivering solutions
there remains the risk that a significant percentage of those in areas that suffer market
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failure and the greatest geographical isolation could be left behind becoming a ‘digital
backwater’. This poses a risk to the national and local strategies focused on digital inclusion.
In Cumbria this ‘digital backwater’ could see the 10% of premises which arguably are in
greatest need of digital inclusion and public investment because of geographical isolation and
the lack of commercial incentive for connection miss out on the benefits of superfast
broadband for the foreseeable future.
3.7 A robust, competitive market would enable an increased focus, nationally and locally,
on addressing complete market failure through public investment.
3.8. The approach being pursued in some communities in Cumbria is a build and benefit
model with the community doing the work themselves, e.g. digging the trenches, and
working with the provider to ensure that a backhaul point is placed in the community to
which dwellings can connect through a choice of Internet Service Provider.
3.9 A community-centred approach can also be important in respect of efficiency and
value for money. For example, engagement of landowners can help bring down costs related
to use of land for infrastructure.
3.10 The Connecting Cumbria Partnership Board has recently been visited by groups of
students from 2 local secondary schools to set out what their issues are. They gave video
presentations to the Board highlighting how faster and more consistent connectivity at home
would help them:
• Carry out research for their school work
• Save time travelling to the library to do work
• Access moodle to sit interactive tests and upload work
• Access online advice services and blogs
• Set businesses up online
3.11 The students emphasised with the Board the importance of social media for
communication, and of students in rural areas having the same access as those in urban
areas. They confirmed that due to the connectivity issues they have many of the students
choose to access the internet via mobile because its faster. Better and faster connectivity
would also mean more of the students would consider going on to study at the University of
Cumbria rather than re-locating outside of the county. Of crucial importance here are the
opportunities which the provision of superfast broadband bring to young people and the
long-term impact on outcomes including educational attainment.
3.12 The Cumbria Chamber of Commerce represent businesses on the Partnership Board
and were directly involved in developing the Cumbria’s strategy for superfast broadband.
We have directly engaged with the Large Employers in the county through their network,
and with the county’s Local Enterprise Partnership.
3.13 In the Cumbria Business Survey 2010, 23% of businesses reported a need for higher
speed broadband. The need for higher speed broadband is greatest within the
accommodation and food sectors (32%). This highlights the tourist industry as one of the
key sectors driving demand in Cumbria. Recent work on the Destination Management Plan
has re-emphasised the importance of superfast broadband in enabling better and wider,
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global marketing of Cumbria and its businesses, and in improving the visitor experience for
tourists who now expect high speed access.
Outcomes
3.14 It is important that social and economic outcomes are not forgotten. Elements
missing from the Government’s strategy include employment and training opportunities
through the building of the infrastructure and pricing mechanisms to promote social and
economic, as well as digital, inclusion. While we require our provider to demonstrate
strategic fit with our policy objectives, and to demonstrate innovation in the way in which
superfast broadband can contribute to improved outcomes, this is not formally reflected in
the Government strategy.
3.15 We intend to ensure there’s a backhaul point in each community; however, we
recognise that there’s more that could be done to help everyone have access to superfast
broadband and that barriers are not just about provision of infrastructure to allow access.
Economic and social barriers are often the most significant barrier to access and need to be
fully considered as part of this strategy. A truly competitive market providing value for
money and choice for customers wherever they are in the country is one major way to
address these issues.
Ambition and Expectation
3.16 The Connecting Cumbria through Superfast Broadband strategy sets out the
ambition that everyone in Cumbria – every resident, business, organisation and visitor to the
county – has access to superfast broadband. 18% of properties currently don’t have access
to at least 2 mbps, whilst we aim to increase the number of properties with access to at
least 25mbps.
3.17 We are clear about using a mix of technologies so that those communities (we
estimate 10% of dwellings in the county) where it is impossible to fund fibre infrastructure
(either through the market on its own or with public sector and community support) expect
to be covered by mobile technology where possible. It is not possible at this stage to be
clear about the speeds communities can expect to receive until a contracted provider has
begun work.
3.18 It is important to be realistic and plan for the amount of time, resources
and effort it takes to secure and put in place the funding arrangements to deliver a project of
this size and ambition. One of the key risks at local and national level is the relationship
between ambition, expectation, and the realities of delivery. One aspect of this is the clear
communication of a single definition of superfast broadband – this has been missing from the
Government strategy so far – and clear messages about what different areas can expect and
when. Maintaining momentum is vital to continued
Public Services
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3.19 Cumbria County Council is committed to working with partners to take
opportunities to increase the efficiency of public services. This is clearly reflected in the
superfast broadband strategy for Cumbria. Some of this work has already started and we
aim to expand on this through the Connecting Cumbria project.
Alston Healthcare uses next generation broadband to enable the remote
diagnosis, treatment and monitoring of patients by medical staff. Patients can
use their televisions to book GP appointments and order repeat prescriptions.
Cumbria County Council and Cumbria Constabulary are using next
generation broadband technology to enable the sharing of networks on the
move. This means that Police Officers can access systems whilst on the move
meaning
Ambition that and they Expectation
can work in their cars rather than returning to their base,
work more efficiently and effectively and spend a greater proportion of their time
actively ‘policing’ rather than travelling.
3.20 The outcomes that have been set out in our strategy focus on achieving economic
growth, digital inclusion and public sector efficiencies. The ability of the market to support
delivery of these is being evaluated in the procurement process through seeking innovation
and application of technologies in, for example, telecare and educational attainment.
4.0 CONCLUSION
4.1 The opportunities provided by Cumbria’s pilot area status is welcomed and work is
progressing well in ensuring that the best possible outcomes are achieved in the county to
enable every individual, business, organisation and visitor to experience the benefits of
access to superfast broadband. It is important for us to maintain that focus through the
complexities of the planning and procurement processes.
4.2 We also recognise that being a pilot means that we are identifying and attempting to
overcome some challenges and obstacles that we can now highlight to the Government so
that steps can be taken to mitigate or remove these.
4.3 We hope this summary of our experience and some of the particular issues we have
faced is helpful to the Committee and would welcome any further requests for information.
13 March 2012
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David Hall Systems Ltd – written evidence
David Hall Systems Ltd – written evidence
Question
1) What is being done to prevent a greater digital divide occurring between people who
can access superfast broadband and people in areas where the roll-out of superfast
broadband may not be commercially attractive? How does the UK communications
market vary regionally and what is the best way to connect the areas that the market
alone cannot reach? Is a universal service obligation necessary to avoid widening the
digital divide?
Response
1.1) We consider that there is a requirement for a universal service obligation though
detailing such an obligation may be difficult. However such an obligation is essential
to prevent any digital divide developing on the basis of speed or access to
connectivity. We consider that wireless and/or satellite connectivity should be used
to serve the areas that the market cannot reach. There is also an important role for
community groups to provide superfast broadband provision in areas where the
market finds it is difficult to meet the needs. A system of supporting and encouraging
such community groups needs to be developed. A possible complication is that the
cost of deploying superfast broadband is changing so that it is difficult to determine
the areas will not be served by the market and over time such areas should be
reducing.
Question
2) The Government have committed £530 million to help stimulate private investment
– is this enough and is it being effectively applied to develop maximum social and
economic benefit?
Response
2.1) It is difficult to determine an appropriate amount for the Government to invest in
superfast broadband though it is essential that any amounts committed by the Government
do not distort the functioning of the market. It is even more difficult to determine if this
Government funding is resulting in the maximum social and economic benefits and we
consider that further studies are required to answer this question. Additionally we consider
that the social and economic benefits will change over time and the implications of this need
to be taken into account.
Question
3) Will the Government’s targets be met and are they ambitious enough? What speed
of broadband do we need and what drives demand for superfast broadband?
Response
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David Hall Systems Ltd – written evidence
3.1) Speed appears to be an inappropriate indicator on a stand alone basis. With the
increasing use of mobile devices for accessing online content it appears that mobility is
preferred over speed as currently mobile data rates tend to be slower than fixed data rates.
We consider that this relationship between mobility and speed needs to be better
understood so that appropriate targets can be developed. The key drivers of demand for
superfast broadband are video and other forms of rich content and this demand is constantly
increasing. Additionally as we become more conversant with the process of online
communication new communication concepts will develop which is likely to increase
demand for superfast broadband.
Question
4) In fact, are there other targets the Government should set; are there other
indicators which should be used to monitor the health of the digital economy? What
communications infrastructure does the UK ultimately need to remain competitive
and meet consumer demand over the next 20 years?
Response
4.1) Superfast broadband is just a segment of the digital economy and what are appropriate
indicators for superfast broad are unlikely to be fully appropriate for measuring the digital
economy and vice versa. Consequently separate indicators need to be developed for
superfast broadband and the digital economy. In the previous question we have suggested an
area where the current superfast broadband targets might be improved.
4.2) Currently fixed and wireless provision of superfast broad are treated as separate
markets though in future we consider that these should be integrated into a single market.
This will have a number of policy and regulatory implications which will need to be fully
understood to prevent the risk of unintended consequences. However integrating these two
market sectors will provide a much more appropriate communications infrastructure.
4.3) Currently most consideration of network capacity is related to the technical capacity of
the network but in future it might be more appropriate to use other means for dimensioning
the networks such as based on the value of information or the context of the information.
However this approach will raise many difficult questions particularly in the relationship with
net neutrality.
Question
5) How will individuals and companies use cloud services for distributed storage and
computation? What network properties are required to enable efficient provision
and use of such services?
Response
5.1) There has been an extremely rapid evolution of online computational concepts and this
evolution is likely to continue. Therefore it may be inappropriate to optimize the networks
for cloud services and in reality the networks should be capable of supporting any
technology, service or application that is developed. We consider that this is the most
appropriate means of developing a future proof network
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Question
6) To what extent will the advent of superfast broadband affect the ways in which
people view, listen to and use media content? Will the broadband networks have the
capacity to meet demand for new media services such as interactive TV, HD TV and
3D content? How will superfast broadband change e-commerce and the provision of
Government services?
Response
6.1) This question raises many issues and it is likely that the situation will change significantly
over time which reinforces our previous point that the networks should be capable of
supporting any technology that may be developed. In future much more video content will
be delivered online but currently it is not clear if this will reduce the demand for over the air
broadcast services. If there is a reduction in conventional broadcast services then this could
result in the release of spectrum which could be used for other purposes such as the
provision of additional superfast broadband. However based on current trends it appears
that there will be little reduction in demand for conventional broadcast services so there is a
need to understand if this trend will continue and the longer term implications.
6.2) There is a need to consider the wider impact of e-commerce which could in some
circumstances reduce or change the role of shopping in the traditional high streets. Already
there is evidence that in some sectors the sales are greater online than in shops and the
implications of this need to be considered.
6.3) Similarly the provision of Government services raises a number of issues. A key one is
that many of these services could be targeted at the elderly who traditionally are less likely
to be active online so there is a need to consider the implications of providing such services
and the level of support required for these services.
Question
7) Will the UK's infrastructure provide effective, affordable access to the 'internet of
things', and what new opportunities could this enable?
Response
7.1) We are not fully convinced that the current communications infrastructure is
appropriate for the ‘internet of things’. We agree that the ‘internet of things’ will provide
many opportunities and change many established processes. Thus we consider that there is a
need to identify the resultant benefits so as to justify the required investment in providing
the appropriate infrastructure.
Question
8) How might superfast broadband change the relationship between providers and
consumers in other sectors such as content? What aspects of this relationship are
key to enabling future innovations that will benefit society?
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David Hall Systems Ltd – written evidence
Response
8.1) Superfast broadband will significantly change the relationship between providers and
consumers in many ways but particularly in the area of content where consumers will also
become providers. Currently the relationships in this area are not fully understood and
further research is required to clarify the relationships. A specific aspect of this will be the
change in the economics of content provision and this may have implications for intellectual
property rights.
Question
9) What role could or should the different methods of delivery play in ensuring the
superfast broadband network is fit for purpose and is as widely available as possible?
How does the expected demand for superfast broadband influence investment to
enhance the capacity of the broadband network?
Response
9.1) DCMS is currently developing a policy regime that will allow the deployment of
overhead lines and we consider that such deployment could have a very significant impact in
rural areas. The role of wireless will become increasingly important in all areas and it is
essential that Ofcom makes the spectrum available to meet this demand. We also consider it
is important that this spectrum is made available to a wide range of organisations and not
just the current major mobile network operators. In the more remote areas satellite
connectivity will play a role. All these methods of delivery have different characteristics and
it is important to understand these characteristics so that the different means can be
combined to form a unified delivery network. Additionally when considering wireless
connectivity there is a need to consider the backhaul links required to support the wireless
network.
9.2) We have already referred to the relationship between speed and mobility and this
relationship will have an important impact on the distribution of demand for connectivity
between overhead lines and wireless links.
Question
10) Does the UK, for example, have a properly competitive market in wholesale fibre
connectivity? What benefits could such a market provide, and what actions could the
Government take to ensure such a market?
Response
10.1) We are not convinced that currently there is a fully competitive market in wholesale
fibre connectivity. However we consider that the wholesale market should include mobile
connectivity as well as fibre access and for fibre access it should include other networks in
addition to BT. We are concerned that the mobile operators have too great a control over
the way the mobile market is developing. If there is a more competitive market this will
allow additional service providers to enter the market which could extend the reach of the
market in more rural areas.
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Question
11) What impact will enhanced broadband provision have on the media and creative
industries in the UK, not least in light of the increased danger of online piracy? What
is the role of the Government in assuring internet security, and how should
intellectual property (IP) best be protected, taking into account the benefits of
openness and security?
Response
11.1) Enhanced broadband provision will significantly increase the market for the media and
creative industries and in addition change the way that these sectors work. At this stage it is
difficult to understand the full implications of these changes so a flexible system is required
to accommodate any future change. Internet security and the protection of intellectual
property are difficult issues and it is possible that a new framework is required. The report
‘Digital Opportunity: Review of Intellectual Property and Growth’ produced by Hargreaves
in May 2011 contains a number of recommendations for amending the intellectual
framework and these recommendations demand careful consideration and implementation
where appropriate.
13 March 2012
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Department for Culture, Media and Sport – written evidence
Department for Culture, Media and Sport – written evidence
The Government welcomes this inquiry into superfast broadband. The roll out of superfast
broadband is one of our top priorities, and a key part of our national infrastructure plans.
Our aim is to be the best in Europe by 2015, with 90% of premises having access to
superfast broadband, and universal access to at least 2Mbps. Our strategy for achieving this
is, covering both urban and rural areas, is set out in Britain’s Superfast Broadband Future,
published in December 2010. We are making significant investments, to be matched by local
authorities and the private sector, and we are reviewing the regulatory framework for the
sector in support of these goals. Good progress is being made but we are still facing
significant challenges, particularly in the context of the economic climate.
1. What is being done to prevent a greater digital divide occurring between
people who can access superfast broadband and people in areas where the rollout
of superfast broadband may not be commercially attractive? How does the
UK communications market vary regionally and what is the best way to connect
the areas that the market alone cannot reach? Is a universal service obligation
necessary to avoid widening the digital divide?
Ofcom publishes data on the UK’s communications market in its annual Infrastructure
Report. Last published in July 2011, this showed that the UK average modem sync speed was
7.5Mbps. England and Scotland had higher average speeds of 7.6Mbps compared to Wales
and Northern Ireland, which had average speeds of 6.5Mbps and 6.3Mbps respectively.
However, Northern Ireland had a significantly higher availability of superfast at 97% than
England (61%), Scotland (41%) and Wales (31%). As at November 2011, England had the
highest broadband take up at 76%, followed by Northern Ireland (75%), Wales (71%) and
Scotland (61%).
The Government wants to minimise the prospect of a greater digital divide where some
households are unable to access the same level of services as others purely due to their
location. Currently, without any intervention from Government, the market is expected to
deliver superfast broadband to at least two thirds of the country. Investment becomes less
commercially viable in ‘final third’ areas due to costs of installing new networks and replacing
copper with fibre (which for the last 10% can be up to three times higher than for the first
two thirds areas 57 ), and lower population density. We are investing £530m of public funds
over the lifetime of this Parliament to stimulate private investment in high speed broadband
in areas the market alone cannot reach.
At least 90% of premises will have access to superfast broadband (24Mbps +) by 2015, with
the remainder having access to at least 2Mbps. Rural and remote areas will benefit from
increased service levels at the same time as more urban areas, bringing coverage to parts of
the country that are currently excluded. Communities and local authorities are being given a
say in how networks will be built so that community needs will drive the process, not
decisions made in Whitehall. We are also investing a further £20m through the Rural
Community Broadband Fund for the most remote areas.
57 Broadband Stakeholder Group
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We are also investing £150million to improve mobile coverage for consumers and
businesses in areas where coverage is poor or non-existent. The Mobile Infrastructure
Project (MIP) is aimed at improving voice and basic data coverage, however, it is absolutely
clear that infrastructure installed will need to be forward compatible for the next generation
of mobile equipment which is expected to become available after the upcoming spectrum
auction. This project is based around bringing the benefits of mobile coverage to those who
do not currently have it, ensuring that a similar level of service can be accessed by all.
The market should be allowed to act, and only where the commercial investment case is
weak should the state intervene. It would be costly to impose a broadband Universal Service
Obligation and it may constrain private investment in networks. The current non-regulatory
approach to deliver universal broadband is the most effective means of stimulating
commercial investment while minimising costs to the public purse.
2. The Government have committed £530 million to help stimulate private
investment – is this enough and is it being effectively applied to develop
maximum social and economic benefit?
Local Broadband Plans need to ensure that maximum benefit is created locally, reflecting
local needs. It is far better for this to be done at the local rather than national level. We
expect the creation of social and economic benefits to be central to these proposals. The
£530million figure represents the national public funding element of the investment needed.
This figure needs to be matched by local authorities, who will in turn need to secure similar
levels of private investment to deliver the coverage levels required. This level of public
funding is modelled on the level of investment needed to stimulate private investment to
extend superfast broadband coverage to 90% of premises and universal access to 2Mbps
broadband. The public investment will help bridge the gap where the commercial investment
case is weak. Local authorities are matching their respective allocations in full, and we will
be able to fully assess the impact of the public commitment once the procurements are
completed.
3. Will the Government’s targets be met and are they ambitious enough? What
speed of broadband do we need and what drives demand for superfast
broadband?
Content is key to driving demand for digital connectivity. Advances in technology enable the
provision of innovative services like high bandwidth TV centric services, online gaming and
entertainment, personal content exchanges and digital government in addition to current
activities including browsing, email, ecommerce and blogs. Higher data volumes and content
increases the demand for bandwidth to allow data transfer more quickly and efficiently. As
services and applications that take advantage of the greater availability of bandwidth emerge,
particularly those with data rich content like streamed video and large data files, demand will
be even greater still.
Our vision is of a world class communications network which can support economic
growth. Consumers will have greater choice and costs will be reduced. The delivery of
public services will be more efficient, cost effective and inclusive. Broadband is a top priority
for this Government. Our clear vision is for Britain to have the best superfast broadband
network in Europe by 2015: 90% of premises will have access to superfast broadband, and all
premises will have access to at least 2Mbps. We have estimated this to be the level of speed
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Department for Culture, Media and Sport – written evidence
we need to 2015 based on current projections. Beyond that we are working towards the
EU’s targets of universal access to 30Mbps and 50% of consumers subscribing to 100Mbps by
2020, countries across Europe will need to take great strides to achieve this. These are
challenging goals but ones that we can and must achieve.
In the Budget, the Chancellor will announce up to 10 Super-Connected Cities, with 80 to
100Mbps connectivity and widespread wireless connectivity. London, Belfast, Cardiff,
Edinburgh, and up to six further cities will receive support under our £100million Urban
Broadband Fund over the next three years to deliver these speeds. Transforming
communities into super-connected cities will enable them to compete with the world’s top
cities and help to ensure that the UK has a broadband network fit for the digital age. It will
help them attract new jobs and new investment and make the UK a place where digital
businesses look to come.
But our targets are not simply about speed. Our aim is to have the best network also taking
into account coverage, price and choice of broadband services. The Government will adopt
a ‘best network in Europe’ scorecard focusing on these four headline indicators, with Ofcom
expecting to publish its first annual assessment of the UK’s comparative position in the
summer.
Our goals are ambitious given the scale of the challenge, particularly in rural and other areas
where the investment case is weak. Our use of the internet means that we need significant
improvements to networks, and there are two million households that still cannot access a
sufficient level of service. Infrastructure deployments are a major undertaking requiring
significant investment and careful planning. Fibre to the home is particularly costly here, with
only Ireland having more dispersed housing among major European partners. 58 Although
local engagement in the plans adds complexity we see it as being is absolutely essential.
We are making good progress. In terms of local broadband plans, 45 have been received, 20
of these have been approved, of which eight are in procurement. All plans will need to be
approved by the end of April 2012, and procurement complete by the end of the year,
enabling all projects to be completed by 2015.
Overall, the UK is in a good position, with one of the most competitive markets in the
world, and 58% of households already have access to a superfast broadband service. The
market has been successful in delivering broadband at good speeds to much of the
population and accommodating high take-up of mobile services. Private sector investment in
superfast broadband is significantly increasing across the UK. BT has accelerated its plans and
will bring superfast broadband to two thirds of the country by 2014; Virgin is on track
deliver 100Mbps to its entire network by mid-2012; and Fujitsu is looking to make
substantial investments in the final third.
4. In fact, are there other targets the Government should set; are there other
indicators which should be used to monitor the health of the digital economy?
What communications infrastructure does the UK ultimately need to remain
competitive and meet consumer demand over the next 20 years?
58 IDATE 2011
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The whole of the European Union is striving for better connectivity, and like other Member
States we have committed to the EU’s target of all citizens having access to a basic level of
broadband (2Mbps) by 2013. Beyond this we are also committed to EU targets to ensure
100% access of at least 30Mbps by 2020, and 50% subscribing to 100Mbps services by the
same timescale.
Fixed and mobile broadband services are now found in 74% of UK households 59 . The UK is
the largest online market in the EU with £44billion online sales in 2010. 60 Over a quarter of
adults are smartphone users and almost half of all 12-15 year olds have a smart-phone. 44%
of people can now be described as next generation internet users, 61 people who routinely
access the Internet on the move through an increasing number of devices, including mobile
devices like smart-phones, tablets, and readers. These are all indicators of the health of the
digital economy. As technology and digital consumption habits evolve we will continually
review the way we monitor the health of the digital economy using a range of measures.
Future requirements are to a large extent lead by data transfer needs and growth in mobile
data traffic is currently exponential. Government has directed Ofcom to make spectrum
available, through auction, later this year to enable the deployment of mobile services.
However, fixed networks are still considered to be most effective way to meet the growing
requirements, but the cost of replacing legacy networks is very high (for the UK investment
of up to £29bn for fibre to the home has been suggested). Alternative technologies including
mobile, wireless and satellite all have a role, particularly where the cost of delivering fixed
networks is prohibitively high, like remote rural locations where it is expected the MIP
infrastructure will be focussed, but these are not necessarily better deployment options.
Each technology has its benefits and limitations. The key to keeping the UK competitive and
meeting future consumer demand will be the flexibility of the infrastructure and markets to
respond to emerging technologies and demands, a mixed provision is the key here. To
ensure the communications industry remains innovative and competitive, Government is
undertaking a wide-scale review of the regulatory framework for the sector, with a Green
Paper due to be published shortly which will set out the Government’s aim to make the UK
Europe’s technology hub.
5. How will individuals and companies use cloud services for distributed storage
and computation? What network properties are required to enable efficient
provision and use of such services?
Cloud services provide cost effective remote data storage and access to ‘software as a
service’ allowing individuals to access their data at no or little cost. For businesses, the
ability to buy-in extra capacity, without having to make large capital intensive investments in
hardware makes cloud computing a powerful tool with significant financial advantages. The
availability of “pay as you go” cloud data storage services can be very cost effective since
companies can scale up or scale down their requirements to suit their business needs.
However, given the greater demands on connectivity that this will bring, savings gained by
using these services need to be off set against potentially increased spending on broadband
services required to access the data. Government is also adopting cloud technology to
enable it to share commodity ICT products and services, enabling a move to low cost,
standard, interchangeable services.
59 Ofcom (2011), “The Communications Market Report”, Page 33
60 Centre for Retail Research
61 Oxford Internet Survey (2011), ‘Next Generation Users: The Internet in Britain 2011’, p4
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Department for Culture, Media and Sport – written evidence
Robust and secure data links that are always available with sufficient capacity to bring users
items that they want to access quickly are essential to a good cloud computing experience.
These links are required both when users are static and when they are on the move.
Increased take up of these services will increase demands on network capacities, and is likely
to drive demand for more symmetrical upload and download speeds.
6. To what extent will the advent of superfast broadband affect the ways in
which people view, listen to and use media content? Will the broadband
networks have the capacity to meet demand for new media services such as
interactive TV, HD TV and 3D content? How will superfast broadband change ecommerce
and the provision of Government services?
We are already seeing a shift in the way that people listen to and view media content –
services which provide on demand viewing giving the user control of what they watch and
when, and which device they use to access the service. Some services even make
recommendations about what content users might like to watch based on viewers’ previous
selections. Network capacity and speed are crucial to keeping apace with this developing
market. Of course these faster services will cost more, but there are cheaper options
available to those who are content with slower speeds for the time being.
Video underpins the tremendous growth in internet traffic, today equating to around a third
of traffic, this is expected to rise to 70% by 2015. 62 A 2Mbps connection is sufficient to view
standard quality TV. HDTV, 3DTV and Skype video calls drivers for higher bandwidths, 63 but
it will be devices with even higher resolutions, such as 4K services (which is the current
picture standard used in cinemas and can combine 3D content with HD picture quality),
which cannot be transmitted using traditional broadcast methods, that will drive up the
demands for greater connection speeds, and online video gaming is likely to be a key driver
for this. Content providers will need to ensure that they use appropriate levels of coding to
reduce data package sizes without compromising quality to reduce unnecessary burdens on
the networks.
Ecommerce is flourishing, and this growth, supported by superfast broadband, is set to
continue. Increased competition brought about by superfast broadband will deliver even
greater consumer choice, drive innovation and create efficiency savings. Companies
marketing or selling their goods and services online are seeing overall sales growth
significantly higher than those that do not. 10.7% of retail sales are now online in the UK
(compared to an EU average of 5.9%). 64 The UK is the largest online market in the EU with
£44 billion online sales every year. Ebay predicts mobile shopping will deliver a £4.5 billion
boost to the UK economy by 2016, and a further £13 billion by 2021. 65 The rate at which
consumers are adopting new technologies is increasing while the number of years new
communications services take to reach 50% market penetration has dropped by over half in
the last 10 years. 66 Ecommerce is intrinsically linked to a wide range of other sectors,
facilitating growth in them as it expands.
62 AT Kearney, The Internet Economy in the United Kingdom.
63 IDATE, FTTX Markets: Global Perspective Challenges and Drivers, 2011
64 Centre for Retail Research
65 eBay Inc.
66 Ofcom, Communications Market Report, 2011.
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Department for Culture, Media and Sport – written evidence
The delivery of public services will be more efficient and cost effective, as well as more
inclusive. Superfast broadband can help improve the quality and delivery of public services,
particularly to people in more rural areas. It enables a whole range of services to be offered
online that were not previously possible, such as education, administration, law enforcement
and the Big Society initiatives. It can also help improve healthcare services, particularly in
rural areas where providers are coming under increasing pressure as the population ages
and requires access to more services.
7. Will the UK's infrastructure provide effective, affordable access to the
'internet of things', and what new opportunities could this enable?
Machine to machine communications is an important area of development that
manufacturers and suppliers are beginning to define. Cisco predicts that there will be 15
billion connected devices by 2015, including mobile phones, tablets, connected appliances
and other smart machines. 67 The Future Internet will have an infrastructure consisting of the
‘internet of things’ (IoT) and services, and will provide a network of converged services and
shared data that will link people and machines to provide an on demand service anytime and
anywhere in the world. It will be the engine for technologies like Smart Grid, Cloud
computing and data management. The Future Internet, which provides huge market
opportunities and has been described as the ‘socio-economic engine of mid-21st century’,
will rely on IoT to create a pervasive network of internet connections.
The new opportunities that IoT can bring are evolving technologies. But communications
providers understand that a greater the number of devices needing internet connections will
place a greater demand on networks. The key issue here is that each device connected to
the Internet needs a unique address to identify it. Based on current trends, it is expected
that the current scheme for this (Internet Protocol version 4) will not have any new
addresses after summer 2012. A new scheme (Internet Protocol version 6) exists and will
provide sufficient addresses for the foreseeable future, though it needs to be adopted more
widely and speedily to work well. The Government is aware of this issue and has supported
the creation of 6UK (6uk.org.uk) to stimulate this.
8. How might superfast broadband change the relationship between providers
and consumers in other sectors such as content? What aspects of this
relationship are key to enabling future innovations that will benefit society?
Superfast broadband allows consumers to do the things they already do online but more
reliably and quickly, and this encourages greater demand. Higher upload and download
speeds allow the provision of new services and encourage innovation. Consumers will be
able to choose more readily the type and time of delivery of services, such as video
streaming and other on demand services. We are seeing an increased ability to offer
individually tailored products giving consumers far greater control over the services they
enjoy. The consumption of content becomes a more individual rather than collective
experience. The concept of broadcasting the same thing to a large group of people could
become more like sending it to individuals with slight nuances for each, for example,
different angles and microphone pickups.
The provision of superfast broadband will also bring wider social benefits. It will help people
participate more in society and democracy and can bind communities together, regardless of
their location, through social networking and shared experiences. It will influence how
67 Cisco's Visual Networking Index
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Department for Culture, Media and Sport – written evidence
people access and benefit from public services, helping more people access more services in
ways not possible before. Education and future government services, like remote healthcare
can also be delivered without the need to travel.
9. What role could or should the different methods of delivery play in ensuring
the superfast broadband network is fit for purpose and is as widely available as
possible? How does the expected demand for superfast broadband influence
investment to enhance the capacity of the broadband network?
UK internet traffic is expected to increase by 37% each year to 2015. 68 World-class
connectivity - with higher bandwidth and more reliable fixed broadband services combined
with good coverage of high-quality, high-speed broadband to mobile devices – must embrace
a wide range of technology solutions. Fixed, fixed-wireless, mobile and satellite
communications networks all have a role as no single technology is suitable for all
circumstances. Each technology has its own challenges, including financial, geographic, and
capacity issues. The selection of technologies requires consideration of a whole range of
factors, and suppliers are best placed to identify the appropriate mix to deliver commercially
sustainable services. Our approach to delivery must be technology-neutral, although it
recognised that high-capacity fibre is likely to be a key feature of the UK’s network going
forward. Whether this is directly to homes, a street cabinet or to a mast will depend on
local circumstances.
10. Does the UK, for example, have a properly competitive market in wholesale
fibre connectivity? What benefits could such a market provide, and what actions
could the Government take to ensure such a market?
Ofcom has a duty to promote competition and ensure that a wide range of communications
services are available throughout the UK. It does this by carrying out periodic reviews of
competitiveness in these markets, as required under the European Framework for Electronic
Communications, and by introducing remedies where competition is ineffective. In October
2010 Ofcom published its conclusions to its review of the wholesale local access market,
which aimed to establish a framework to promote competition and to support continued
investment and innovation in the deployment of next generation access networks that can
support super-fast broadband. In December 2010 it published the outcome of its review of
the wholesale broadband access market (which relates to the wholesale products that
communications providers provide for themselves and sell to each other), which concluded
that the market was not yet effectively competitive everywhere and regulation was imposed
to address this. By Easter, Ofcom is expected to publish its Business Connectivity Market
Review which examines the market for leased lines and backhaul circuits used by businesses
and communication providers.
11. What impact will enhanced broadband provision have on the media and
creative industries in the UK, not least in light of the increased danger of online
piracy? What is the role of the Government in assuring internet security, and
how should intellectual property (IP) best be protected, taking into account the
benefits of openness and security?
68 AT Kearney, The Internet Economy in the United Kingdom.
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Department for Culture, Media and Sport – written evidence
Despite the significant benefits of increased broadband to the economy and individuals, it can
also facilitate unlawful activity. One of the chief concerns of many in the creative industries,
such as music, film, television and publishing, is the continuing high level of online copyright
infringements.
Intellectual property (IP) protection is an important consideration, regardless of broadband
speed, and so the Government’s approach is unlikely to change substantially because of that
factor. We are consulting on how we should take forward the Hargreaves Review (which
proposed a change in the direction of IP policy to ensure the UK has a framework suited to
supporting innovation and promoting growth in the digital age), and ensuring that we have
the right balance that will promote growth. We are also looking at ways in which copyright
owners themselves can work with others to make it more difficult for sites illegally offering
content to thrive. We are also working towards the implementation of the online
infringement of copyright provisions in the Digital Economy Act 2010. Rights holders
themselves have a responsibility to ensure that the legitimate offer is compelling to reduce
the attractiveness of illegal offers.
The Video Games industry, unlike music and film, operates within a controlled
infrastructure, and customers are more used to a need to accept digital rights management.
Nearly all games platforms now include an online element, which require authorisation.
Sharing the files alone does not provide users with access to play the game. Faster internet
connections on the other hand improve the experience for all players, encouraging more
online play. This leads to greater control for the industry and less piracy.
March 2012
248

Department for Culture, Media and Sport – oral evidence (QQ 748-809)
Department for Culture, Media and Sport – oral evidence (QQ 748-
809)
Evidence Session No. 9. Heard in Public. Questions 650 – 809
TUESDAY 19 JUNE 2012
Members present
Lord Inglewood (Chairman)
Baroness Bakewell
Lord Bragg
Baroness Fookes
Lord Gordon of Strathblane
Bishop of Norwich
Lord Razzall
Lord St John of Bletso
The Earl of Selborne
________________
Examination of witnesses
Mr Ed Vaizey, Minister for Culture, Communications and Creative Industries; and Mr
Robert Sullivan, CEO BDUK
Q748 The Chairman: Can I apologise to the two of you, the Minister, Ed Vaizey, and
Robert Sullivan? You are the Chief Executive Officer of BDUK, is that right?
Mr Sullivan: That is correct, yes.
Q749 The Chairman: I think you are doing a kind of two-man act, is that right?
Mr Sullivan: We are.
The Chairman: We are looking forward to it.
Mr Vaizey: Laurel and Hardy.
Q750 The Chairman: I will not ask which is which. I do not know if you want to make an
introductory statement—you obviously know where you are coming from—but in
responding to our questions, please feel free to range as widely as you like.
We are being filmed, so if either or both of you would like to make a brief introductory
statement, we would be very pleased.
Mr Vaizey: I am Ed Vaizey. I am the Minister for Culture, Communications and the Creative
Industries. I have responsibility within the Department for broadband policy, although it is
led very strongly by my Secretary of State, Jeremy Hunt. Rob Sullivan is the Chief Executive
of Broadband Delivery UK, which is an organisation that I think was in existence before the
last election to help us deliver broadband to rural areas using public subsidy and public
investment. Rob, you have been in post about 18 months, is that right?
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Department for Culture, Media and Sport – oral evidence (QQ 748-809)
Mr Sullivan: That is right, yes.
Q751 The Chairman: Just so we are clear, BDUK is actually a part of DCMS—is it
not?—although it has a different name.
Mr Vaizey: That is a very good question. Rob, what are you?
Mr Sullivan: Yes, we are completely part of DCMS. It is a specialised unit inside DCMS.
The Chairman: That is fine. Thank you.
Mr Vaizey: They were part of BIS originally.
Q752 The Chairman: In simple terms, how do you see the scale of what the BDUK
team is trying to do? Maybe you will wish to pass the second part of my question over to the
Minister; do you think you have enough people to handle the task?
Mr Vaizey: I am happy to lead off. I have read some of the evidence that your Lordships
have been given during the hearings, and it is not strictly accurate to say that BDUK is a
group of 10 people. There are 10 officials from DCMS based within BDUK, but the overall
staffing is about 53 people, which includes additional technical staff skilled in the art of
broadband rollout. So we have a pretty substantial body of people there.
Q753 The Chairman: Are these the consultants we hear about, or are these other
people on your books permanently?
Mr Vaizey: No. These are people brought in to staff up BDUK, to make this particular
project work effectively. There are 53 people working on that project under Rob’s able
leadership. I noticed that one of your witnesses indicated that 500 local authorities were
bidding for this money. That is also inaccurate. I think we have 46 procurement projects.
We have given money to the devolved administrations, Scotland, Wales and Northern
Ireland, and then within England 43 local authority consortia are bidding. We tend to do it at
a county council level, and some county councils have come together.
In that sense, in terms of the interface between people who are seeking the money and the
people who are responsible for awarding it, it is a smaller pool than perhaps you might have
imagined that BDUK has to deal with. I think they are doing an excellent job. It is very
effective and of course it is stretching, and the team works incredibly hard and very
effectively. In terms of our timeline and timescale, I feel we have not come to any bumps in
the road. As far as BDUK is concerned—and I will bring in Rob at this juncture—we have
certainly taken a position, as Ministers, that when BDUK come to us asking for additional
resource with a justified case, we are happy to ensure that that requirement is fulfilled.
Mr Sullivan: Yes, just to add to that. As the Minister says, we are essentially a specialist
procurement team inside DCMS. We have specialised skills around procurement, legal
aspects of procurement and then the technical aspects. There are three parts of the
programme. One part is what we call “the rural programme”, which is essentially looking at
the final third that you have been taking evidence on; the second part is around Super-
Connected Cities; and then the third leg is what we call a “Mobile Infrastructure
Programme”. In the round, that makes up the Government’s approach on the delivery side.
Q754 The Chairman: I dare say we will have some questions about some of the
component bits later, but just before we get on to that, obviously on the one hand BDUK is
spending £500 million-odd on the rollout of infrastructure. On the other hand, what, if
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Department for Culture, Media and Sport – oral evidence (QQ 748-809)
anything, is the Government doing to try to support the demand side for all this? We
gathered that, for example, about 8 million people in the country are not online at all.
Mr Vaizey: I think we have made significant progress on that. The last Government put
Martha Lane Fox in charge of a civic society project, Race Online 2012. It got its title from
the fact that she was aiming to get as many people online as possible by the time of the
Olympics. That has now morphed into Go ON UK because we obviously want it to
continue. Also, when the new Government came in we very quickly made it clear that we
wanted Martha Lane Fox to carry on doing that work. She has been absolutely superb as the
Government’s digital champion in terms of including people, and we want as many people to
get online as possible.
There are a whole range of different businesses. I know that you have heard evidence from
Three, where they have talked about some of the outreach projects that they do in terms of
encouraging people to go online. They have come to my constituency and parked a very
flashy bus outside Wallingford Library, and I have been to one of their shops in Oxford
Street to see them engaging with people who have got online through their efforts. Also, a
whole range of other civic institutions and charities, Help the Aged and so on, are also very
much involved in the project.
At the end of the day, you cannot necessarily force people to go online. For example, I did
buttonhole a pensioner in my constituency and tried to force him into this bus in order to
introduce him to the wonders of the Internet, but he had to catch his own bus home. But I
think a lot more people are online. There are also, in individual areas, demand-led projects.
For example, Cornwall is about to be one of the most wired-up parts of the country. Part of
the funding, a lot of which came from Europe, involves demand stimulation. Certainly as part
of the Super-Connected Cities Programme, demand stimulation is one way that the award
money will be used.
Q755 Baroness Bakewell: What do you think is the biggest barrier to this last number of
people that you cannot get online? Age?
Mr Vaizey: I think it is about whether or not you see it as essential to your life. For
example, I went on to Facebook. I am now off Facebook. I do not regard Facebook as being
an important part of my life. My wife, who scorned my entry on to Facebook, now cannot
live without it. If you can find a way—and I think it could be somebody of any age or
educational background who is not online—to make it relevant to them they will start to
use it. It is about having access to the Internet in community facilities. I know that another
part of Martha’s brief with Government is to make the interface with Government much
simpler on the web, so that you can transact more easily with Government. Certainly
Government is looking to how quickly it can move some of its services permanently online,
which again will—I would hesitate to use the word “force”—encourage people to see the
Internet as an essential part of their lives.
Q756 Baroness Bakewell: Do you think there is a hardcore of resisters?
Mr Vaizey: I would not call them “resisters”. I think they are people who go about their
daily lives and do not necessarily see why the Internet should be relevant to them. It
sometimes takes a particular trigger that will suddenly make them feel that this is an
important part of their lives.
Q757 Lord Gordon of Strathblane: All this would require universal availability as well,
would it not?
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Department for Culture, Media and Sport – oral evidence (QQ 748-809)
Mr Vaizey: Yes. That is why we have this rural programme. We want to ensure that we can
get 2 Mbps to everybody by 2015, and we want to get superfast broadband to 90% of the
population by 2015. I hesitate to go down the road of whether or not the Internet is a
human right, or whether there should be, by legislation, universal access to the Internet. But
certainly it is the Government’s intention that everyone should have access to at least 2
Mbps by 2015.
Q758 Lord Bragg: Can you finally lay to rest the BDUK procurement process? In all the
evidence from BT last week we heard that none of our bids is contested, which is in
contrast to other evidence we have received so there is a bit of confusion now. In how
many of the BDUK procurement processes is Openreach effectively bidding uncontested, to
minimise cost to the public purse? In all of this might it have been more efficient in the first
place to procure a coherent national network from BT to begin with?
Mr Vaizey: I will leave Rob to deal with the actual state of procurement, in terms of
contested procurement.
Mr Sullivan: The answer to that is that in every area the procurements have been open,
transparent and strongly contested. There were existing procurements—Wales would be a
good example—that were in train before BDUK kicked off. Almost in every case they
started with quite a wide field, quite a strong field. It gradually narrowed down until there
were perhaps one or two bidders, and in many cases BT has won—not in all cases. I think it
is very simply that they have all been strongly contested.
Certainly the BDUK framework process, which you have taken evidence on and which is
what we run ourselves, that is also very strongly contested. I think 14 companies expressed
an interest originally. We qualified nine companies, and we remain with two companies on
the framework.
Q759 Lord Bragg: Was it ever a thought to give it to BT in the final stage and say, “Look,
this is a big company, really determined, lots of money. They will move faster. We will just
go with them”? Was it ever a thought? Was it on the table?
Mr Sullivan: One of the things that we started with, probably back in 2010, when the
Government first ticked off the policy, was to run what we called the “theoretical exercise”.
We brought in a very wide set. We had a wide industry day, with smaller companies and
larger companies, just to look through at how we were going to tackle this complex
problem. It has come through very strongly in the evidence that you have heard, and the
Baroness said this is a very complex issue. We knew that right from the start and we knew
this would be challenging. There were some stakeholders that said it would be a foregone
conclusion, but there were others who said, “If you set up the circumstances right, there is a
way through this that keeps open competition”. We took that on board. We did spend a lot
of time, including conversations with countries across the world that are at various stages—
we had a long teleconference with New Zealand and Australia—just to look at best practice
across the globe.
We felt that the right place with the framework was to have the benefits of, in a sense, an
intense national negotiation, a really robust conversation and negotiation with the
companies. Then this was allowed to essentially be delivered through the access of local
authorities and I am very confident that that was the right approach.
Q760 Lord Bragg: This is not sarcastic, but is it working out as well as you had hoped?
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Department for Culture, Media and Sport – oral evidence (QQ 748-809)
Mr Sullivan: We have a very robust plan. I think the important point the Minister made at
the start is that BDUK are the specialist procurement team. We have a separate broadband
policy team, and of course we have the regulator that you have already heard from. We
work within that context, although, of course, we have looked very closely—and we work
with the policy team at Ofcom, our colleagues—at any barriers, whether they are policy
barriers or regulatory barriers to keeping strong competition in this market.
Certainly, for the scheme in 2015, I think we have found the right sweet-spot. What might
be the right approach, post 2015, for the final 10%, I think you have taken some very
interesting evidence around—
Q761 Lord Bragg: Yes, we have had 90% of the conversations on the part of the 10%.
Mr Sullivan: Yes, whether the exact prescription that we have inside the framework is the
right approach for the final 10% is probably open to further discussion. But the plan that we
have up until 2015, I am confident it is the right one.
Q762 The Chairman: In the context of the various contractors who “fell out of the
process”, has any kind of pattern or theme emerged? Is there an underlying reason why a
number of them decided not to go on, or was it all just individual circumstances?
Mr Vaizey: It was whether or not companies felt confident they could make the investment
and whether there was a business case for them actually being involved. You had a range of
people who came to our open days to talk about the issue. Then you had nine who wanted
to go to the next stage of it, a bit like the European cup, and they fell away. The closer you
get to being at the point of signing a framework tender document, the businesses themselves
have to think very hard, “Is this the game we want to be in?”
Just going back to whether it was right to procure, effectively, at the local authoritydevolved
level or national, I was a very strong champion of the process that we are now
pursuing. That was for two reasons. One was for competition. Obviously, if we had gone
down a national plan, there would have been an invitation to tender and there would have
been a competitive element at the start, in the sense that some organisations might well
have bid. But I do not anticipate there would have been more than are currently involved at
the moment.
Secondly, I was very keen on community broadband, and I wanted to give community
broadband initiatives the chance to have a say and potentially procure for individual local
authority areas. For example, Lord Inglewood, from where you hail from in Cumbria, I know
there are very strong community broadband groups in Cumbria.
Thirdly, and what is not said often enough is that by bringing local authorities to the table,
we have actually leveraged an additional funding for rural broadband. I think almost as much
again, something like £500 million, has now been put up, both by the devolved
administrations and by individual local authorities.
With each broadband plan there is I think a strong sense of ownership, bringing in business
and local civic society to pursue this and to identify the areas where broadband is most
needed and so on. In effect, you have a sort of implementation partnership at a local level
between whoever wins the tender document and the local authority and civic society. That
will also be very important, that ownership at a local level within a national framework,
because, as you know, a lot of the costs are to do with engineering costs, digging up the
roads and so on. I think with the local authorities as a partner—they put money into it—that
process will also go much more smoothly than if it had simply been a national tender.
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Department for Culture, Media and Sport – oral evidence (QQ 748-809)
The Chairman: Just briefly to go back to an earlier part of your remarks, you said that
when people looked at it they fell out and that just left BT and possibly one or two others
standing. Some witnesses have suggested to us that somehow the way in which the tender
process was set up gave BT an inherent advantage. Do you think that is unfair?
Mr Vaizey: My instinct is it is. But I think Rob will have the facts at his fingertips as to why it
was not unfair.
Mr Sullivan: Yes. I think the evidence you heard from Ofcom is right, in terms of fairness,
from the point of view of a level playing field and the procurement being run rigorously. It is
important to remember there are two companies who remain. Fujitsu are a really important
player and perhaps we could say more about them. It is true to say that the investment case
here is challenging. We found both BT and Fujitsu made essentially a public commitment to
invest—I think in Fujitsu’s case, £1.5 billion to £2 billion—in the UK.
I come back to the question you asked before on the common theme. The most consistent
theme across the companies that dropped out was that they were not able to make the
business case for this level of complexity and risk and, in a sense, the long payback terms.
That is the really material point here. There remain two companies, and it is that context
that the companies need to work within.
The other thing I was going to say is that one of the things that was most helpful inside the
framework was that, as part of the bidding process, we did a lot of work, essentially, on due
diligence and there was open transparency for that with the companies who were bidding.
For example, we put together quite a detailed reference financial model that essentially pulls
together the business case for this investment. For some of the companies, this was the first
time they had seen this worked through and were able to see for themselves what the
financials looked like. At that point some of them said to us, “Thank you, but we have
actually decided we are better off going and working in business fibre markets”.
We also had some infrastructure companies who are very capable companies but in different
parts of civil engineering. It was their choice that they had, from their point of view, more
attractive business opportunities, and of course this is also quite complex and resourceintensive
to bid for. Any of these major projects are. That was probably the key point, that
transparency on the due diligence.
Q763 Lord St John of Bletso: If I can just touch on Fujitsu: you mentioned that they
were prepared to invest between £1.5 billion and £2 billion, and their decision to withdraw
is a loss of the competition against BT, and their rollout of the ALA-compliant network.
How would you evaluate this loss? Clearly, it is a major loss. It is not just quantifiable in
terms of cost. What are the broader ramifications of this?
Mr Sullivan: Just to be clear, they remain as bidders on our framework. I am very pleased
that that is the case. I think the other point about Fujitsu that is quite important is, of
course, they are a major supplier on Australian contracts, which is I think around 40 billion
Australian dollars—probably the single largest investment in the world, and they are the
suppliers.
Some of the people giving you evidence have talked through, in a sense, the economies-ofscale
advantage that BT have. Fujitsu have that, just not necessarily in the UK market, but
they do still have that. They have enormous expertise and part of that is in terms of ALA as
a standard. That is something that is part of the BDUK framework and it is a very important
part because, again, I think you have taken evidence.
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One of the important points about the business case is bringing in the major retail service
providers, TalkTalk, Sky and others. Part of the exercise that we ran in the very early days
to think about barriers was that the RSPs made it very clear that if there were any
impediments at all, or any additional costs of providing retail services over the infrastructure
that we were subsidising in the final third, compared with the first two-thirds, then that
would be a major impediment for them. Not only did we stipulate that the systems had to
be ALA-compliant—and both Fujitsu and BT have satisfied us that that is the case—but we
also contributed: my technical team participated in the NICC meetings. Again, very
correctly, you have uncovered that as an important principle, an important standard among
other standards that are important in knocking down some of the barriers.
Q764 Lord St John of Bletso: Thank you. You mentioned before how important
community broadband is to you. Could you possibly elaborate on what is being done to
promote community broadband?
Mr Vaizey: There is a community broadband network that meets regularly. The
Government supports that network with a small grant to cover their overhead. But my
original vision perhaps has not worked out as it could have done, I do not think for any
sinister reasons. I think these are major procurement projects, even at the local level, and
there are the odd small carriers that have been successful in winning the odd contract in
north Wales. The name of the particular company escapes me, but they have won a contract
to deliver superfast broadband in north Wales. While there are the odd community
projects, particularly in very difficult, hard-to-reach areas, there has not necessarily been the
opportunity for a community broadband network, say, to win a whole local authority
contract. I do not think that is a sinister development. I think that is simply because you have
two very large organisations that have—as Rob was indicating—this global expertise.
The community broadband network is alive and thriving and coming up with bespoke
solutions for different communities. It is supported by the Government. I go and speak to
them regularly and get feedback from them, and I think they have a very important place in
the ecosystem, not least in ensuring that, in some of the areas where it is perhaps difficult to
get your voice heard by some of the major organisations, community broadband provides an
alternative solution.
Q765 Lord Gordon of Strathblane: When you referred to your earlier dream of this,
Minister, are you meaning the statement about digital hubs being at the heart of the strategy?
Mr Vaizey: Digital hubs are a way of delivering broadband to villages—the idea that we
would get the fibre to every village.
Q766 Lord Gordon of Strathblane: Then the local people do it thereafter?
Mr Vaizey: Yes.
Q767 Lord Gordon of Strathblane: Do you think that, through nobody’s fault perhaps,
that is now slightly off the agenda?
Mr Vaizey: No. Perhaps I was a little naive at the beginning, when I first became the
Minister, that community broadband would play a major part in procurement projects of this
scale. But I have supported community broadband as and when I can. My door has always
been open to community broadband initiatives, where they have come up against obstacles
or difficulties, where they have wanted to see through a project. I think that community
broadband is viable in small local communities where people are prepared to put the work
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in and make the difference, but it is not necessarily the solution for a large-scale, countywide
project.
Mr Sullivan: Can I just add to what the Minister said? One of the things that the
Government decided to do to support the community piece was the Rural Community
Broadband Fund. That was a dedicated programme in conjunction with Defra, deliberately
targeted to try to give communities a helping hand. It is a dedicated pot of £20 million that
we co-fund. I do think that is important now and it will become even more important, in the
sense of going forward, in trying to address the final 10% and bringing in that part, as Ofcom
said earlier. I do not think even the experts quite know how to get the final 10% to superfast
levels. But we do know that community action will be a very important part of that.
The other thing that has probably been the most satisfying part of the job for me is working
with community groups. There is an enormous amount of interest.
Lord Gordon of Strathblane: And expertise.
Mr Sullivan: Exactly. As the Minister said, sometimes people can be dismissive of
community groups in terms of their technical capability, until you find that there is a retired
Openreach or Fujitsu engineer who happens to live in that village. We actually do have
examples of that. The other thing that has been quite interesting around digital hubs is that
the bigger companies are working with communities and I think they have struggled, as is
probably always the case. Look at what BT are now offering in terms of—I think they call
it—FTTP on demand; and, to be fair to the communities they worked with, they learnt a lot
from those communities in designing that product. I am not sure that communities always
realise the value that they give to companies, as well as what they would like to see back
from companies. There is probably a lot of IPR that is passed over to companies in
expertise. I would not say the digital hub concept exists in pure terms, but the philosophy of
getting fibre as deeply into the network as we can is still inside the system.
Q768 Lord Gordon of Strathblane: It would also encourage innovation, would it not?
Mr Sullivan: Absolutely. I think there is more to do there. That is a very interesting topic
around that.
Q769 The Chairman: Do you anticipate the community groups, when they have set up
their local networks deeper down the hub, will maintain them themselves in perpetuity, or
do you anticipate that some arrangement will be entered into and they will be taken over,
perhaps by the person who owns the fibre that goes into the cabinet in the hub?
Mr Vaizey: I think Rob will come in in a minute. My observation is that we tried, by working
with community groups, and by working at a national level in terms of the framework tender
and the technical standards, to ensure that for any organisation that receives public money—
clearly, we cannot do anything about anyone who wants to set up their own private network
with their own money they raise themselves—to take forward a broadband initiative or a
community initiative, it is an open standard so that it can be connected into the main
network. We would hope they would continue to run it but it is important as well that if,
for some reason, a community broadband group disestablishes a community network or it
falls by the wayside, it can be taken over by another organisation.
Q770 The Chairman: There has been a bit of debate about this. All community networks
will be to the standard of the rest of the wider, national network?
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Mr Vaizey: That is my understanding.
Mr Sullivan: Yes. One of the things that we have done, as part of the Rural Community
Broadband Programme, is work with communities essentially to determine a number of
models that have worked in communities across the country. You are right that a lot of
communities that started off thinking they were going to run their own telecommunications
network, and dig the fibre and operate it 24/7, still exist. Some communities are very hardy
and continue to think that that is the way they add value. Others have settled on other
models, so some communities are very successfully running what we would define as a
concession. They might pay for some of the civil engineering to be carried out, and then pass
the network over to private companies. Some of them are following a model that we call
“build and benefit”. Now it is a maturing space and they are, as I say, starting to settle on
models that have worked. That is something that we are trying to encourage. It is early days,
but there is a lot that communities can share with one another. We are trying to facilitate
that.
Q771 Lord Gordon of Strathblane: Mr Sullivan, could I pick you up on a point you
mentioned about no one having come up with an answer to the final 10%. I appreciate it is a
very difficult problem. The fact that BT, as regards pay television, has been bidding for
football rights as one of the main drivers for take-up, does that not rather up the ante in
terms of making sure that superfast broadband is universally available, not simply 90%?
Mr Sullivan: It is important that there is universality in the programme—
Q772 Lord Gordon of Strathblane: At the 2 Mbps level?
Mr Sullivan: —at the 2 Mbps level. Indeed, we are not saying to communities that that
should be a straitjacket. In many cases local authorities are trying to go beyond 2 Mbps, even
for the universal part. What is also very true is that the take-up and demand stimulation that
many communities are able to galvanise is not just nice to have. It makes a really material
difference to the business case. There are elements that we do understand inside the 10%,
but in terms of what is exactly the right way to tackle that to get superfast, and then to
maintain that in a future-proofed manner, is worthy of a longer debate.
Q773 Bishop of Norwich: One of the things that we have heard, from some
communities that are willing and able to build their networks, is that they are really
frustrated by the lack of access to affordable backhaul. That, linked in with the strong
arguments we have heard that providers of broadband services should be able to plug into a
national access network, still makes us wonder whether, in the long run, ownership of the
infrastructure should not be completely separated from the provision of services over it.
What are your views on that in the longer term, not immediately?
Mr Vaizey: I cannot remember who gave evidence to you earlier who said that that was still
up for debate. Certainly, it was something that the last Government considered, and the
solution that they reached with functional separation was an elegant solution, and has been
copied by several other jurisdictions, so I think it works effectively. One can never say
“never” in the future. It is not on our agenda at this time, but certainly it is an argument that
is run. What is important is that functional separation has been achieved, and is working
effectively. It will always be a case, with this current arrangement, that people will try to
read into it something more than there is. There will be a feeling that somehow BT
Openreach favours BT Retail as opposed to other providers. But I see no evidence that that
is the case, and certainly Ofcom does not see any evidence that is the case. In fact, I will go
further. In my view, it is not the case. They offer their products to BT Retail and BT Retail’s
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competitors on the same basis and, therefore, I think there is fair competition over BT’s
networks. BT Openreach, although it is a subsidiary, is still a standalone organisation that is
required to make a profit. It is very ably led now by Liv Garfield and I think that the
arrangement works well. The evidence is there for people to see.
We have a very successful competitive broadband market. I would say we have at least four
major players—BT, Virgin, Sky and TalkTalk—but also with Orange and O2 as significant
players, and some other providers in the marketplace. We also have broadband very
competitively priced. When we talk about having the best superfast broadband in Europe, in
our rather macho fashion at the DCMS, we want that to be not just about speed but also
about price and access. I know again that, in one of your open sessions, somebody cited—I
think it was—Lithuania, or somewhere, having very good broadband but it was quite
expensive so not many people were on it. I think it is working well, but this debate will
always be had. All I can say is it is certainly not on this Government’s agenda.
Q774 Bishop of Norwich: Even the separation of Openreach from BT still leaves a
company that has to deliver a pretty short-term investment return to its shareholders—
does it not?—in an industry where you need very long-term investments.
Mr Vaizey: First of all, there is a recognition from BT Openreach that investment in fibre is
the way forward. Historically BT was caught short, funnily enough, in the initial broadband
rollout. As an MP it is an interesting perspective that, when I was a candidate about 10 years
ago, simply getting broadband to my local communities was a big political issue, and in fact
community broadband played an incredibly important role in encouraging BT. I think they
learned from that mistake, and they have now leapt over that and are ahead of the game. I
am very proud of what BT is achieving as a British company, in terms of the investments it is
making. I think it is passing the equivalent of Singapore every quarter. It has already passed
10 million homes. It is investing £2.5 billion or so a year ahead of schedule. That is good
news, so I think they are making the long-term investment decisions that the country needs.
As well they are helped, and we are helped, by the fact that Virgin Media is a very, very
strong competitor. Virgin Media, while not necessarily having the same footprint, is certainly
highly innovative in terms of the products it is offering its customers. Then of course, we
have the mobile phone companies and the advent of 4G, so we will have a very competitive
marketplace.
Q775 The Chairman: Do you think that the function of separation, which is relied upon,
provides a clear boundary between the access network and the backhaul? That is important,
is it not?
Mr Vaizey: Yes. I do think it provides a clear boundary between the access network and the
backhaul. Rob, you may want to elaborate on that?
Mr Sullivan: I think you have covered the issues in the conversation with Ofcom. They are
both important aspects. Ofcom regulate, I guess, not on the common network because
there is fierce competition there. They have found it necessary to regulate on the backhaul
piece end and local access. I agree with Ofcom that in a sense the need to regulate strongly
becomes fiercer as you go deeper into the local-access piece. But they are both important.
Indeed, if you look at some of the most challenging parts of the country—so the
Government have recently given additional funding to the Scottish Government to tackle
Highlands and Islands—there you would find that what we would recognise as the backhaul
network just did not exist at all. Essentially, we need to rebuild even what might have been
seen as parts of the core because it is so challenging. Yes, I think those remedies are
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Q776 Baroness Bakewell: A lot of people believe that the mobile system will create the
back-up—will catch all the situations that the others do not cover. Is that really on, in the
light of Government policy? Is that going to be your backstop? Is that going to work?
Mr Vaizey: No. I do not see mobile as a backstop solution. When we are talking about the
last 10% as a challenge, there can be a range of options. People talk about the last 1% getting
satellite. You can slice and dice it any which way you want. What we are broadly speaking
about, in slightly crude terms, is how far away does a small, remote farmhouse have to be
from a concentration of homes before it becomes highly uneconomical to lay a big fibre line
to that individual home? At that point is the cost is completely out of kilter with the benefit,
and what alternative technology could be used without having to dig a trench miles long to
get to this home? But there will be a range of possibilities. I am also confident that, as we
move forward, technology advances rapidly, almost month by month, so I am sure there will
be solutions. In a sense, we have approached this technology blind by saying, “We want a
solution for remote parts of the network that is cost-effective but delivers a seamless
broadband experience”, starting with 2 Mbps and hopefully moving forward to superfast
broadband as we go forward, in terms of the last 10%.
The Chairman: It is not looking at the philosopher’s stone, is it?
Q777 Baroness Bakewell: Given that there will be people you cannot reach by whatever
system you are deploying, in terms of fibre, what are you doing to make the mobile system a
really reassuring alternative?
Mr Vaizey: With mobile, we have put in place the Mobile Infrastructure Programme. We
have allocated £150 million to mobile not-spots. I think it is important to make clear the
distinction between a “not-spot”, which is where you cannot get any mobile coverage at all
and what is known as a “partial not-spot”, where you might get good coverage from one
carrier and not good coverage from the other carriers. That is filling up the gap, which will
effectively give universal coverage of mobile. We are going to use that money to build the
masts, and they will be open access masts so everyone will be able to put their cells on
those masts and deliver a service. That will effectively deliver voice and then, hopefully, 3G
and 4G services to quite remote parts of the country. It is about 60,000 homes; 10 road
networks as well are in the initial tranche of where we are putting the money.
Q778 Baroness Bakewell: Are you confident that it will reach the farthest corners and
the most remote farmhouses, up mountains and down dales? Is that going to be adequate?
Mr Vaizey: It is a lot of money for quite a few people, so it is a very effective solution. It will
make a significant difference. I would not, hand on heart in front of this Committee, say,
“Every single home”. You would not be able to haul me in front of you in three years’ time
and present me evidence of someone who has missed out on the Mobile Infrastructure
Programme, but I hope you would have to look extremely hard to find them. You might not
be able to find them because, of course, you would not be able to telephone them.
Q779 The Chairman: Roughly, how many masts do you think there are going to be?
Mr Vaizey: I have no idea.
Q780 The Chairman: Have you any idea?
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Mr Sullivan: It is too big to determine, to finally answer. What the Government have said is
that we are focusing on voice not-spots. It is important to make that distinction—that rather
than being a broadband programme it is a voice programme. We are in the middle of the
procurement programme for the mobile infrastructure. The only way to answer your
question, Chair, is to actually do detailed radio planning and we will then be open with the
stakeholders on that.
Q781 The Chairman: Can we just get an indication of the possible extent of all this?
Mr Sullivan: Various stakeholders have talked about up to 1,000 masts, I think; something
like that.
Q782 Baroness Bakewell: Is there a timeline on this?
Mr Vaizey: Over the next three years, Lady Bakewell.
Q783 Lord Gordon of Strathblane: Last week we heard evidence from Cumbria and
Rory Stewart, your colleague. Very gently, I say that he understood why this was happening,
but there was a feeling that there were too many people trying to help and tripping each
other up in the process. In fact, there was a lack of co-ordination between BDUK and
Defra’s rural project, and that in many cases—I can understand the difficulty—they were
looking for a bit more flexibility, which I understand is quite tricky when you are dishing out
public money, but he was saying it is costing a lot more to comply with these things than it
need do. Have you been aware of this problem?
Mr Vaizey: Rob, do you want to—
Lord Gordon of Strathblane: I think it is a BDUK problem.
Mr Vaizey: Let me just say very briefly, before Rob gives you chapter and verse on this, that
I talk to Rory Stewart a lot and I am aware of some of the issues he faces. Some issues are
beyond BDUK’s control, in terms of compliance and issues to do with state aid, for example,
and Brussels, which we have to negotiate. But I certainly, as a Minister, do not feel that the
Defra programme and the BDUK programme are somehow two separate beasts that are
pulling against each other or going in different directions. They are very much a part of the
same programme.
Rory Stewart is pushing forward a really impressive community broadband programme that
is supported by some really extraordinary people. I was lucky enough to visit there about 18
months ago, two years ago. There are sometimes technical, regulatory issues that get in the
way, but certainly I am always available when Rory has a particular issue to raise, and
certainly work closely with BDUK when those issues arise. But I think Rob will be more on
top of the detail of what the specific obstacles have been.
Mr Sullivan: To add to what the Minister has said, I would pay tribute to Rory. He is one of
those pioneering MPs, obviously, alongside our Ministers. But I think, with all the pilot areas,
probably Rory, Jesse Norman in Herefordshire and Julian Smith in north Yorkshire have all
worked tirelessly with the communities and with the local authorities to take forward the
agenda. Rory and I discuss these issues very commonly, and I would say it is a joint
programme with Defra. We sit on the same board that steers the rural programme. Indeed,
Defra sit on the main board that steers the wider portfolio of programmes. As the Minister
said, some of the communities are pioneering and when you are pioneering you do meet
obstacles. Some of them are very frustrating and can appear incredibly complex.
Understandably, what communities want is a service that works and many of them do not
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want to get into procurement regulations and state aid regulations. Even if you are a national
official, like me, there is only so much state aid legislation that one can cope with.
But it is part of our job to help them through that—to make it accessible—and the thing
about the Rural Community Broadband Programme is that where we are seeing that
operate most effectively is where the community tier, the parish council tier, the district
council tier and the local authority tier operate very closely together and co-ordinate.
Where that operates it is of real advantage to those stakeholders, probably not just in
broadband, but it certainly makes a material difference.
What the broadband programme has exposed is that some of those tiers need further
refinement. That has created opportunities for some authorities, and I could give you
examples across the country. But to be fair, it is a very challenging agenda, and it is quite
early days.
Q784 The Chairman: Can I ask one specific question about that? I think the Eden Valley
broadband group were concerned that if they went for the Defra money—that was by
definition in the last 10%—it was not going to be reached by the Cumbria County Council
rollout, and they felt they were being presented with an alternative because otherwise you
might fall between all the stools. Is it not, on the face of it, a nonsense?
Mr Sullivan: I can understand their frustration, yes. But it is a good example of where it is
really important that the community groups and the local authority work very closely
together, and I think, to be fair to them, they are—
Q785 The Chairman: I understood that the local authority, no doubt for excellent
reasons, was not in a position to commit itself.
Mr Sullivan: This really comes back to state aid where state aid is very particular—rightly,
really—to ensure that there is not a duplicate public intervention, so you are not supporting
the same companies. Also it is really important, because the solution to this is carefully doing
the mapping of where existing companies have services and where you are intending to
intervene, to make sure that is co-ordinated.
That is really important because one of the other things we have had to be very careful
around is, in a sense, where there are smaller companies that already have commercial
services supporting communities, that we just do not roll through those. It is really
important. I do understand some of the frustrations, and all I would say is that we are
working very, very closely with those communities to try to work through those issues,
because I think what is really important is that where we have real enthusiasm we do not
dissipate that through kinds of processes.
Q786 Lord Gordon of Strathblane: Some of the cynics say that with all this
bureaucracy not a metre of fibre has actually been laid. It gives them an easy hit, does it not?
Mr Vaizey: It does give them an easy hit, the cynics being Labour spokesmen giving evidence
to the Select Committee and who also characterise BDUK as having 10 people and 500 local
authorities trying to get hold of money. These things do take time. It involves public money.
If we take a review of where we are over the last two years, we have secured the funding
and continue to secure additional funding from the Treasury, who have launched, effectively,
three programmes: the rural programme, the Super-Connected Cities Programme, as well
as the Mobile Infrastructure Programme.
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We have, effectively, awarded the money to the local authorities, so everybody knows what
they are getting from this fund so they can start to plan their investment, and all the local
authorities are very well advanced in their procurement processes. In fact 2012, we hope,
will see a lot of fibre being laid. But it is a time-consuming process and, I am afraid, you
simply cannot write a cheque on day one.
Q787 Baroness Fookes: Before I turn to the issue I wanted to raise with you, I wonder if
we could clarify, once and for all, something that has been niggling at me from the beginning
of this—and you have referred it to yourself, Minister—the question of the 10 people.
We have based the information on the answer to a parliamentary question on 15 May, which
referred to 10 people working on local broadband, and I think three and a half equivalent
full-time on Super-Connected Cities, which is very far indeed from the 53 which I think you
mentioned. I am sure there is an explanation but can you give it to us?
Mr Vaizey: Rob, give Lady Fookes an explanation.
Mr Sullivan: On the 10 people that others have said are working on the local authority
programme, I think where the confusion came from is that there are 10 people that are
dedicated to what we call our outreach team. They are predominantly working on the rural
programme, working very closely with the 40 or so local authorities that are bidding into the
framework to take them through and help them prepare their local broadband plans.
The majority of those people are from local partnerships, because of their expertise in both
commercial practice but also the local authority context. If you ask the question, “How
many civil servants are there inside BDUK?”, the number is also 10, confusingly enough. If
you ask the question, “How many people are there in BDUK overall?”, as the Minister said,
that is about 50 in total, including all the individuals across the programmes. We now have
three programmes that comprise BDUK: the urban programme, the rural programme and
the Mobile Infrastructure Programme. I am very happy to write to you with details if it is still
confusing.
Q788 Baroness Fookes: Yes. I think we may be forgiven for being confused or finding
that the PQ answer was a bit confusing or, at any rate, unintentionally misleading.
Mr Vaizey: Yes. I will go back and check that.
Q789 Baroness Fookes: Let us turn to another issue. I think I am right in thinking that
the Government are prepared to intervene in connection with the development of the
Super-Connected Cities issue, but is this not something that could have been left to the
market to develop?
Mr Vaizey: On the Super-Connected Cities Programme, you are right that to a certain
extent the market could deliver quite a lot. But the Super-Connected Cities Programme is
designed to raise the broadband offer to another level. We want to ensure that there are
certain cities where you have ubiquitous ultra-fast broadband, and also to use some of that
money to stimulate demand. While the market would deliver a certain level of investment—
and certainly, you are right, the market does mainly deliver in cities—this additional money
will complement what the market has already delivered, and allow very advanced broadband
to be laid and also demand stimulation in cities. I wonder if you wanted to add to that, Rob.
Mr Sullivan: No. Those are the major elements. The first thing to say is that there are
households and businesses inside even the larger cities that do not have access to standard
broadband. Again, I think this has come up in evidence. It is perhaps not common sense but
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that is the reality. There are also, because of historical reasons, some households who are
on what are called exchange-only lines, so they can also be quite slow. We are ensuring that
for the cities that are inside the process those areas are tackled.
There is also a component to the programme around the take-up and growth for the
companies and businesses too. There is a focus on support to SMEs that maybe do not have
the access to more expensive leased lines, as they are called, but nevertheless have business
opportunities around faster broadband. There is also an exciting element of the ubiquitous
Wi-Fi access—some of the cities have very creative ideas around going further—and the
opportunities that that creates.
Also, as the Minister said, just thinking back to the questions around the EU target of around
50% take-up at 100 Mbps: delivering that take-up target is very challenging, and an important
part of the Super-Connected Cities Programme is really to try to galvanise take-up, to look
at all the measures that you can use, whether they are public service reform or higher speed
business access, and to try to encourage companies and households to take up these
services. Indeed, you are trying to create an environment where novel applications, real
business and telehealth education can thrive because you have very large-scale deployment
of speeds at 100 Mbps plus.
Q790 Baroness Fookes: That sounds very splendid, but how much is private enterprise
going to deliver and how much the Government? Is it possible to have some kind of
proportions?
Mr Vaizey: The vast majority would be delivered by private enterprise but these sums will
add to the—
Q791 Baroness Fookes: But the top-up—what sort of sums are we talking about for
Government?
Mr Sullivan: The number would vary city to city. But as the Minister said the majority of
this and, in a sense, the whole BDUK programme is all about stimulating private investment
in the cities. I think we would expect the gearing to be much higher for that.
Mr Vaizey: The sum for each of the 10 cities is roughly—I do not have the figure in front of
me.
Mr Sullivan: It is £100 million for the round 1 cities and then £50 million for the round 2
cities. The key point is that—
Mr Vaizey: There are 10 cities in round 1 for the £100 million.
Q792 Baroness Fookes: Yes. But on top of that you have the private enterprise. I just
wondered what the proportion was, but maybe it is not possible to answer.
Mr Vaizey: It is not really possible to answer that but the vast majority is from private
enterprise. The £10 million for each city is going to make a real difference, but it would not
necessarily represent half or perhaps even a quarter of the kind of investment that is going
in, considering that most of the cities of both the major network operators are also
operating in the city.
Q793 Lord Gordon of Strathblane: Is it going specifically to the areas that private
enterprise would not reach?
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Mr Vaizey: It is going to the areas where private enterprise has not reached within cities
but also areas where private enterprise would not necessarily put in the very fast speeds
that we want to see for these cities.
Mr Sullivan: Just to add something to that, I say that it is also important—the BDUK
programme—because the whole portfolio is all capital investment. If you look at the Super-
Connected Cities, we are expecting companies and the cities to contribute, since the
ongoing funding for support for things like demand stimulation is an important part of that,
so they are able to do that. We are not because we do not have capital funding ourselves.
Q794 The Chairman: I am conscious we are running beyond the time allocated. If we
were to go on for another quarter of an hour, would that be onerous or inconvenient?
Mr Vaizey: We would be delighted.
Q795 Bishop of Norwich: I was going to come on to the EU 2020 targets, and you have
already made reference to 50% of the population subscribing to 100 Mbps. But of course the
other side of that is 30 Mbps available to all. I think you referred to the first of those as
challenging. Are these targets feasible?
Mr Vaizey: It was Ofcom that referred to it as challenging in their previous evidence
session. They are challenging targets and they have been set by a challenging European
Commissioner, Neelie Kroes, who I think is a really excellent Commissioner in terms of
raising the profile of the broadband agenda and pushing many of the member states to put
together a coherent plan for broadband. I am pleased to say that, thanks to the work of
people like Rob, I think the UK is very well positioned in the eyes of the Commissioner as
being, I think, one of the leading nations in terms of a coherent programme of broadband
rollout. We stand as an example to many other member states.
Those are challenging targets, and I think when you take a step back we are talking about an
eight-year period to get most of Europe wired up to 30 Mbps. That is going to be
challenging, but I think it is good to set a challenging target in order to focus people’s minds
on the importance of putting out these kinds of networks.
Q796 Bishop of Norwich: What sort of proportion of the population will have fibre
within 500 metres, and how would the rest be reached? We are talking about short
distances between homes and the cabinet—are we not?—in relation to achieving these
targets.
Mr Vaizey: I think at least two-thirds to 75%. I am not sure whether I have the technical
expertise to say whether that would be within 500 metres of fibre, but I certainly think that
the market is going to deliver at least two-thirds of superfast broadband, which we tend to
define as around the 24 Mbps speed. That will rise in terms of the market delivering it
because I think BT and Virgin have seen huge success with their products. As I say, we want
90% of the population to have this superfast broadband by 2015. Whether that means they
have to be 500 metres from the fibre connection. I am not sure is necessarily the case.
Mr Sullivan: As the Minister says, it is difficult to answer that because the speeds have to be
technology neutral, so companies could provide this with a mixture of fibre to the home,
wireless and satellite. One way of answering it would be that if you had a fibre to the
cabinet-only solution, then you would be close to 90% in that case.
Just coming back to your question about the EU target, both parts, as the Minister says, are
very challenging. They are designed to be stretch targets, and I think it is very helpful that
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the Commission have set them—the UK does not need this—because they encourage all
member states to think longer term, which is important in digital.
The 50% take-up at 100 Mbps is challenging because achieving 50% take-up is going to be
difficult. The 30 Mbps universally is also challenging because you have heard other evidence
that, in a sense, the costs of getting fibre into the network beyond 90% go up very quickly.
That is not to say, though, there are counter trends because technology is developing all the
time. At the same time, for wireless, part of wireless of course depends on backhaul as you
have also identified. But nevertheless, wireless, if you look at something like long-term
evolution, LTE or the system 4G, although the headline numbers look very high—in this
industry we talk about 100 Mbps—when you look at what you could expect to receive as an
actual user of the service, you will hear stakeholders talking about the numbers being more
like 10 to 15 Mbps. Again, LTE advanced is coming down the track but I think it is just that
we cannot pin down the precise solution of how we would address it to get superfast
universally. I think the make-up of that solution is something that is important going down
the track.
As I said at the beginning, we are very confident we have a very robust plan for getting to
the 2015 targets, and I think we will be well on the road to the 2020 targets but there is
going to be further work necessary to work out the most efficient mechanism and route to
deliver that.
Q797 The Chairman: On the 2020 targets, you said they are challenging, which covers a
multitude of sins. Do you actually think they are substantively doable?
Mr Sullivan: I think they are very effective as stretch targets to industry and the community.
Of course, they also need to be affordable. There would be a way of addressing them that
did not necessarily lead to affordable access by companies.
Q798 Bishop of Norwich: There is a substantial difference between them, though. I can
understand the 30 Mbps available to all. The bit that I do not understand is the 50% take-up
of 100 Mbps, whether or not you need it. There is no proof that 50% of the population will
require 100 Mbps by 2020, is there?
Mr Vaizey: I think that is a very fair comment.
Mr Sullivan: Yes.
Mr Vaizey: Anyway, they are the Commissioner’s targets, not ours, so I do not think we
should comment on them.
Q799 Lord Gordon of Strathblane: A pattern of Yes Minister: “challenging” means
“Unlikely to be achieved”.
Mr Vaizey: I do not think you want to give the game away. It is the other way around, trying
to find out what the game is.
Q800 Lord Gordon of Strathblane: The point that occurs to me is it is really code for
saying “fibre to the home” basically or fairly nearly to the home because there is no way you
can deliver those speeds without it.
Mr Vaizey: You can deliver it in fibres to cabinet; you can deliver those speeds.
Q801 Lord Gordon of Strathblane: Yes, providing the cabinet is not too far away from
the home.
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Mr Vaizey: Yes.
Q802 Lord Gordon of Strathblane: In fact, if this is unaffordable, as BT told us last
week it is—and I do not dispute that—why on earth is Europe setting these targets that are
unaffordable throughout a comparatively wealthy country, let alone some of the others in
Europe?
Mr Vaizey: I think you should ask Commissioner Kroes. She is a very effective
Commissioner and she is pushing forward this agenda very effectively, and if she wants to set
challenging targets then I think that is her prerogative.
Lord Gordon of Strathblane: All right.
Q803 Earl of Selborne: These challenging targets are the Commission’s targets, so,
Minister, you are not responsible. But nevertheless, if they are going to be achieved, you are
not going to do it with fibre to the cabinet because you still have that dreaded copper wire
on the last few hundred metres. Is the cabinet an intermediate technology? Are we going to
have to upgrade if the Commission is right and these targets are doable? Are the cabinets, in
fact, going to be redundant fairly quickly?
Mr Vaizey: No, the cabinets will be essential because they will get the fibre to the streets
and to communities, and from there you can potentially run out fibre to the premises. As
well, technology will change potentially, which will make it easier to get those last few
hundred yards to the home. There are lots of different ideas kicking around about how you
might be able to do that, and there might be regulatory changes to do that. But, no, I think
the cabinet will be essential, and I think the cabinet is still capable of delivering those kinds of
speeds to the home, particularly in urban areas. I do not know, Rob, whether I have gone
well beyond my technical understanding, as the specialist advisor looks more and more
sceptical as I give my answers.
Mr Sullivan: No, that is a very sound answer. Just to clarify, what I am saying about the
challenge here is just that there are more options that come into play and we have less
certainty around. What contribution could be made by TV white space or by LTE? In the
case of the progression of VDSL, which is essentially the technology behind cabinets, you
already have BT and others looking at what is called G.Fast—I think that may have come
up—which is essentially that you take the fibre even deeper from the cabinet and then have
almost little cabinets that sit on poles, and all of that is in play. We do not know whether
there is going to be affordability, but this is a very creative sector. There are solutions down
the track that are, in a sense, paths for each of these technologies to evolve. I think you have
also touched on wavelength division, multiplexing on fibre itself. Even within fibre to the
home there is an evolution.
It just becomes a more complex picture of the exact mix that companies will deploy to
reach these targets. When you go and talk to the engineers they will feel that they can do
this. The critical point will be the wider economics; can you do this at a level that is
affordable to businesses and to consumers, which is absolutely critical, of course?
Q804 Lord Gordon of Strathblane: A lot of people say that it does not really matter
who owns the infrastructure, provided it is open to and used by everyone at a reasonable
cost. To that extent are you at all worried about the GPON technology that TalkTalk have
alleged—I put it no higher than that—makes it more difficult to unbundle and, therefore,
might render the new system less competitive than the old copper system?
Mr Vaizey: Are you worried about that, Rob? I am not.
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Mr Sullivan: It is not my greatest worry, no. Again, I think you have taken evidence on this,
which I think is correct. GPON does have advantages over what is called point-to-point fibre
in terms of deployment costs, and I can understand why companies would want to use it.
Q805 The Chairman: Essentially, it is a cost advantage, is it not?
Mr Sullivan: Yes, and there are technologies, like WDTN, that are very prevalent in the
core network. The difficulty I think is making the customer premises part of that affordable,
which will come down the track. In the interim, in a sense, the active-level remedies that
Ofcom have required from BT are fit for purpose, and we can already see the companies
like TalkTalk and Sky and others making use of GEA as a product. It is that link between
technology evolution and regulatory aspects that we need to keep in focus and review. I
think Ofcom does that very professionally.
Mr Vaizey: That is an important point to make, which goes back to the functional
separation, and TalkTalk’s concern, which is perfectly legitimate. I am a supporter of all of
the companies that we are talking about because I think they are all pioneering in delivering
great solutions to their customers. The common network is a historic network and,
therefore, to have an upfront investment is not necessarily required and that price is, quite
rightly, being regulated and therefore you can access it or regulate the price.
TalkTalk’s concern is that the access to the fibre network is unregulated. First of all, to a
certain extent it would be a decision of Ofcom whether to regulate that, and certainly I
think there is a common-sense view that this fibre is being rolled out and we need that
upfront investment. You do not want to stifle that rollout by suddenly regulating the price
and potentially cutting off the investment that is going to make that. But the key point to
keep in one’s mind is, whatever the price of access to that fibre network, BT Retail does not
have the competitive advantage in terms of the pricing over TalkTalk.
Q806 The Chairman: We are getting long after our closing time, but I have just two
small points to conclude with, please. The first one is: we have had it put to us that
Government intervention should basically focus on the provision of open backhaul to within
reach of a community, as long as that is relatively cheap, and then leave the access networks
to the market and community provision. What are your thoughts about that? Then the
second one, which is in a sense slightly similar to it I think, is that Rory Stewart, when he
was in front of us, referred to having a digital pump in every village. Is that an idea that you
still subscribe to or ever subscribed to? It is put in different words by different people but do
you think that is the right approach?
Mr Vaizey: Yes. I think it is important to be careful about the language; different terms tend
to come in and out of fashion as we move along. But the key is that the public’s money is
going in to support a public infrastructure that, in theory, anyone can gain access to it to
provide services to customers. In effect, getting down to the technical detail of whether or
not we are providing the backhaul, yes, some of that money will be used to provide backhaul
to communities where it is not economically viable in a commercial marketplace to do that.
That will then be available to different providers to provide a service, either by putting in the
additional infrastructure in a village or allowing the village potentially to put in its own
infrastructure to access that backhaul. But it is going to be an open network. I do not know
if you want to—
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Q807 The Chairman: Is it fair to add to that any internet service provider being able to
use—shall we say—BT or Fujitsu’s infrastructure, getting access to that to be able to use it
for their purposes, as well as those other two you described?
Mr Vaizey: That is a slightly different issue, if I read you right, Lord Inglewood, which is: can
they use effectively the ducts to lay their own lines, their own fibre? We have duct access in
order to allow competitors to use BT’s ducts where appropriate. But what we are talking
about here is, I think, access to the kind of backhaul fibre that would be open access. Is that
fair, Rob?
Mr Sullivan: Yes. I think both Fujitsu and BT necessarily need to do this. They need to
demonstrate to us that they are offering open access systems. They have to do that. That
was called the active level through bitstream. They can either do it through access to any
new duct that they are building or duct fibre; they have the choice there. There are some
quite intricate details around that that we are talking to the Commissioner about, on a stateaid
piece, exactly how you frame those wholesale access conditions, not just on new ducts
that you might build, but then what happens with the connection points to existing duct.
It is mind-bogglingly detailed, but the principle is one that I think we would all completely
subscribe to. It is really important to make sure that, in a sense, the conditions that we set
around access that is being built in the final third is at least, if not better, open access than in
the first two-thirds. I think it is a really important point.
The answer to the question is that when we have come to real procurements we have had
to, I would say, productise the description of what the digital pump actually means. But it has
not gone away; it has just turned into fibre. FTTH on demand from BT is a good example of
what we had in mind. Some of the propositions from Fujitsu equally are within that category,
so it is very much alive and kicking.
Q808 The Chairman: Thank you. That seems a very suitable point on which perhaps
draw to conclusion, other than to say to you, first, thank you. But second, is there anything
you want to say to us that we have not asked you about?
Mr Vaizey: Very briefly, apart from our upfront investment I think it is important as well to
focus on some of the regulatory obstacles. We are looking, for example, at the electronic
communications codes, so we are looking to make it easier potentially to deploy overhead
lines and to deal with wayleaves and so on. I think there is an important aspect there. That is
point number 1.
Point number 2: you may find that broadband is not being delivered in some local areas.
Sometimes that is down to the local authority being quite difficult on planning issues, so we
should not forget that there are other players in this game who may hold up the rollout of
broadband. Also, when I was reading some of the evidence you received, business rates on
fibre were also mentioned. That was an issue that I was very obsessed about in opposition
and, as usual, when you get into Government you find out it is a lot more difficult than you
imagined. Just to say on that issue, fibre is rated as though it was, effectively, business
premises. But I think we have made progress by working with an organisation called the
Valuation Office Agency, which is part of DCLG, to give clear guidance to all companies that
lay fibre on what rates are expected. Most of them have a year’s holiday anyway, so you put
the fibre in the ground and you do not have to pay rates on it until the next financial year.
But we have worked with them to create a much stronger dialogue with the VOA. We
cannot, obviously, remove the tax: that would be a decision by the Chancellor. I am not
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even sure he could remove the tax; it is so complicatedly embedded in business rates. But
we have made progress on simplifying and greater clarity in that area.
Q809 The Chairman: Thank you. Is there anything you want to add?
Mr Sullivan: All I would say is that we are quite proud of the fact that we run a very
vigorous and open competition, and we have tried every means at our disposal to try to
ensure we have very strong competition on the framework. I would just register that we
have a sound framework, a good plan to 2015, and I would encourage the Committee and
other stakeholders to think about the longer term as well—to think about what comes next.
But on those two planks—the kind of concrete plan and the robustness of the framework—
as I say, we are very satisfied with that ourselves.
Mr Vaizey: I think it is great value for money. Lord Inglewood, I think it is a very British
approach we are taking.
The Chairman: I am very glad of that ringing endorsement. Thank you both very much
indeed for giving us a lot more of your time than was originally programmed. We appreciate
it.
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Department for Culture, Media and Sport – supplementary written evidence
Department for Culture, Media and Sport – supplementary written
evidence
I wanted to thank you for giving me and Rob Sullivan, CEO BDUK, the opportunity to give
evidence at our session on 19 June. I welcome the inquiry and was very interested in the
Committee’s questions and approach.
Thank you also for the transcript of the session. I have one small correction to make – in my
response to the question regarding demand stimulation, “three” should be capitalised to
make it clear I was talking about Three, the mobile network operator. I understand my
officials have already sent a corrected version to the Clerk of the Committee.
I wanted to clarify a couple of points I made in my evidence. I told the Committee that the
Government financially supported the Community Broadband Network. In this instance, I
was incorrect – this is something that has happened in the past, but we don’t financially
contribute to the CBN currently. We do however continue to have an active dialogue with
those involved in community broadband. I would like to apologise of I misled the
Committee.
It may also be helpful to confirm the position regarding BDUK’s staffing. BDUK currently has
a total of around 50 staff. Of these, approximately five are dedicated to the Urban
Broadband Fund and 10 to the Mobile Infrastructure Project. The remainder are working on
the rural broadband programme and cross-cutting functions. Within the rural programme,
there are approximately 10 people in the local projects team, who work with local
authorities and the devolved administrations on the development and delivery of their Local
Broadband Plans.
Finally, I wanted to bring the Committee up to date with regards to local broadband plans,
as there have been some developments since I gave evidence. 44 out of 45 local broadband
plans have been approved by the Secretary of State. The local authorities for the outstanding
plan, covering Sandwell and Birmingham, are working to submit their plan for approval in July
2012. Two local authorities, North and South Tyneside, declined to submit local broadband
plans, believing the market will deliver our ambitions.
Thank you once again for your time, and I look forward to the report in due course.
16 July 2012
270

Digital Outreach – written evidence
Digital Outreach – written evidence
1 Background
1.1 Digital Outreach is a leading provider of outreach and engagement services,
information and behaviour change campaigns. The evidence in this response is
gathered from our experience of digital inclusion relating to digital TV switchover and
the internet. For more information about us please go to
www.digitaloutreach.org.uk
1.2 Our response addresses bullet points 1, 2, and 6 of the call for evidence. We set out
our response to each point below.
1.3 Our experience has demonstrated that while the roll-out of the technical
infrastructure will ensure potential physical access to all, infrastructure provision
itself is only one of several measures that need to be considered in order to
overcome barriers faced by the c.8 million people still offline. The emphasis needs to
shift so that the overall goal is to get every household online, and the physical
network is considered as just one means to achieving this end. Demand stimulation
measures, and measures to overcome barriers faced by the most excluded groups
such as lack of confidence and lack of motivation, are also necessary. Practical,
joined-up cohesive measures are needed, providing a variety of ways for people to
get online.
2 Point 1: What is being done to prevent a greater digital divide occurring
between people who can access superfast broadband and people in areas
where the roll-out of superfast broadband may not be commercially
attractive?
2.1 From our experience, while providing the physical infrastructure of superfast
broadband is important, creating infrastructure access to this alone is not enough to
lessen the digital divide.
2.2 There are still 8 million people not online. As this number decreases, the remaining
people offline will be harder to reach and particularly harder to engage as they often
face multiple barriers to getting online, with access being only one of these. Some
may not even face the barrier of access as they may already live in an area with a
superfast broadband connection.
2.3 These people tend to be the most vulnerable in society. Those who are older,
unemployed, have poorer education or who suffer from mental or physical disabilities
are among the groups of society who are least likely to use the internet, yet are also
some of the biggest users of public services. In a report “The Emergence of a Digital
Underclass”, Ellen J Helsper from the London School of Economics writes: “Those
who need access to services most, from where the biggest cost savings through the
digitisation of services are supposed to come, are the least likely to take these up
even when access is available.” Shifting services to ‘digital by default’ will have the
strongest impact upon these people and will actually widen the gap between those
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Digital Outreach – written evidence
who are online and those who are not, putting these groups at an even greater risk
of being left behind by not being able to access the services that they rely on.
Helsper says: “Gaps based on education and employment persist independent of age
or other characteristics. They therefore represent a problem that is unlikely to go
away even with better infrastructure”.
2.4 In their Statistical Bulletin, ‘Internet Access 2010: Households and Individuals’ the
ONS has published a breakdown of internet use according to demographics,
including:
• 60% of people aged 65 and over have never used the internet, compared with
22% of those aged between 55 and 64 and just 1% of 16 to 24 year olds
• Of those individuals who indicated they had an illness or disability which limited
their activities, 39% had never used the internet compared with 14% of adults
who either had no illness or disability, or were not limited by any illness or
disability.
2.5 If local and regional roll-out of projects purely focuses on the technical, then we still
won’t get the 8 million online because there needs to be some focus on demand
stimulation as well as putting the physical infrastructure in place. We need to go out
and support these people, raising their awareness and interests by demonstrating to
them the benefits of being online for them personally.
3 Point 2: The Government has committed £530million to help stimulate
private investment – is this enough and is it being effectively applied to
develop maximum social and economic benefit?
3.1 The roll-out of superfast broadband is a massive technical undertaking and the
economic benefit and cost savings of being able to provide access to services online
rather than in other formats is significant. However, if all the focus is on the technical
infrastructure, with little or no emphasis on demand stimulation and breaking down
motivational and personal barriers to being online, there is the risk that people will
not use the service available to them, resulting in both economic and social benefit
not being maximised. For example, the simplicity of online car tax renewals removing
the need to travel to a post office, or chat forums for carers helping to break down
feelings of isolation.
3.2 Parallels can be drawn between the roll-out of superfast broadband and the digital
TV switchover in the UK. The digital TV switchover is another huge technical
undertaking, with an enormous investment in the physical work to be carried out to
upgrade the infrastructure. Like services moving to digital by default, the TV
channels were moving from
analogue to digital, and could not be accessed in the same way after switchover. As
with the internet, it is often the most socially isolated individuals who need the most
help in converting their TVs to digital and using the new technology.
3.3 Digital UK recognised that it was necessary to invest in ensuring that people can
cope with and use this new technology. Research was undertaken into the audiences
who would need the most help with switchover, and groups were identified who
were likely to be resistant to mainstream switchover messaging. For many of these
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Digital Outreach – written evidence
groups, the switchover was a cause of much confusion and concern as the system
whereby they had received television channels all of their lives was going to become
redundant, whilst many were unfamiliar with connecting the correct cables and
hardware to their television in order to receive digital television. You can read more
about these findings in the report by Digital UK,
http://www.digitaluk.co.uk/__data/assets/pdf_file/0011/19388/DUK_Copeland_Repor
tWEB010508.pdf
3.4 Investment was made in the social aspect of rolling out digital TV. This ensured that
those who may have ended up with a blank screen after switchover received the key
messages from the public information campaign, enabling them to take an informed
decision and access support and advice about their options for going digital. Digital
UK ran a mainstream marketing campaign and telephone helplines, and commissioned
outreach (delivered by us) to engage those who were less likely to respond to
mainstream messaging and who were harder to reach. We did this by managing and
delivering outreach into local communities, working through charities and volunteers
during the run-up to switchover and running ‘advice points’ at the point of
switchover.
3.5 This integrated approach proved to be extremely effective, and the outreach element
of the campaign proved invaluable in supporting those in the community who needed
extra help and advice. So far, we have reached over 750,000 people with face-to-face
information and advice, provided to them at existing activities in the community by
someone who is a ‘trusted voice’. Independent research carried out by i2 media
research at Goldsmiths University
(http://www.digitaloutreach.org.uk/content/images/uploaded/i2%20research%20finding
s%20brochure_V2_201211.pdf) found that the digital TV switchover Community
Outreach Programme made a significant contribution to reaching the target groups
and had a major positive impact on changing their attitude, understanding and
confidence levels around switchover. After contact through outreach, the percentage
of people feeling confident about choosing the best way to receive digital TV
increased from 55% to 92%. Those feeling confident about getting their home ready
for switchover on their own increased from 46% to 82%. Not only this, but they felt
empowered to help others – those who felt their knowledge of how to help other
people was “good” or “excellent” increased by 59%, to 75%.
3.6 With switchover there was an absolute, immovable fixed date when services would
shift from one platform to another, whereas with broadband this is happening more
gradually. It would be possible to accelerate the rate that services are shifted to
digital by default and other routes to services are withdrawn, and gain the cost
savings this entails, if investment was made in reaching and engaging people to
stimulate demand.
3.7 Demand stimulation with broadband is about educating people (for example, they can
save £200-£300 per year by being online) and about providing a variety of ways for
them to access the internet, so that they can use the technology that best suits their
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Digital Outreach – written evidence
individual circumstances.
4 Point 6: To what extent will the advent of superfast broadband affect the
ways in which people view, listen to and use media content? Will the
broadband networks have the capacity to meet demand for new media
services such as interactive TV, HD TV and 3D content? How will
superfast broadband change e-commerce and the provision of
Government services?
4.1 In order to get every household online, it is important that broadband networks have
the capacity to meet demand for new media services such as interactive TV. Using a
computer or laptop does not suit everybody and can put some people off using the
internet altogether. Services such as interactive TV may better suit individuals who
are not confident with using computers, or who face financial barriers to accessing
the internet via a computer or tablet. Many have TVs which they are confident in
using and which could provide internet access.
4.2 It is important to tailor access to the needs of the individual as much as possible,
offering them a variety of approaches (such as tablets, mobile phones, and interactive
TV) to accessing the internet. Providing forms of access which suit people’s individual
needs is key to enabling them to embrace the new technology and take steps to using
the internet for more things, like accessing government/local authority services. This
is a gap in many current initiatives to support people to get online.
4.3 This attitude shift is becoming more and more important as government services
move to being provided online and other ways of accessing these services are
gradually withdrawn. Vulnerable, hard to reach groups of digitally excluded people
tend to be those who are more disadvantaged and are the biggest users of council
services. BDUK projects are seeking to get more households using government
services online to reduce the digital divide, however anecdotal evidence suggests one
of the barriers currently being faced by local authorities delivering the projects is that
there is little joined-up strategy for moving to digital by default which considers how
to get hard to reach groups to engage with the technology, as well as the technical
side of physically providing the access.
4.4 To ensure that the roll-out of superfast broadband provides benefits for all in society,
these key issues need to be set out at the start of any planning process, ensuring
vulnerable groups are considered from the beginning. BDUK pilots should include
elements of demand stimulation or measures to ensure access for those who are
currently digitally (and socially) excluded.
13 March 2012
274

Directors UK – written evidence
Directors UK – written evidence
1. Directors UK is the professional association for film, television and all moving image
directors in the UK. The organisation is both a collecting society for the distribution
of secondary rights payments to directors, and the professional association providing
services and support to its members. It seeks to protect and enhance the creative,
economic and contractual rights of directors in the UK and works closely with
organisations in the UK, Europe and around the world to represent directors’ rights
and concerns. With over 4,000 current members it represents the overwhelming
majority of working film and television directors in the UK. Directors UK is nonprofit-making.
2. Directors UK welcomes the opportunity to respond to the call for evidence to the
House of Lords inquiry into the Government’s superfast broadband strategy.
Directors UK has only answered those questions on which we feel we can offer an
informed view.
What is being done to prevent a greater digital divide occurring between people
who can access superfast broadband and people in areas where the roll-out of
superfast broadband may not be commercially attractive? How does the UK
communications market vary regionally and what is the best way to connect the
areas that the market alone cannot reach? Is a universal service obligation
necessary to avoid widening the digital divide?
n/a
The Government have committed £530 million to help stimulate private
investment – is this enough and is it being effectively applied to develop
maximum social and economic benefit?
n/a
Will the Government’s targets be met and are they ambitious enough? What
speed of broadband do we need and what drives demand for superfast
broadband?
3. Content is a key driver for superfast broadband. Consumers’ desire to access
creative content online whenever they want, wherever they want on whatever
device they want is one of the key forces behind the rapid growth of online
broadband services and technologies. The expansion of superfast broadband will
further opportunities for consumers to access high-value audio visual content.
In fact, are there other targets the Government should set; are there other
indicators which should be used to monitor the health of the digital economy?
What communications infrastructure does the UK ultimately need to remain
competitive and meet consumer demand over the next 20 years?
4. Online piracy - or IP theft - represents a huge threat to the UK’s creative industries
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and has an impact on the future success of online content provision. The
government should consider measures for assessing how this is being prevented and
the impact it has on the health of the digital and creative economy. As an example,
under the provisions of the Digital Economy Act, Ofcom is required to monitor
levels of online copyright infringement. Although this has yet to be implemented
once it is in place this could be used as one of the Government’s key indicators.
How will individuals and companies use cloud services for distributed storage
and computation? What network properties are required to enable efficient
provision and use of such services?
5. Cloud computing covers a variety of services, including those based on protected
content – including audiovisual works. This is a market that will grow in the coming
years with the advent of “locker” services. It is essential that such services develop
in full respect of authors’ rights.
6. Directors UK is a member of the SAA (The European Society for Audiovisual
Authors), who in a recent paper to the ‘EC consultation into online distribution of
audiovisual works’ 69 distinguished two types of services as follows: “Those which
store one copy for all users (hence operating a service to users) and those where users copy
their own files to a locker (making private copies). With regards permissions for use of
works, the former has to be authorised by rightsholders, while the latter does not as it is an
exception to authors’ rights (provided that copies are not shared with third parties beyond
private copying exception limits). It does require fair compensation for authors, however.
The 2001 Copyright Directive and the European Court of Justice’s jurisprudence authorises
Member States to establish a ‘private copying levy’ for the purposes of financing fair
compensation. This must be paid not by the end consumers, but by the manufacturers,
importers or service providers of a copying facility (Padawan paragraph 46).
In both cases, an additional problem relates to the copying by users of illegal files from their library
to the service. Cloud services should not have the capacity to “legalise” these illegal files without due
negotiation with rightsholders. Cloud services related to protected works must respect the IP rights
attached to them and conform with the law.”
7. Directors UK supports the issues highlighted by the SAA and would urge that in
developing services for cloud storage that issues of IP and authors rights are fully
respected.
To what extent will the advent of superfast broadband affect the ways in which
people view, listen to and use media content? Will the broadband networks have
the capacity to meet demand for new media services such as interactive TV, HD
TV and 3D content? How will superfast broadband change e-commerce and the
provision of Government services?
69 http://ec.europa.eu/internal_market/consultations/2011/audiovisual/registered-organisation/societe-des-auteursaudiovisuels_fr.pdf
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8. Digital technology and the internet are rapidly changing the way in which audiences
access media content, with consumers increasingly expecting to be able to watch
anything, anywhere, anytime, and on any device. We have already seen a rapid
growth in the number of online download services available in the UK e.g. Lovefilm,
Netflix, BBC iplayer, 4oD, etc offering access to a vast array of material via Internet
TV, computers, phones, games consuls, tablets etc.
9. Superfast broadband will increase the ability for audiences to access more types of
work, on more platforms and in ways which suit them. Improved download speeds
and capacity will enable people to download larger files, including films and TV
programmes, at a faster rate making these a more viable service. It will offer the
opportunity for audiences who would otherwise not be able to view, listen to or use
some forms of media content to gain access to it, for example those who do not
visit the cinema would be able to view films via online TV and Video On Demand
download sites.
10. Directors UK supports any measures which enable greater access to AV works,
providing they do not compromise protection of copyright. As the ‘digital
revolution’ becomes the ‘digital norm’ it is crucial for the future of the UK’s creative
industries and the UK economy that full advantage is taken of the opportunities
presented by digital and online distribution via superfast broadband, whilst ensuring
that content creators are rewarded for the use of their work and are protected
from illegal copying and distribution of their work.
Will the UK's infrastructure provide effective, affordable access to the 'internet
of things', and what new opportunities could this enable?
n/a
How might superfast broadband change the relationship between providers and
consumers in other sectors such as content? What aspects of this relationship
are key to enabling future innovations that will benefit society?
11. Superfast broadband presents huge opportunities for both content creators and
online service providers. The way media content is produced, marketed and
distributed to audiences is changing in order to take advantage of these
opportunities. Innovation in response to consumers’ expectations to accessing
content and in developing new usages in the audiovisual sector is developing very
quickly, with new services using new technologies (conditional access possibilities,
multi-device interoperability approaches, cloud computing, etc.) emerging every day.
Being able to offer audiovisual works to consumers is the basis for these innovative
services, making audiovisual works a key source of content for Internet Service
Providers.
12. Directors UK is concerned that the proliferation of such services however might
generate less money for future production and innovation. Despite the increased
consumption of audiovisual content, instead of providing additional revenues to the
audiovisual sector, both for the remuneration of rights holders (in particular
authors) and the investment in production, there are declining revenues. In a recent
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report CISAC (The International Confederation of Societies of Authors and
Composers) 70 reported that while royalty collections from the digital sector rose by
22% in 2010 they still have not offset the decline in royalties from physical sales and
remain a very limited source of revenue for creators at only 1.7% of total
collections.
13. The impact of improved access to audiences via Broadband must be balanced against
the effect it may have on existing methods of content distribution e.g. the impact on
cinema audiences, sales of DVDs etc.
14. The biggest challenge therefore to content creators, with regards improved
broadband access, is being present on all platforms in the way consumers want, at a
fair price which rewards creators and IP holders. Without fair remuneration there is
no incentive to continue to create new and innovative content for audiences to
enjoy and poses a risk to jobs and industry growth.
15. The key to future success is to ensure that the principle of fair remuneration for
rights holders is applied to every situation, regardless of the type of
technology/platform involved – including uses that often are not contemplated or
accounted for at the time of original creation of the work. Ultimately it is important
to have adaptable and flexible arrangements which allow people to access content via
different platforms but in a way that protects and fairly rewards rightsholders.
16. In addition, content creators and providers need the right regulatory framework in
order to flourish. With illegal download sites offering unlicensed content for free it
is difficult for legitimate sites to compete. The issue of online copyright infringement
must be addressed in tandem with the development of Superfast broadband in order
for the digital and creative economies to maximise their potential.
What role could or should the different methods of delivery play in ensuring the
superfast broadband network is fit for purpose and is as widely available as
possible? How does the expected demand for superfast broadband influence
investment to enhance the capacity of the broadband network?
n/a
Does the UK, for example, have a properly competitive market in wholesale
fibre connectivity? What benefits could such a market provide, and what actions
could the Government take to ensure such a market?
n/a
What impact will enhanced broadband provision have on the media and creative
industries in the UK, not least in light of the increased danger of online piracy?
What is the role of the Government in assuring internet security, and how
70 http://www.cisac.org/CisacPortal/listeArticle.do?numArticle=1446&method=afficherArticleInPortlet
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Directors UK – written evidence
should intellectual property (IP) best be protected, taking into account the
benefits of openness and security?
17. The fast-changing nature of communications technology and services presents both
new opportunities and challenges to the UK creative industries, and it is therefore
very important to ensure that regulatory structures and policy initiatives remain
appropriate and forward-thinking.
18. As highlighted previously, enhanced Broadband provision has had the contradictory
impact of increasing opportunities for audiences to access audiovisual content whilst
reducing revenues for the creators of this content.
19. Creative talent is crucial to the success of a thriving superfast-broadband culture and
to the creative industry as a whole in the UK. Without a continuing flow of new
creative works, there will be nothing for content providers to distribute and
audiences to engage in. The innovation of creators drives growth in the AV
industries and in the wider economies, both through the exploitation of AV works
themselves and in spin‐off industries.
20. The greatest threat to continued innovation and growth in the audio-visual sector,
and indeed elsewhere in the creative industries, is the infringement of copyright via
internet dissemination (online piracy / IP theft). Without a commitment to ongoing
support for copyright (and other IP protection) the content creating industrial sector
is exposed to a further drain on revenues, increased threats to rights and,
particularly in the case of audiovisual works, a disincentive to investment. The knock
on effect will compromise new creative content, jobs and revenues for the UK
Exchequer.
21. A 2009 study by Oxford Economics 71 for the audiovisual sector demonstrated that a
commitment to strengthened enforcement of copyright would “provide direct gross
revenue benefits to the AV sector of £268 million as well as benefits spread
throughout the entire UK economy via ‘multiplier effects,’ creating a total of £614
million in revenues to all industries, £310 million in GDP, 7,900 jobs and £155 million
in taxes to government”.
22. Online piracy is markedly different from the unauthorised release of physical copies.
Once unlicensed works are released online the capacity for multiplication of such
digital copies is unlimited - any return on investment can be fatally compromised.
23. Directors UK welcomes much of the recent Hargreaves Report, in particular its
understanding of the need to sustain fair rewards for creators, and for the continuing
fight against IP theft: ‘In copyright, the interests of the UK’s creative industries are of great
national importance. Digital creative industries exports rank third, behind only advanced
engineering and financial and professional services. In order to grow these creative
businesses further globally, they need efficient, open and effective digital markets at home,
where rights can be speedily licensed and effectively protected.’ 72
24. The solution to ensuring greater access to legitimately protected content across new
71 http://www.bva.org.uk/files/images/AV_Piracy_Final_Report_-_FINAL.pdf
72 Hargreaves, Prof. Ian. Digital Opportunity: A Review of Intellectual Property and Growth. May 2011, p3
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Directors UK – written evidence
delivery platforms, lies in both facilitating licences and in preventing illegal access to
copyrighted works. Directors UK supports the recommendations in the Hargreaves
report of a dual approach of stricter enforcement and making legal distribution
easier.
Tackling Online Piracy
25. In terms of preventing illegal access, piracy can be tackled through the Government
bringing the Digital Economy Act enforcement regime into being as soon as possible
and prosecuting those responsible for copyright theft or abuse of copyright law.
Social media networks, websites and their end-users have to respect the economic
and moral rights of audiovisual authors as any other users. These networks and sites
should develop efficient mechanisms to detect the illegal making available of works
and avoid their reappearance when taken down. This should include implementing
the notice sending provisions of the DEA and introducing a Code of Practice. Legal
platforms can only develop if illegal consumption of audiovisual works is countered.
Simplifying Licensing and Rights Clearances
26. To encourage greater legitimate viewing of films, better methods of distribution are
needed which allow access to content but also fairly reward directors and other
authors for use of their copyright. Directors UK believes that support for an
affordable and flexible collective licensing system which gives consumers access to
great content and rewards creators for their efforts, should lie at the heart of public
policy in the area of IP and copyright law.
27. New service providers entering new online markets require access to large numbers
of works. Such licensing is likely to be extremely costly and time‐consuming if it
has to be conducted on a work‐by‐work or repertoire‐by‐repertoire basis.
Licensing of AV works can be especially tricky as the work may consist of multiple
copyrights bundled together – such as the scriptwriter, the director, originally
composed and recorded music, archive film etc.
28. We agree with Prof Hargreaves that rights owners must facilitate a much simpler IP
rights licensing regime (for example the report’s Digital Copyright Exchange (DCE))
that makes it easier for new digital businesses to obtain fair licences through a simple
procedure, and the creators and authors (in this context authors refers to both
writers and directors) of the works used obtain a fair reward.
29. Simplifying rights clearances, whilst ensuring fair reward for content creators, will
enhance the choice for the consumer, as it is likely to facilitate new entrants to
enhance competition and innovation. Licensing through collective management
organisations (CMOs), such as Directors UK, provides a low‐cost and secure means
of obtaining licences and ensuring that the rights owners receive a fair reward.
30. It is therefore important for the Government to make its recommendation for
setting up a Digital Copyright Exchange a priority, with industry players involved in
its design, so that AV content can be distributed legally and fairly through a wider
range of platforms. In this respect Directors UK is contributing to Richard Hooper’s
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Directors UK – written evidence
work to take the DCE forward.
31. Directors UK is also working with fellow societies in Europe to facilitate the
development of a scheme that would enable licences to be granted for services
operating across national boundaries in Europe. We would also urge the
Government to support a multi-territory licensing system that incorporates the fair
remuneration for authors in the EC Green Paper on Online Distribution of AV
works 73 , so that we can arrive at arrangements that operate efficiently and
seamlessly across Europe.
Global Identification Systems
32. Furthermore, collective licensing would be more effective if there were a wider
acceptance of global metadata and numbering identification systems such as the
International Standard Audiovisual Number 74 . The ISAN is operated by mandated
collecting agencies in different territories, and is compulsory in some countries (e.g.
France, Spain). It is key to the tracking and monitoring of the usage of works. A
mandatory metadata international system such as this would improve co-operation
between licensing bodies and support better tracking of usage across the globe.
Authors’ Remuneration Right
33. Online services represent a relatively new market where business models are still
being formulated and tested. Revenues from these new services have been very small
compared to traditional markets (consumer spending on VOD rental was £17m for
internet VOD from a total of £207m in the VOD market in 2010 75 ), with
correspondingly small shares coming back to copyright owners.
34. As far as pure on-demand service providers are concerned, the lack of experience in
the field of audiovisual works’ rights clearance and of know-how in collective
agreements for authors’ rights makes it difficult for them to understand the full
challenges of services based on intellectual property protected works. It is equally
difficult for individual creators to tap into the various different revenue streams
found in the new digital markets and to deal with some of the very large ISPs.
35. In our view, this makes online a very good example of a new market where a
remuneration right would represent a very effective and fair way to secure the right
reward to copyright owners and at the same time to provide a secure and simple
method of licensing content for service providers. It would also do so without being
disruptive to existing rules.
36. We therefore support the SAA’s proposal in a recent White Paper 76 for European
legislation to establish a remuneration right for the audiovisual authors’ making
available right - collectively managed, based on revenues generated from online
distribution and paid by the on-demand services providers - which would simplify the
understanding of these operators of which rights are involved and who should pay
73 http://ec.europa.eu/internal_market/copyright/copyright-infso/copyright-infso_en.htm#AV_greenpaper
74 http://www.isan.org/portal/page?_pageid=168,1&_dad=portal&_schema=PORTAL
75 Enders Analysis based on EVA, Screen Digest
76 http://www.saa-authors.eu/en/news/32/SAA-White-Paper
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Directors UK – written evidence
for what. This entitlement should exist even when exclusive rights have been
transferred and would secure a financial reward for authors proportional to the
actual exploitation of the works.
37. Following this course could provide a boost to the VOD market – which is currently
threatened by piracy, but by making it easier for consumers to access content easily,
legal VOD platforms will provide an alternative legal and secure method.
13 March 2012
282

Everything Everywhere – written evidence
Everything Everywhere – written evidence
We welcome the opportunity to respond to the Committee’s invitation for views on the
Government’s superfast broadband strategy.
As the UK’s leading communications company we have the ambition to create the UK’s
‘digital backbone,’ and with our presence across the UK with over 15,000 employees and
over 27 million customers we fully support initiatives to increase and improve connectivity.
Under our Orange and T-Mobile brands we offer mobile broadband through handsets and
dongles, and following our wholesale deal with BT Openreach we offer some of the most
competitive home broadband and fixed line telephony products under our Orange Home
brand to over 700,000 customers.
The UK already enjoys the most competitive e-commerce market in the European Union,
and with a large number of ISPs, both fixed and mobile, for consumers to choose from.
What is required is a regulatory environment which continues to foster this choice,
promote innovation in new services and to encourage both existing and new entrants to
invest in new and innovative technologies.
Broadband Takeup and Digital Divide
Considering the two government broadband objectives – broadband uptake and availability
of superfast broadband – we believe that uptake of broadband is just as important as the
deployment and availability of superfast broadband. Whilst Ofcom’s 2011 Communications
Market Report recognised that superfast broadband services were already available to
around 50% of UK homes, and that this figure is increasing as further investment takes place,
it remains important to address the digital divide.
The most recent figures for internet usage amongst the adult population published by the
Office of National Statistics showed that in Q4 2011 just over 16% of adults in the UK had
never been online. Whilst this marked a 1% reduction of offline adults over Q1 2011, strong
and continued encouragement from the Government on digital inclusion is welcome 77 .
As the Broadband Stakeholder Group have noted “Demand for superfast broadband is in its
infancy in the UK, but the initial signs are that the UK is in a good position, and is seeing
take-up at a similar or higher level than other EU markets at the same stage.” Furthermore
“it is important that policymakers have realistic expectations of the likely levels of take-up
that superfast broadband will achieve in the UK in the short-medium term, and draw
appropriate lessons and comparisons with other markets across the world.”
UK Economic Competitiveness
Whilst there has been a lot of focus on headline speeds available in some Northern
European and Asian countries the UK government has rightly recognised that a more
balanced approach is required to determine success in delivering the best communications
network.
77 Ofcom: The Communications Market 2011
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Everything Everywhere – written evidence
In the December 2010 Broadband Future policy paper the UK government set out a basket
of measures looking at speed, coverage and take up, and price of fixed and mobile
broadband. These measures are germane to determining what infrastructure the UK should
look to have for continued economic success.
Broadband Delivery UK
Broadband Delivery UK has been asked to fulfil a difficult role. As a mobile provider we
continue to have some concerns as to how the BDUK timetable did not take account of the
spectrum auction process, and thus reduced our ability as a mobile operator to participate.
In addition, the process has been delayed by local authorities not being adequately equipped
to move forward as quickly as the Government would have wished.
Whilst it was recognised by the previous government, and accepted by the coalition
Government, that the cost of deploying Fibre To The Cabinet (FTTC) across the UK would
cost in the region of £15 billion whilst deploying Fibre To The Premises (FTTP) could cost
around £30 billion, the £530 million available through BDUK in the current Parliament is
welcome and should help ensure that government targets on availability of 2MBps are
delivered.
Fibre Wholesale
The growth in take up of ‘up to 20Mbps’ broadband products over the last five years in the
UK has been driven by affordable broadband pricing offered by a wide range of competing
internet service providers. Ofcom’s own Communications Market Reviews have found that
the result of this has been that the UK has one of the most competitive communications
markets in the world, with one of the highest take up rates of online services and ecommerce.
As the UK moves forward with further deployment of superfast broadband it is
important that the regulatory environment encourages a competitive market as we are
concerned that without appropriate regulation the UK could fall further behind the rest of
Europe.
Whilst we welcome the overall push for localism that the coalition government is
committed to, we are concerned that it could have unforeseen consequences for the
deployment of superfast broadband, and the Mobile Infrastructure Project, if each local area
pursued their own separate technical solutions. In particular, we would wish to see a
regulatory solution that ensures that should anyone other than BT deploy FTTC/FTTP on a
regional basis that it should be ‘equivalent’ to BT’s solution so that the UK does not end up
creating regional fibre monopolies, such as KCom in the copper world, or seeing other
communication providers having to constantly build interfaces into very small local
broadband markets.
Furthermore, a competitive fibre market is essential for the deployment of 4G mobile
broadband as we require access to fibre backhaul from our cell sites to enable us to deliver
4G LTE services to our customers.
Contribution of mobile
As the internet has gone mobile with the rapid increase in popularity of Apps the role of
mobile broadband has become more important to consumers and the economy.
Government ambition to deliver near universal availability of broadband will require that
mobile broadband services are part of the mix. Whilst it may well be economic to roll out
fixed broadband to around 90% of the UK population, there will remain around 10% of the
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Everything Everywhere – written evidence
population who would not be covered by traditional fixed networks. In this space the next
generation of mobile technology, 4G LTE, will enable us to deliver current broadband
speeds. This technology is already available in other markets, and since last autumn we have
been conducting a trial with BT
Wholesale in Cornwall using 800 MHz spectrum to demonstrate the viability of the
technology.
Mobile broadband will, however, be of interest to not just rural communities. Individuals,
such as students, who live in rented accommodation, are currently unable to purchase fixed
line broadband. A mobile broadband product can be taken with them wherever they are.
We would be happy to come and talk to the Committee about the issues raised in this call
for evidence, and understand that you plan to hold hearings later in the year.
March 2012
285

Everything Everywhere – supplementary written evidence
Everything Everywhere – supplementary written evidence
We read with interest the transcript of your committee's evidence session with Paul Morris
of Vodafone and Julie Minns of Three as part of your Superfast Broadband inquiry.
As we were mentioned and our market position was discussed during the session, we
thought it would be helpful to the Committee to hear our views.
We share the experiences of both Vodafone and Three in the growth of data traffic on our
network and have seen a similar increase in take up of smart internet-enabled devices over
the last year. We are seeing a 250% increase in data use year on year and 90% of our new
contract customers are opting for smartphones. This is one reason why it is so critical that
4G services come to the UK as soon as possible.
Turning to the substance of the remarks about Everything Everywhere, we have asked
Ofcom to liberalise our 1800 MHz licence so that we can deploy 4G services. This is in line
with the European Radio Spectrum Policy Programme Decision No. 243/2012/EU of the
European Parliament and of the Council of 14 March 2012 establishing a multi annual radio
spectrum policy and the 900 MHz and 1800 MHz Commission Implementing Decision of 18
April which amended Decision 2009/760/EC on the harmonisation of the 900 and 1800 MHz
frequency bands for terrestrial systems capable of providing pan-European electronic
communications services in the Community. This decision set out that all EU member states
should make both 900 MHz and 1800 MHz available for 4G services by 31 December 2011
and to have completed the authorisation process this year. This freedom to liberalise
existing spectrum that is already in use for mobile services so that it can be used for 4G is
very important and beneficial: it means that the spectrum auctions next year are not the
only route to delivering 4G to UK consumers and businesses.
Our request for liberalisation is by no means an attempt to obtain a monopoly over 4G
services in the UK. This is for the following reasons. First, Vodafone and 02 could have made
the choice to launch 4G services over their existing airwaves - 4G mobile services already
exist on 900 MHz (Vodafone and 02 share these frequencies in the UK) in Scandinavia, Japan
and Australia - instead of using the frequencies for 4G they opted to deploy HSPA+ much
earlier than 4G was available and obtained commercial advantages from doing so. Second,
the scope of any advantage we might gain from deploying 4G will be limited. Our ambition,
subject to regulatory approval, is to begin a limited launch of 4G later in 2012. We are
expecting the 4G spectrum auction to take place in early 2013, and successful bidders would
be able to start building out a 4G network in May/June 2013.
Furthermore, the purchaser of the spectrum we have to divest as a condition of our merger
would also be able to launch a 4G service next year. We therefore believe that any
competitive advantage from our proposed launch of 4G services would be limited in
duration (six to twelve months), that its duration is in part controllable by the determination
of our competitors to minimise it and is consistent with the normal evolution of competitive
mobile markets.
In addition, it is worth pointing out that there is a UK precedent for allowing mobile
networks to use their existing airwaves for the latest services. In 2011, our two largest
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Everything Everywhere – supplementary written evidence
competitors both benefited from the Government direction to Ofcom to allow mobile
operators to deliver 3G services over 900MHz and 1800MHz airwaves - a decision we did
not challenge.
We believe that our proposed investment and innovation will drive further investment and
innovation in the UK from the other networks. The auction itself will not necessarily drive
investment - the 3G auction in 2001 saw all networks overpay for the spectrum licences and
subsequent infrastructure investment was consequently slow. Ronan Dunne made a recent
comment to the effect that, as the CEO of 02, he does not see the business justification for
bringing 4G to the UK. There is no better way to make him change his mind than EE
launching a 4G service this year. This will ensure that the predictions in the economic
research we commissioned from Capital Economics will materialize - these indicated that
roll out of 4G networks would add 0.5% to UK GDP over the next decade and unleash
£5.5bn in private investment that will support 125,000 jobs over the next three years.
In a period of such economic uncertainty, we do not believe the UK can afford any further
delays.
1 July 2012
287

Federation of Communications Services – written evidence
Federation of Communications Services – written evidence
Introduction
1 The Federation of Communication Services, FCS, is the trade association for the
communication services industry supporting 325 members that deliver products and services
via copper, fibre and wireless to UK customers. For a list of our members please visit
www.fcs.org.uk
Broadband policy
2 We welcome the opportunity to respond to this timely inquiry into the
Government’s superfast broadband strategy. Broadband is the basic building block of the
digital economy that is fast becoming the staple mechanism for doing business and for social
life in the UK. Government policy should therefore be to ensure that appropriate broadband
technologies are available for the longer term, a timeframe of at least up to 20 years.
Broadband is now an essential utility - rather than an optional service delivering
communications in competition with pen and paper of yesteryear. We believe that
broadband policy should now be substantially reviewed to recognise the utility nature of
communications infrastructure, with competition residing at the retail level.
3 As in other markets, infrastructure provision should be regulated as a utility platform
-separated from competing retail services that access the infrastructure on equivalent and
fair terms. The role of infrastructure providers should also be clearly separated from that of
retail service providers.
4 A policy of competing infrastructure appears to be inefficient. Duplicating
infrastructure investment passes extra costs down to the consumer. Commercial network
providers cannot justify delivering services to markets where there is not a density of
population to satisfy their commercial objectives, leaving wide swathes of the population
without access. Since all UK citizens need access to the same level of broadband and
increasingly superfast broadband, a different supply regime is required and, crucially,
regulatory intervention will be needed to support this outcome.
5 FCS recommends that infrastructure is in the form of a single “fat pipe” with
wholesale access - enabling both universal services, such as smart meters and telemedicine,
and competitive services, such as video on demand and voice, to plug into the pipe.
6 Demand for superfast broadband is evident and the infrastructure to supply this
growing need must be adequate to respond to demand. FCS research among CPs and
resellers who take bandwidth from wholesalers and package services for SME business
customers’ shows higher capacity broadband is needed for
� higher data capacity and broadband conferencing
� growing E- business processes
� Distributed working with multi-site and remote working for business efficiency and
employee support
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Federation of Communications Services – written evidence
� Growth of cloud computing - a need for greater uplink and downlink capacity to
share databases, business files
7 The “fat pipe” model that FCS and others propose would entail the grey fat pipe to
the right of the diagram below being owned and operated by the infrastructure provider,
who has no retail offering to compete with its customers. Services such as IPTV and internet
access would be delivered by competing suppliers - each having fair and equivalent wholesale
access to the pipe. Customers would then purchase one or more services from CPs and,
should they wish to move supplier, they could do so within an efficient universal customer
switching process. For this model, “net neutrality” would be less of a problem since the
pipe operator would not have a commercial interest in managing traffic for one wholesale
customer in preference to another. Additionally, different levels of traffic management could
be applied to different services in a transparent manner. Crucially, if the internet end user
were to transgress the Digital Economy Act, internet services could be cut off without
compromising the public / universal services for smart metering or telemedicine to an
individual household or premises.
Figure 1: “Fat Pipe”
8 The entity that owns the “fat pipe” is already becoming apparent. Openreach is
rolling out its broadband and superfast broadband widely across the nation and, significantly,
it is also winning many of the local authority tenders under the BDUK scheme. This is not
surprising as there is inherent skill, experience and attention to maintenance, security and
resilience in this organisation.
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Federation of Communications Services – written evidence
9 As with the consolidation of the regional railways in the last century, communications
infrastructure needs to be considered as a single logical national entity, although there might
be a few different ownerships. The current EU Framework enables the regulator to impose
functional separation on major entities
10 In the UK, 6 years of experience of functional separation has illustrated its
limitations. While functional separation of Openreach within BT has been valid for the
current regulated copper technology, there are no clear equal access rules for retail
providers of fixed telephony and broadband services in the new fibre world. Consequently,
competing providers would have to rely on competition appeals to prevent market
dominance and walled gardens appearing. The regulatory solution to the questions posed in
the Inquiry would be for full structural separation of Openreach from BT, following the
examples in New Zealand and Australia.
11 We believe that Government should review its infrastructure policy to assess the
impact of this trend, consider whether infrastructure competition is still required and
propose how a single national infrastructure provider should be regulated. Other
infrastructure sectors of the economy could provide examples of the regulatory framework
needed. At the same time Ofcom might like to review the Undertakings agreed with BT in
2005. We believe that there is an opportunity to implement change with plans for a new
Communications Act.
12 In response to the questions posed in the Inquiry
Q1 While current Government policy and BDUK implementation is aiming to plug the gap,
we think that there is need for more substantial regulatory change, as described above, to
resolve the national need for superfast broadband.
Q2 We are unsure about the efficiency of the programme to stimulate private investment.
New infrastructures such as those being developed locally should be able to "plug in" to
national infrastructure so their end users can get access to the general level of content and
services available in other parts of the country. This will require software development,
logically sourced from the £530 million set aside for broadband development to support the
“final third”. Management of these co-ordination arrangements would be by means of a
national governance body for change management.
Q3 While the funds may be delivered to local authorities in time, the potential for delivering
nationally comparable services to all customers is not yet demonstrated.
Q4 and 9 As we have described above, now is the time for the Government to review and
implement a communications infrastructure policy regulating the utility infrastructure
provider(s) as separate entities from the competing retail market. This would involve
structural separation and a fair wholesale access regime.
Q10 FCS members do not believe that there is a properly competitive market in wholesale
fibre connectivity. Many members deliver Wholesale Line Rental, WLR, over copper pairs to
customer premises.
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Federation of Communications Services – written evidence
While fibre roll out is essentially merely a technology change, a new regime for
communications delivery has been introduced alongside. For fibre, access to the next
generation access network is no longer at the WLR level, but much deeper into the
infrastructure - akin to LLU. An immediate change is that only a select few providers have
the financial resource and capacity to trade with Openreach to deliver fibre services either
from the street cabinets or directly into premises. FCS has identified a real problem in
supply of services to small business customers. The worst case scenario is that existing
services delivered over WLR may cease at some time in the future, particularly as
Openreach is already planning trials of fibre only exchanges. New broadband services are
being delivered only by larger well resourced LLU type operators. No part of BT is offering
voice over next generation access as a seamless and price regulated service for CPs and
resellers to offer to their existing customers as a replacement for WLR. Ofcom is not
placing obligations on BT in this area.
March 2012
291

Federation of Small Businesses – written evidence
Federation of Small Businesses – written evidence
The Federation of Small Businesses (FSB) welcomes the opportunity to respond to the
above named consultation.
The FSB is the UK’s leading business organisation. It exists to protect and promote the
interests of the self-employed and all those who run their own business. The FSB is nonparty
political, and with 215,000 members, it is also the largest organisation representing
small and medium sized businesses in the UK.
Small businesses make up 99.3 per cent of all businesses in the UK, and make a huge
contribution to the UK economy. They contribute 51 per cent of the GDP and employ 58
per cent of the private sector workforce.
The FSB is very concerned with the lack of ambition in the Government’s current broadband
strategy and urge the Government to introduce a programme, similar to Race Online, to
help businesses realise the benefits that broadband presents and ensure that the UK remains
at the forefront of ecommerce and innovation. The bar must be set considerably higher than
2 Mbps by 2015 if the UK’s small businesses are going to take advantage of all the
opportunities that e-commerce has to offer. The wide availability of high connection speeds
will fundamentally change how business interacts with its customers, supply chains and
government and creates both new business opportunities at the global scale as well as
improving the efficiency and effectiveness of existing commerce.
We trust that you will find our comments helpful and that they will be taken into
consideration.
Yours sincerely,
Prof. Neil Hoose
Chairman of the Infrastructure Policy Unit
Federation of Small Businesses
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Federation of Small Businesses – written evidence
FSB response to consultation: Will superfast broadband meet the needs of our
‘bandwidth hungry’ nation?
1. Broadband today is an essential utility for small businesses. It removes barriers to
competition, brings businesses closer to consumers and suppliers, and allows
businesses to find new markets and to innovate. However, small businesses up and
down the country are not realising these benefits.
2. In 2011 the FSB carried out an internet opportunity survey partnering with the
Communication Management Association (CMA), Department of Culture Media and
Sport (DCMS) and BT Openreach (BT) which brought out some very useful facts.
3. Nine per cent of small businesses cannot access current generation broadband, by
which is meant speed up to 24 Megabits per second (Mbps), across any of their sites.
Twenty-two per cent cannot access it at at least one of their sites. These figures are
not limited to rural areas. Small businesses located in close proximity to large towns
and cities are also facing problems with connectivity.
4. There is also a marked difference in the speeds small businesses receive. For those
receiving current generation broadband, over a quarter only have access to speeds
up to 2 Mbps. This might be sufficient for the average household, who uses the
internet for social media and watching catch-up IP TV; but for a variety of businesses
this is not at all sufficient. To mention a few examples; if you are an IT support firm
that wishes to expand into application and web hosting services; or an acoustic
solutions firm that wishes to launch an online retail outlet; or a firm that designs and
installs irrigation and water systems for customers throughout the world who relies
on being able to share and receive large data files such as construction drawings, this
is just not sufficient.
5. The point is that it is not good enough for Government to assume that such a low
bandwidth as 2 Mbps is sufficient in years to come. Technology and opportunities
develop at an incredible speed these days that second-guessing what technology is
going to be available and what bandwidth they will require is impossible. The strategy
must instead be to find ways to enable superfast broadband connections across the
whole of the UK by 2015. The FSB considers this a higher priority than establishing a
more extensive high speed rail network.
6. Eighteen per cent of small businesses say there are services they are unable to use via
their current generation broadband. Of those, 80 per cent say that it affects their
organisation when innovating or using other new services.
7. As well as creating barriers to innovation, inadequate connectivity also creates
inefficiencies and results in lost productivity. The FSB has endless examples of small
businesses who at best, lose several hours a week waiting for things to upload or
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Federation of Small Businesses – written evidence
download, and at worse, have to organise their entire working week around when
expected down-times are. We know of a Managing Director who travels with his
Notebook to the nearest hill to find a connection to enable him to download orders
and emails; and farmers who have to travel to their nearest village, to a Post Office
that allows them to use their internet connection to submit compulsory online forms
to Defra. These examples may sound extreme, but they are the reality in which far
too many small businesses operate.
8. There are alternatives of course, such as leased lines, satellite broadband and so on
but these are often too costly for small businesses. The FSB is aware of members
particularly in Scotland who spend an enormous amount annually on broadband
provision, and this is not fair. The broadband provision in large parts of the UK is
completely unacceptable for a nation that is claiming to be the best place in Europe
for broadband by 2015.
9. Part of the solution lies in the forthcoming Spectrum auction. The FSB urges the
Government and Ofcom to ensure that there is no further delay to the auction
process. Described as a “once in a generation opportunity” – we must embrace the
opportunity the Spectrum auction affords us and ensure that households and
businesses are well connected to digital services. Mobile broadband will play a very
important role in future broadband provision.
10. There is a real risk that if not spots are not addressed, those communities will be at a
significant disadvantage to others. Their businesses will be at a competitive
disadvantage and it will be increasingly difficult to retain and attract new business.
That is why we urge the regulator to attach a 98% population coverage obligation to
at least two of the licences being auctioned.
11. There is a high demand for superfast broadband. Figures from the CMA report
suggest that 40 per cent of small businesses would be likely to adopt superfast
broadband as soon as it became available to them. Twenty-eight per cent said they
would be very likely to adopt it.
12. Around half of small business says they would be prepared to pay extra for the
speeds they required from superfast broadband. But these figures could be higher.
With a programme to raise business awareness and promote the benefits of
superfast broadband, we believe more businesses will demand superfast services.
13. That is why we are asking the Government to introduce a programme, similar to
Race Online, to help businesses realise the benefits that broadband presents and
ensure that the UK remains at the forefront of ecommerce and innovation. Nearly
half of small businesses expect that access to superfast broadband would result in
increased turnover.
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Federation of Small Businesses – written evidence
14. Forty-one per cent believe superfast broadband would allow them to expand into
new markets. And Thirteen per cent believe it would allow them to hire more staff.
15. Given the right tools small businesses can diversify and grow. The UK needs jobs
now. That is why the Government must commit to creating the environment for
businesses to grow. The right infrastructure in the right places, including fast and
reliable broadband, will be central to this.
16. At a time when the economy is faltering and the Government is considering options
for stimulating growth by removing the barriers businesses face, it must think
seriously about the barrier inadequate broadband connectivity can create, and the
opportunities that are unleashed as a result of good connectivity. The FSB urges the
Government to ensure that it is genuinely committed to its targets for universal
coverage and ensures that enough money is targeted at those areas the market will
not reach on its own.
13 March 2012
295

Fibre GarDen (the Garsdale & Dentdale Community Fibre Broadband Initiative) –
written evidence
Fibre GarDen (the Garsdale & Dentdale Community Fibre
Broadband Initiative) – written evidence
1. INTRODUCTION
We are delighted to have the opportunity to submit this paper in response to the call for
evidence from the House of Lords Select Committee on Communications (the Committee).
As probably the most important infrastructure issue of our generation, this inquiry into
national superfast broadband delivery is most timely. We are hopeful that the conclusions
reached, and action taken as a result, will lead to a paradigm shift in the superfast broadband
provision debate.
We have chosen to respond by outlining the vision and efforts being made by a unique
alliance of two small rural communities in the Yorkshire Dales and some of the issues that
we have encountered. As a result we hope that the Committee can understand in better
detail some of the impediments in place to achieving a truly internationally competitive
broadband landscape in the UK.
2. fibre GarDen
Background
Over the last eighteen months our community effort, in the very best traditions of the Big
Society, has been working with our MP Tim Farron, South Lakeland District Council (SLDC),
Cumbria County Council (CCC), Broadband UK (BDUK), and other government and
private sector parties, to develop a sustainable model to deliver a superfast broadband
network that is ambitious, and critically 100% inclusive. The vision is a fibre-to-the-home
(FTTH) network that is future-proofed and able to deliver super fast broadband, telephony,
TV, media, telehealth, farming services, education and other government and local authority
services.
This has been a joint effort between two dales in Yorkshire, namely Garsdale and Dentdale,
who recognized early on that combining their resources and efforts would be beneficial to
the residents and businesses of both valleys. It has the approval and support of both parish
councils and a community interest company has been established with a strong management
team with combined experience in finance, marketing, fibre optic technology, education,
health provision, and farming services. To date, alongside their other individual work
commitments, several thousand volunteer hours have been expended by the team on behalf
of their communities.
A detailed business plan, supported by extensive evidence, has been developed which
informs that a 60km network connecting the two dales and 500+ premises can be
constructed for a sum in the region of approximately £1000 per premise, with a community
digging effort and farmers’ community spirit solving the wayleave issue. This is fully costed to
a high technical standard including network installation, fibre cabling and fibre types,
installation and fusion splicing, telephony, quality of service, infrastructure services and
ongoing management thereof. Funding of the network will come from a variety of sources
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written evidence
including BDUK/RDPE, contribution of £300 per premise, vendor finance, a community
share issue, loans and work in-kind.
Initial success has been achieved with BDUK confirmation that we have become a
recognized Rural Community Broadband Fund pilot and therefore eligible to apply for first
round funding from the Rural Development Programme for England (RDPE). This application
has been submitted and is awaiting approval from DEFRA.
Our project, its importance and contribution so far, has also been acknowledged by the
following:
“ That is why I am so proud that our communities in Cumbria, and South Lakeland especially, are
choosing to make their own luck. I pay tribute to……the team from fibre GarDen who ensure that
we can deliver superfast broadband to Garsdale and Dent. They show a vision that UK plc - I am
not aiming criticism in any specific direction - has so far not matched. This debate is about
demonstrating that the House of Commons stands behind them in solidarity”…… and, further
quoting from an email from Andrew Fleck, Chairman of fibre GarDen, “The cost of nationwide
implementation is prohibitive in the current economic climate, but the economic penalty for delay
will be greater still”. He is absolutely right. Tonight I will get on the train to Oxenholme and travel on
a rail network that was built by visionaries 150 years ago. That is the sort of vision and ambition we
need today”
Tim Farron MP, Daily Hansard, Thursday 19 th May 2011
“Cumbria County Council regards fibre GarDen CIC’s planned FTTP local network as an important
part of the overall broadband strategy for Cumbria. The significant efforts of fibre GarDen CIC have
been instrumental in achieving the best possible outcome for the pan-County rollout and the
successful construction of their network will be a valuable contribution to the provision of superfast
broadband in the county”
Alan Cook, Project Manager, Cumbria County Council
Fibre GarDen’s help in exploring ways in which communities can actively support suppliers to deliver
superfast broadband access to deeply rural areas has been extremely useful in helping us develop a
number of potential products for communities in similar locations across the country to utilize”
Robert Sullivan , Chief Executive, Broadband Delivery UK
The Project
Existing provision by current operators in our area, as might be expected, is not consistent
with a 21stC economy. In most cases broadband download speeds below 1Mb/s are the
norm, with many premises remaining on dial-up (512kb/s) and no broadband provision at all.
This is the backdrop to our community motivation to address this inequitable infrastructure
under investment to date.
This project will create a fibre optic network that connects every property in an isolated and
sparsely populated upland rural community in exactly the same way that properties and
businesses would be networked in a fibre wired city. The project is ambitious, as its aim is
not simply to increase rural broadband speeds, but to demonstrate how economic
disadvantage and social exclusion can be overcome in a rural area by the provision of future-
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Fibre GarDen (the Garsdale & Dentdale Community Fibre Broadband Initiative) –
written evidence
proof Next Generation Access (NGA) broadband. In order to achieve its goals, it will
harness community support and action alongside government investment and commercial
partnership.
The project will build and operate a NGA broadband network in the two adjacent upland
valleys of Dentdale and Garsdale in South-East Cumbria, close to the North Yorkshire and
Lancashire boundaries and inside the Yorkshire Dales National Park. The network will be
built and operated by a community interest company, Fibre GarDen CIC, employing a local
telecoms company to manage both the build and the network’s operation. The build will be
completed by December 2012, after which the ownership of the network will remain with
the CIC. The RDPE funding would be used to meet part of the capital costs of building the
network and not its running costs.
The project’s key features are:
i) the creation of a consortium of suppliers working with the community to build
the network,
ii) the finished network to remain under community control, to ensure it serves
the community’s future needs (and importantly obtain the necessary wayleaves),
iii) the involvement of a local telecommunications provider with full code powers,
iv) the granting of free wayleaves by residents/landowners to a community project,
v) the availability of expertise in fibre optics, telecommunications and company
fundraising by the project’s management team,
vi) the use of an innovative backhaul solution that is applicable to rural communities
across Cumbria and nationally
By these means it will demonstrate how NGA rural broadband can be provided in places
where there is no current market solution for fully future-proofed superfast broadband
provision. This will support the drive by Cumbria County Council to raise the standard of
broadband delivery within the procurement for Cumbria and thereby improve services to a
wider range of communities.
The network that is created will:
• provide a 100% fibre optic cable to all properties and businesses, and thus be fully
future-proofed
• be either own brand or open access ISP
• enable initial broadband speeds of 100 Mb/s, with the option for Gb/s service in the
future depending upon need and growth in demand
• be a significant economic multiplier for businesses and the community as a whole
• provide extra fibre capacity for community and future P2P use
• be available to supply backhaul for 4G mobile phone coverage
• provide support to farming enterprises, in areas where the rural economy relies
upon a vibrant farming sector and where the national food supply agenda needs to be
fully recognized and supported
• be available to NHS Cumbria for informatics, telemedicine and telehealth research
trials
• be available for use by emergency services, critical in an upland and occasionally
remote rural area
• become a template for the creation of a fibre network, which will be available for
other rural communities to use
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Fibre GarDen (the Garsdale & Dentdale Community Fibre Broadband Initiative) –
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• most importantly, be fit for purpose for accommodating other (unforeseen)
technological advances that may transpire in the future
The key beneficiaries can be divided into three groups:
‐ Direct occupants in the Fibre Garden area including 351 private households and 159
businesses and further tourism businesses, and 1 primary school serving 38 children.
The businesses include local farmers, and at least 28 consultancy businesses, some of
national and international repute, including individuals such as a FTSE 100 CEO, a
Chairman of a number of telecommunications companies, a Chairman of a digital
media company, and an Asia-Pacific focused strategic advisory services company as a
few examples of the breadth of activity already occurring in these Dales. The
business mix in our dales is perhaps excitingly unique as compared to urban
environments and a model for the future knowledge based mixed economy;
‐ Indirect beneficiaries such as BDUK, DEFRA, Yorkshire Dales National Park, South
Lakeland District Council, Cumbria County Council, Sedbergh Health Centre,
emergency services, mobile phone operators, wider rural communities who may use
our model, and the several millions annually of visiting tourists; and
‐ Important social re-generation of a Severely Disadvantaged Area (as defined by the
government) through the attraction of inward investment by high value-added,
technology-rich entrepreneurs in the knowledge economy, who will be attracted by
the future proofed unconstrained bandwidth
Major Issues
This process and the efforts by all concerned has identified a number of issues that should
be considered by the Committee in greater detail as follows:
National
‐ The whole debate needs to shift away from broadband speeds and the latest PR,
inaccurately informing of “up to speeds”, and also “contention” (the number of users
constraining performance), and “attenuation” (eg distance from the exchange means
a weaker or non-existent signal). The flabby approach of both the industry regulator
and the Advertising Standards Board leaves much to be desired in this area.
Incumbents use these to control their investment and business model agenda. A
simple comparison can be made to electricity, another necessary and vital utility for
the 21stC. If the light in your house was flickering and cutting out all the time one
would consider that one was living in a less developed economy. Excuses about “line
speed” or “contention” or “attenuation” would not be an acceptable response.
Electricity companies have invested and solved all these matters and your service is
either “on or off” and is fully responsive to peaks in demand;
‐ Active engagement of alternative broadband infrastructure providers such as the
Electricity companies or Network Rail (which already has a publicly funded fibre
optic network) should be encouraged. These companies, in most cases, are already
connected, or are able to access, even the most rural communities as a result of our
forebears vision.
‐ This is an important national infrastructure issue and yet we have little or no
knowledge of the medium term investment plans of major incumbents;
‐ The “sticky plaster solution” of FTTC offered up by some of the existing operators
fails to address even the most basic needs of many, let alone the necessary future
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Fibre GarDen (the Garsdale & Dentdale Community Fibre Broadband Initiative) –
written evidence
proofing that is required based upon existing demand, and not accounting for
unforeseen future requirements. This can be delivered by a one off transformational
investment in FTTH;
‐ We have the chance to make a visionary, once in a generation investment in critical
21stC infrastructure, yet at every turn existing operators are using whatever
techniques at their disposal to ensure that their competitive position is maintained, at
the cost of our national interest; and
‐ BDUK have deemed that any government support in rural areas will be limited to
£300 per premise. This is an arbitrary number. The right question to ask is what size
of investment do we need to make to ensure that this is a one off commitment to a
fully future proofed structure. The payback will be in added GDP growth, research
figures suggesting this uplift is in the region of 1.5%. £1000 per premise is an
appropriate minimum number.
Regional
‐ The number of bidders that have shown an interest in the CCC broadband
procurement process underway, a substantial contract, is now only two, BT and
Fujitsu. This is not an appropriate competitive environment and requires government
to play a more active role;
‐ The rural broadband process originally was driven by BDUK, the right mechanism to
drive government intervention in this cross Ministry initiative, however it has now
become housed in DEFRA and the RDPE and linked to the rollout programme of the
responsible County Council. This multiplicity of sometimes conflicting interests is a
barrier, although notably, individual public servants do their best to work around this
in some cases;
‐ The original notion of selecting pilots within Cumbria to receive funding, which could
be important trail blazing and learning examples of community activity for use around
the country, seems to have almost disappeared;
‐ Linked to the above we have further been informed that if we are successful in
obtaining the small RDPE funding then we will not be eligible for any further funding
pools available at County level. Hard work and success is thus penalized.
Local
‐ In spite of the important impact that self motivated communities like ourselves can
have, nevertheless we have found that there is a “David and Goliath” factor and
communities need to be encouraged by other actors in the process and not
positively disadvantaged;
‐ Certain models have been put forward by existing operators suggesting that a
community will be provided with cable and ducting for FTTH, but need to do the
digging and also wayleave agreements. Once this is done the network would be
placed in the ownership of the existing operators. We fail to see how or even why
farmers should show community spirit on wayleaves for a network to be given away.
State aid issues are a substantial issue here too.
‐ Mobile and satellite provision were fully considered, but current, or foreseeable
technology is woefully inadequate and not fit for purpose.
3. CONCLUSION
The British sense of community spirit is second to none. We have a once in a generation
opportunity to capitalise upon this and make the necessary investment to ensure that our
next generation is able to perform at the peak of economic efficiency, that there will be
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Fibre GarDen (the Garsdale & Dentdale Community Fibre Broadband Initiative) –
written evidence
universal service provision with none of our communities or individuals left behind for
whatever reason, and that the proven economic multiplier effect of broadband investment
immediately starts adding to economic GDP growth in these uncertain times.
This government, and especially Ministers The Rt. Hon Jeremy Hunt MP and Ed Vaizey MP,
has made significant strides to drive forward this important agenda and this work must be
highly commended. Their personal efforts have been exemplary. A broader consensus on
real action, further Treasury financial commitment and a proactive regulator(s) are essential
to ensure that existing interests, by acute under investment, do not further impede the
progress of our economy in this brutally competitive global economic environment.
We look forward to the conclusion and outcomes of your deliberations.
13 th March 2012
301

Film Distributors Association – written evidence
Film Distributors Association – written evidence
1) About Film Distributors’ Association and our sector
Film Distributors’ Association Ltd. (FDA) is the trade body for UK theatrical film
distributors, the companies that release films for cinema audiences. The feature films
brought to market by FDA member companies – ranging widely from international
blockbusters to classic revivals; and from British films to productions of 42 other countries
in 2011 – account for 97% of UK cinema admissions. Lord Puttnam of Queensgate CBE is
FDA’s President.
Theatrical film distribution is a sophisticated, competitive and dynamic business that depends
on product and the extent to which it connects with audiences. With 1% of the global
population, the UK generates 7% of global cinema box-office receipts (£1.12 billion from
171.5 million admissions in 2011).
Overall, the sector operates successfully and delivers a significant contribution to the
economy in terms of revenue and jobs, as well as the consequent cultural and creative
impacts.
An economic multiplier effect applies: for every £1 spent on cinema tickets, at least a further
£2 is pumped into the economy on directly related expenditure.
2) Market development
The roll-out of super-fast broadband enhances business opportunities to offer selections of
films to online consumers. Film companies will naturally embrace the ability to deliver
feature films and film-related content to ever-wider audiences faster and more efficiently.
The comprehensive UK Film Policy Review, chaired by Lord Smith of Finsbury and launched
in January 2012, urged the industry to consider increasingly flexible periods of theatrical
exclusivity, to be determined on a film by film basis, to assist greater development of the still
nascent “Video on Demand” market segment. FDA welcomed this recommendation (no.
14): it is important for the overall film value chain that VoD flourishes.
Furthermore, developments in media technology may open up future opportunities to
provide audiences with a greater range of “big screen” experiences in a variety of
“connected” venues in local communities. We shall watch any such market developments
with great interest.
3) Collateral editorial
The average consumption of films across all platforms is seven per person per month; films
are among the most highly desired content to drive take-up of super-fast broadband
services. In light of this, FDA believes that film-related programming is under-represented on
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Film Distributors Association – written evidence
UK media channels, certainly when compared to other leisure or lifestyle activities such as
cookery and antiques. The significantly improved infrastructure may provide opportunities
for the wider dissemination of film-related programming tailored to local audiences via the
community-focused TV/media services being actively supported by Government.
4) Evolving business patterns
While distributors are eagerly striving to experiment in, and embrace, an all-digital
landscape, the current transitional period has thrown up particular challenges for our sector.
Caught in the transition from 35mm to digital, unable fully to leave the one and embrace the
other, distributors have effectively had to finance and operate both formats and models
simultaneously.
Accordingly, at a time of such uncertainty, the question raised by the Committee concerning
online copyright infringement and theft assumes greater significance.
We have outlined below our response to this matter.
5) What impact will enhanced broadband provision have on the media and
creative industries in the UK, not least in light of the increased danger of online
piracy? What is the role of the Government in assuring internet security, and
how should intellectual property (IP) best be protected, taking into account the
benefits of openness and security?
FDA supports the statement in the Hargreaves Review of Intellectual Property and Growth
(2011) that: “Government should pursue an integrated approach based on enforcement, education
and, crucially, measures to strengthen and grow legitimate markets in copyright and other IP
protected fields.”
A robust Government stand against IP theft is vital, as the confidence that investments will
be protected is itself a key driver of the creative industries and the 1.5 million UK jobs they
sustain. Promoting a clearly understood and consistently applied respect for intellectual, as
well as physical, property in our society remains an urgent priority for industry and
Government alike. The rule of law must apply, and be seen to apply, in the online realm as
well as the physical one.
Film distribution requires substantial investments in terms of both product acquisition and
bringing completed titles to market. In 2011, FDA members invested more than £330 million
in film prints and advertising alone. Ultimately, threats to a return on that investment will
result in fewer films being made and released and, in turn, to a decline in revenues.
Super-fast broadband – facilitating, as it does, access to large-size files – could paradoxically
limit the sector’s growth if action against online copyright infringement fails to become
effective.
FDA runs a multi-strand programme to safeguard content in the UK theatrical lifecycle,
including consumer education campaigns (from age 8 upwards), a long-standing partnership
with the Federation Against Copyright Theft (FACT), and a substantial investment in night
vision technology to support cinema operators.
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Film Distributors Association – written evidence
In the online realm, we urge the Government to implement the infringer notification process
contained in the Digital Economy Act 2010 (DEA). We look forward to the introduction of
an effective, proportionate system based on the identification of infringers on peer-to-peer
(P2P) file-sharing networks.
This will be an important means of ensuring that individuals who infringe are aware of the
consequences of their actions, and also of the ever increasing array of legal options available
to them online.
P2P infringement is, however, just one way in which individuals may consume content
illegally online. The streaming and downloading of files from websites is the fastest growing
form of online piracy, and is likely to continue as super-fast broadband rolls out further. But,
by definition, it cannot be addressed through the DEA notification process, which only
targets P2P networks. Instead, access to infringing sites that offer content illegally, or other
linking sites, needs to be blocked by internet service providers (ISPs) following due legal
process. In this way, it is the infringing websites themselves that are targeted, not individual
end-users.
6) Specific actions for the Government to consider include:
� The appointment of a dedicated Minister for Intellectual Property at Minister-of-State
level in BIS or DCMS with cross-government responsibilities. It is not helpful to have
the key (to us) policy areas of “Media” and “Copyright” located in different
Government departments.
� Establish a dedicated IP economic research unit, to measure the contribution of IP to
economic growth and to commission, prepare or supervise full economic impact
assessments prior to implementing any significant changes to the IP framework.
� A requirement on internet search engines to play a greater role in helping consumers
navigate to legal sites and to remove illegal ones from search results. Searches should
not return sites dedicated to copyright infringement.
� A requirement on companies to stop advertising on illegal websites which deliver
money into the hands of organised criminal networks whilst driving down advertising
revenues for legitimate sites. Similarly, a requirement on payment processors to
withdraw their services from pirate websites.
� Focus UK law enforcement agencies on the impact that the reduction of IP crime will
have on domestic wealth and employment opportunities, and introduce a deterrent
element to civil damages for serious IP infringement.
The UK marketplace is a liberal one – by way of example, there are already millions
of digital video recorders, and no one has ever been prosecuted for private formatshifting.
But the UK – where films are often released in desirable English-language
formats simultaneously with, or prior to, the US – is particularly vulnerable to
copyright theft and the serious organised crime networks that exploit IP loopholes to
generate millions in cash.
� Ensure that UK citizens have a more confident and beneficial online experience by
carefully monitoring, once implemented, the DEA’s effectiveness. The impact of
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Film Distributors Association – written evidence
enforcement measures introduced by the DEA should be analysed and compared
with evidence from other countries to provide the insight needed to adjust
enforcement mechanisms as market conditions continue to evolve.
Thank you for the opportunity to respond to the Committee’s call for evidence on this
important topic. We would be happy to address any further questions as required.
13 March 2012
305

Forum of Private Business – written evidence
Forum of Private Business – written evidence
The Forum of Private Business is a not-for-profit organisation which supports small and
micro-businesses throughout the UK. We provide our members with a range of services,
including representation of their views to decision-makers in Westminster and the devolved
regions.
We are entirely supportive of the Government’s commitment to roll out superfast
broadband to 90% of the country by 2015 and to provide universal access to standard
broadband. However, we urge the Government to ensure that small businesses, especially
those in rural areas do not get left behind as technological developments advance.
Our Referendum research at the end of 2010 found that the biggest concern over the
adequacy of technological infrastructure for small business owners was internet speed, with
one in four reporting that current internet speed was inadequate for their needs. This feeling
was twice as frequent among rural businesses as those in urban areas, with 33% of rural
businesses reporting that internet speed was inadequate compared to 18% of urban
businesses. Moreover, 65% of business owners expect to increase investment in
technological infrastructure over the next few years and according to the preliminary results
of our most recent Referendum survey, 80% of business owners cited broadband and
telecommunications as an ‘important’ or ‘very important’ element of their business’s
infrastructure.
Increasingly the Government is adopting a ‘digital by default’ agenda and nowhere is this
more apparent than within HMRC, with Real Time Information and mandatory online VAT
filing in the pipeline. Whilst making the lives of the great majority of businesses easier
through online services is a cause for celebration, at the same time we must ensure those
businesses without access to the internet, or with very poor service, have the necessary
‘offline’ support they need whilst we await the full roll-out of superfast broadband.
Thus the Forum feels it is imperative that the needs of small businesses, and especially those
in rural areas, are taken into account in the roll-out of superfast broadband if this
technological advancement is to have the full economic impact that the Government desires.
I look forward to seeing the results of this inquiry.
13 March 2012
306

FTTH Council Europe – written evidence
FTTH Council Europe – written evidence
Introduction
1. The FTTH Council Europe (hereinafter the FTTH Council) welcomes the
opportunity to participate in this enquiry from the House of Lords Select
Committee.
2. The FTTH Council is an industry organisation with a mission to accelerate the
availability of fibre-based, ultra-high-speed access networks to consumers and
businesses. The Council promotes this technology because it will deliver a flow of
new services that enhances the quality of life, contributes to a better environment
and increased competitiveness. The FTTH Council consists of more than 150
member companies. Its members include leading telecommunications companies and
many world leaders in the telecommunications industry (additional information is
available at www.ftthcouncil.eu). Telecoms operators are not members of the FTTH
Council and we have our own perspectives regarding the appropriate regulatory
policies to accelerate NGA deployments.
3. The FTTH Council believes that the future needs of broadband users can only be
met by bringing fibre directly to the subscriber. Thus, Fibre to the Home (FTTH) is
perceived by the FTTH Council as the clear end game. While other solutions
including fibre hybrids and wireless solutions will play an important role as
complements, they will in no way act as demand substitutes. The need for a FTTH
solution relates to the realistic future needs of end users in terms of capacity and is
entirely consistent with the need for technological neutrality.It is important not to
set a false version of technological neutrality which understates future capacity
requirements so as to include as many platforms as possible.
4. The FTTH Council believe that the widespread deployment of FTTH will facilitate
enormous benefits for the economic and social development of Europe. Many of the
potential uses of FTTH, such as home working and the extensive use of cloud based
applications will have significant impacts with them which can be classified as positive
externalities. In the case of home-working, this could be relief of traffic congestion
allowing other commuters to save time as well as positive environmental impacts. In
the case of cloud applications, lowering the costs of developing and delivering
innovative services, including public services, can be anticipated in addition to the
direct benefits. In these circumstances, the benefits accruing to society often go far
beyond the direct economic benefits identified by investors. These spill-over benefits
which are not recognised by private actors justify State intervention.
5. If the UK wishes to develop services for delivery in the presence of FTTH networks
but such services cannot be used or delivered because of network capacity
constraints, this will act as a major barrier to the market developing.
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FTTH Council Europe – written evidence
Setting appropriate targets
6. What exactly constitutes ‘superfast broadband’ remains largely undefined. The EU
sets targets of 100mbits for 50% of subscribers and 30mbits for 100% of subscribers
in its EU2020 Strategy Proposal 78 . In the UK the definition is even looser but appears
to refer to a 50mbits download speed 79 . While a specific speed is not so important
to the FTTH Council, certain aspects are and a particular concern for the FTTH
Council is the absence of upload speeds in most targets being set. The presence of
networks which can support viable two way speeds is a key enabler of cloud services
for example. Even basic cloud services such as data storage are constrained by the
current networks available and they have been identified as a constraint already 80 .
Amazon has a basic offer to their users which gives data storage which can be used
for network back-up. However, with an average connection a 5GB back-up will take
over 5 hours compared to less than 7 minutes on a 100Mbps fibre connection. The
viability of such a basic service will depend on such differences. The UK is currently
ranked 56 th in terms of upload speeds 81 .
7. However, the Council believe that insufficient consideration is being given to upload
speeds. When Japan set its network goals in 2004 it set a 30mbits upload universal
target. Any network supporting 30mbits upload will inevitably support a far greater
download speed.
8. Upload speeds will be even more important in the context of real time high capacity
data applications that reside in the cloud. This perspective is supported by an
established body of work 82 which has shown over time that much of the benefits of
ICT investments come not from the investments themselves, but from firms and
industries ability to reorganise their means of production around these new
technologies. The implications for economic systems are that the manner in which
services are delivered in many areas may need to be completely rethought. This may
be particularly important in relation to the deliver and production of public services
such as education and health.
9. Other research shows that the economic and societal benefits of very high speed
internet access (particularly high upload speeds) 83 , and that the availability of such
connectivity, changes the way consumers react to the internet. One of the biggest
functional differences between FTTH and DSL options is speed but in particular,
upload speeds. The many business cases put forward by different analysts looking at
future cloud services rely on a variety of services which require radically different
upload speeds. Key Cloud services such as IaaS (Infrastructure as a Service), SaaS
78 http://ec.europa.eu/europe2020/index_en.htm
79 http://www.culture.gov.uk/images/publications/10-1320-britains-superfast-broadband-future.pdf
80 http://www.bsa.org/country/News%20and%20Events/News%20Archives/BE/2012/BE-01262012-cloud.aspx
81 http://www.netindex.com/upload/2,4/United-Kingdom/
82 ‘FOR A GROWING EUROPE Making the EU Economic System Deliver’ Report of an Independent High-Level
Study Group established on the initiative of the President of the European Commission, André Sapir et al. July
2003.
‘Catching Up or Getting Stuck? Europe’s Troubles to Exploit ICT’s Productivity Potential’, Bart van Ark and
Robert Inklaar, July 2005
83 See for example, http://www.ftthcouncil.eu/documents/Reports/Socio-Economics_Study_2009.pdf
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FTTH Council Europe – written evidence
(Software as a Service) and so on require upload speeds if their potential is to be
realised. The indirect benefits in terms of service development and the efficient
allocation of resources at a time of rising demand is clear but is unlikely to factor in
private investor considerations.
10. That is why the FTTH Council believes that it is appropriate for the State sector to
recognise the positive externalities that arise from very high speed networks. The
UK government’s allocation of £530million to enhance the UK’s networks outside
competitive areas is therefore wholly justified.
11. It can be argued that rural communities will benefit the most from the best network
performance, as demonstrated by numerous case studies taken from the experience
in Scandinavian countries. These are also the areas where customer demand is
highest, many communities are requesting a FTTH network and the communities are
willing to support the installation, reducing the build costs. We suggest for these
areas it is inappropriate to set short term solutions and a 2Mbps minimum
performance target.
The need to invest in future proof networks
12. While the future needs of society cannot really be fully anticipated, a network which
has theoretically almost infinite capacity is preferable to networks which are already
constrained. Analysys Mason, a UK consultancy conducting a review of public
expenditures in Europe found that the largest single project, a fibre to the cabinet
project in South Yorkshire, had been overtaken by the market. While many issues
arise in the project the fact that the local authority had chosen an interim technology
such as FTTC points to the danger of thinking short term. There is therefore a
concern that certain investments which may have a cost advantage in the short term
may actually prove significantly more expensive when they need to be further
developed and upgraded in subsequent years and become wary of such investments.
13. The Council believes that there dangers of investing public funds in time-limited
infrastructures which are unlikely to be adequate to meet end user needs in the
medium term. Short terms solutions such as FTTC are unlikely to be adequate and
will most likely delay the ultimate migration for these users to FTTH since second
and third rounds of public finance are not likely. Rushing to a quick and cheap short
term solution which would delay or impede the momentum to a FTTH solution
should be resisted in our view, both because such investments are potentially
wasteful of public funds and are damaging to the market dynamic which is likely to
see digital divide issues exacerbated rather than ameliorated. The FTTH Council
notes that certain countries such as France are adopting criteria themselves that
requires a path to FTTH if public sector finance is to be invested (see for
instancehttp://www.legifrance.gouv.fr/affichTexte.do?cidTexte=JORFTEXT000024473
100&dateTexte=&categorieLien=id) such that a clear path to FTTH is required
where public funds are used. Such criteria should be encouraged and standardised at
EU level in the Council’s opinion. The FTTH Council believe that a similar
requirement would be appropriate in the UK.
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FTTH Council Europe – written evidence
The need for a holistic view
14. The FTTH Council notes across the countries of its members that many public
financing initiatives are seeking to use public finance as a catalyst for private sector
investment in more marginal areas. Portugal represents a good example of such a
project where the regulator has divided the country into two regions, competitive
and non-competitive. Currently, in the competitive region operators have regulated
access to civil engineering (passive) infrastructure and the main operators are obliged
to deploy their own networks (and some alternative operators are co-investing). In
the non-competitive areas, where there is currently no other basic broadband
infrastructure besides the network of the incumbent operator, a single FTTH
infrastructure which is independently owned and operated and open to all operators
is being built with State support. The aim therefore is to have ubiquitous FTTH
access and already 55% of homes have FTTH available compared to less than 3% in
the UK. A coherent objective and a path to achieve that objective is critical for
success in long term infrastructural projects such as FTTH deployments.
15. On the demand side, the public sector needs to completely rethink the organisation
of public service delivery organised around new technologies and delivery platforms.
This should be included in a much broader plan (national plans) which needs joined
up thinking across a large number of service areas. Use of the Cloud to enable such
service delivery is critical to achieving key development targets in a range of areas. As
noted already, exploiting the Cloud requires adequate networks to be in place in
order to have sufficient capacity so that its potential can be reached.
16. When considering the case for FTTH networks other industrial policy motivations
should also be considered.
17. If the UK’s competitors in other parts of the world have fibre and the UK does not,
where are Cloud solutions, applications and job opportunities likely to be developed?
Experience to date suggests that applications will be developed where the network
capable of supporting service delivery is available. Once developed, those firms and
research centres that lead the way are likely to maintain their lead if developments in
other areas of ICT are to be our guide.
18. This is why the FTTH Council believes that new developments such as Cloud
computing represents part of a much broader paradigm shift in this sector but also in
the broader economy. The FTTH Council believes that any such paradigm needs to
clearly incorporate the functionality of FTTH and recognise the indirect benefits that
such networks can enable in this sector. These very high speed networks can enable
a set of services which are capable of completely changing certain aspects of service
delivery in a range of areas from healthcare delivery to SaaS.
19. There are many other enablers that are required to support this shift whichconcern
factors such as data protection and the legislative framework governing such service
delivery. The FTTH Council endorses these measures and believes that increasing
interoperability, cross border legal regimes and legal certainty for users, and R&D are
all clear enablers of a future Cloud environment. Nevertheless, without the
underlying infrastructures in place, these measures will have limited impact in
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FTTH Council Europe – written evidence
practice and that is why the FTTH Council believes it is critical that all parts of the
State coordinate to highlight the overall benefit that FTTH networks can bring in a
range of areas.
20. The UK is well behind in the deployment and adoption of FTTH deployment and
take up. By comparison with G7 countries (refer to graph of subscribers based on
Dec 2012 figures) the UK ranked last in terms of availability of FTTH networks 84 and
the future forecasts of firms like Heavy Reading suggest that the UK will remain last
beyond 2020 85 .
Economies with the Highest Penetration of Fibre-to-the-Home/Building + LAN
Conclusions
21. The FTTH Council Europe believes that where possible competitive markets are best
enabled to deliver the required networks and services to the mass market. However,
there should be National targets for performance and these should be no less than
the standards set out in the Digital Agenda by the Commission. However these
targets should support existing and future services and be as future proof as possible
84 OECD (2011), "Fibre Access: Network Developments in the OECD Area", OECD Digital Economy Papers, No.
182, OECD Publishing.
85 http://www.heavyreading.com/
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FTTH Council Europe – written evidence
and therefore include uploading capabilities necessary to deliver existing Cloud
performance levels and beyond. These targets must be a pre-condition for networks
benefitting from public finance. The present ill-defined target of “superfast
broadband” is at best misleading.
22. The FTTH Council believe that several incremental investment cycles in broadband
networks will be prohibitively expensive and would urge appropriate network targets
to be set from the outset. The consequence of not doing so will be a deepening and
a prolonging of the digital divide in the UK
23. The FTTH Council sees very significant positive externalities flowing from these
networks and these spill-over benefits to society justify public investment to see
these networks built.
24. These investments should form part of a holistic national plan which envisions
ubiquitous availability of connectivity across the UK as well as a private and public
sector reorientation on the production and delivery of services to end users.
25. The FTTH Council Europe would welcome any opportunity to provide further
supporting technical information.
13 March 2012
312

FTTH Council Europe and Communications Chambers – oral evidence (QQ 136-249)
FTTH Council Europe and Communications Chambers – oral
evidence (QQ 136-249)
Transcript to be found under Communications Chambers
313

Fujitsu – written evidence
Fujitsu – written evidence
1. RESPONSE TO THE REQUEST BY THE HOUSE OF LORDS SELECT
COMMITTEE ON COMMUNICATION
1.1 WILL SUPERFAST BROADBAND MEET THE NEEDS OF OUR
“BANDWIDTH HUNGRY” NATION?
Current broadband policy
a. Fujitsu is supporting and actively engaged in the current Government initiatives to
rollout superfast broadband to what is commonly known as “the final third” of UK
properties. Looking beyond the timescales of these initiatives, we can see that
further activities will be necessary to satisfy the demands for “beyond superfast
broadband” in all areas of the UK. With appropriate further investment, increased
broadband speeds could be delivered that, although much more challenging than that
of the broadband currently being offered in urban areas, should satisfy customer
demands for at least the next 20 years.
b. In addition, the current proposals do not address the final 5% of the population, who
live in geographically remote areas. This will mean that the problem in many rural
areas is not really being tackled. The use of fibre could address this shortcoming.
Technological questions
c. The use of interim network rollout technologies, such as those based on the existing
copper infrastructure, is currently insufficient to satisfy the bandwidths identified by
the Lords and is inefficient and not environmentally sustainable. To ensure that
investment is not wasted on a short-term gain, with costly network upgrades to
meet future bandwidth targets, there should be incentives to rollout other access
solutions such as fibre to the premises, and a well-known and trusted standard for
high speed wireless communication, such as LTE 86 .
d. The feasibility of ‘beyond superfast broadband’ is reliant on certain products being
made available by the incumbent provider (BT). A key example of this are wholesale
dark fibre products, the availability of which would open investment opportunities
for competitive telecommunications providers to deploy more advanced
technologies to more of the UK.
e. A number of solutions for superfast broadband involve enhancements to the existing
copper access network. Whilst meeting immediate demands, these solutions do not
have the capability to support upgrades to enhanced faster networks that will be
demanded in the medium term.
86 3GPP Long Term Evolution, usually referred to as LTE, is a standard for wireless communication of high-speed
data for mobile phones and data terminals.
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Fujitsu – written evidence
Issues with infrastructure
f. The access solution for superfast broadband should not be limited to one
infrastructure to provide the service. There should be no regulatory barriers or
protection of existing access network providers that prevent services being
introduced over all the existing infrastructures.
g. Shared infrastructures should be encouraged in order to reduce incremental cost.
h. Regulation should only be applied to the layer of the network where actually
necessary. The “lower” network levels, such as access infrastructure, need not be
regulated in the same way as other areas concerning specific applications such as
security, etc,.
Summary
i. Fujitsu believes that further investment in broadband infrastructure can and should
be guided to provide a future–proof solution that will be able to evolve, grow and be
re-used as demand increases, rather than see investment in ‘short-term’ technology
enhancements that will require further upgrades yet to be developed.
13 March 2012
315

Geo Networks Limited – written evidence
Geo Networks Limited – written evidence
The Coalition Government began in 2010 with the ambition of having the best superfast
broadband network in Europe by 2015. In June 2010, Jeremy Hunt announced several pilot
or “market testing” projects that would enable government to determine how any financial
intervention should be targeted. BDUK was given the job of managing the pilot projects.
Nearly two years later contracts for these projects have yet to be awarded and the concept
of “pilot” areas has had to be abandoned. The 2015 target date is at risk.
Government’s decision in 2010 to reject a top-down nationwide procurement was seen as a
positive step in encouraging new investment models and competition in networks. The
Government promised it would look at encouraging infrastructure sharing; exploring the reuse
of public sector networks (such as those of local authorities and the national education
network); public sector investment and joint ventures; reforming the process for granting
wayleaves; and obtaining clarity from the EU on State Aid rules. So far, none of these ideas
has come to fruition and most have been discarded.
Back in 2010, Geo made clear to Government the conditions we considered necessary in
order to attract investment.
1. Infrastructure Sharing and Open Access Networks
A condition of the procurement should be the requirement to offer “open access” to the
resulting fibre network. This means offering duct access and dark fibre – technology neutral
“passive” elements, rather than managed or “active” services. This creates maximum
competition in the market and lowers barriers to entry by allowing operators to come in
and compete at the most cost effective level of the network. An open access network
(offering access to fibre, duct and co-location) is also a requirement under the European
Commission State Aid Guidelines for networks built using public funds.
If service providers are given open access to the passive elements of the network, they will
have the freedom to deploy their own active products with choice and flexibility over
broadband speeds, usage caps and pricing. It allows service providers further to differentiate
their service offering and compete on a level playing field with large vertically integrated
players such as BT. It is the model adopted by the Fibrespeed network in Wales, which is a
joint venture between Geo and the Welsh Assembly Government. If access to the network
is restricted to the active layer only, service providers are limited to reselling the
incumbent’s prescribed active products, leaving little room for product differentiation or
competitive pricing.
Where incumbent infrastructure exists, the incumbent should contribute its infrastructure
(i.e. provide a reference offer for duct and fibre access) before it participates in any
procurement in order to make the process fair and competitive to all bidders. Without
access to the incumbent’s infrastructure, any other bidder would automatically face higher
deployment costs which would, in all likelihood, render a project unviable.
BT now offers a Physical Infrastructure Access (“PIA”) product, through which competitors
can access its ducts and poles. However, it is so restricted in its use it puts competitors at a
huge disadvantage when bidding against BT. As a result of Ofcom regulation, PIA cannot
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Geo Networks Limited – written evidence
currently be used to provide fibre connections to businesses, backhaul from the local loop,
or to connect to wireless masts. Ofcom has the opportunity to remove these restrictions
this year by requiring BT to offer PIA as a product in the so-called Business Connectivity
market, but they are likely to bow to pressure from BT not to do so.
There are no processes in place by which this product can be ordered to scale or in
volumes and it currently comes with no service level agreements or guarantees. What is
more, the terms, conditions and prices for BT’s PIA product were only published in
November 2011, which came too late for submissions to many of the BDUK procurements.
Many of the contract terms remain extremely onerous and are not applicable to BT when it
wishes to use existing poles and ducts for fibre cables.
2. Investment Models
We advocated the use of public private partnership investment. PPPs provide efficiency in
public services through risk sharing and harnessing private sector expertise. They also
relieve the immediate pressure on public finances by providing an additional source of
capital. There are numerous benefits from using a PPP model including, value for money by
exploiting private sector efficiency and innovation, improved risk sharing and sustainability,
innovation and development efforts from a competitive tender process and the private
party’s delivery undertaking. In addition to a PPP model, authorities can maximise savings by
aggregating public sector demand and a commitment to use the procured network.
We cautioned against a gap funding model, because it favours the incumbent’s economies of
scale and thus does not encourage a wide range of bidders. However, BDUK disregarded
our views and has decided to encourage a gap funding model.
3. Public sector revenues
The incumbent operator is much more likely than a new entrant to have significant
commercial relationships in place with local authorities to provide them with services.
Therefore, without a guarantee of public sector revenues in the form of a public sector
anchor tenant, or an undertaking to underwrite the customer take-up risk, the financial risk
of a new entrant is much greater than that of the incumbent.
Taking all of the above into account, the incumbent can utilise revenue from business leased
lines, public sector customers, mobile and wireless operators, as well as residential
broadband customers in order to make the network profitable. The new entrant, on the
other hand, may only be able to rely on revenues from residential broadband customers.
4. Reform of the Electronic Communications Code
We also advocated reform of the Electronic Communications Code to simplify and speed up
the process by which network operators obtain wayleaves and other rights of way necessary
to install their apparatus on public and private land. We very much welcome the review of
the Code undertaken by the Law Commission, though we note that any consequent change
to legislation is unlikely to come into force before 2015.
5. Addressing the disproportionate disincentive of the business rates system
We requested that Government and the Valuation Office Agency examine the disincentive
effect of the current business rating system. We have supported the Broadband
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Geo Networks Limited – written evidence
Stakeholders Group and Valuation Office Agency in their development of the Rating manual
to better reflect the real obstacles to creating valuable networks in rural areas and welcome
the positive progress in this area. This was considered only a year ago to be one of the most
difficult areas for Government to tackle – in fact it is the only one where real progress has
been achieved.
BDUK’s Procurement Framework
In early 2011 Geo joined BDUK’s framework procurement process. During that process we
re-iterated our concerns to BDUK on several occasions. We invested considerable sums of
money in preparing our bids for various BDUK procurement areas. However, in the
Autumn of last year, as it became evident that our concerns would not be addressed, and
the odds were stacked so heavily in favour of BT, we felt we had no choice but to withdraw
from the Framework.
We expect that all or the majority of the government-subsidised procurements will be
awarded to BT. BT’s VDSL-based technology is very unlikely to be future proof and is
unlikely to satisfy the needs of the SMEs who so badly need affordable capacity with high
speeds for uploads as well as downloads. As Jeremy Hunt has said, “Today’s superfast
broadband is tomorrow’s super-slow broadband.”
For residential users, the “killer app” is in fact the family itself – multiple users streaming TV
and video and uploading high bandwidth content simultaneously. Current speeds are not
adequate. Moreover, it is not clear at this stage whether or how adequately the rural notspots
will be served. There will be no competition in the provision of fibre networks, with
service providers forced instead to resell BT’s services. This is a backwards step from the
level of competition which exists today.
If BT is to have a monopoly in the provision of fibre networks, then it should not be
permitted to remain vertically integrated but should instead be required to separate its
network business fully and structurally in order that other service providers can compete on
a level playing field with BT’s retail divisions. Today’s functional separation of the Openreach
business no longer works to provide effective competition and useful innovation.
It is regrettable that responsibility for telecoms infrastructure was moved from BIS to
DCMS, which is perhaps less tuned in to the needs of the wider UK economy. There has
not been enough ministerial focus on implementation of broadband policy and carrying out
the recommendations of the 2009 Digital Britain report. We believe that the roll-out of
fibre networks is an infrastructure project of huge economic importance and should be given
the focussed attention that that warrants.
Since the current policy environment is not conducive to further investment in Next
Generation Access, we have decided to limit our focus to the Fibrespeed project in Wales
and to our other main business, which is the provision of dedicated fibre to large enterprise
customers and data centres. Whilst Geo remains extremely interested in the development
of NGA networks and will continue to invest in connectivity for core and backhaul networks
for its service provider and enterprise customers, it will not be bidding for broadband
projects subsidised by the public sector until the same market and regulatory conditions
identified by us over two years ago are finally addressed.
March 2012
318

Dr Tehmina Goskar – written evidence
Dr Tehmina Goskar – written evidence
Cultural heritage and superfast broadband
1. I provide these suggestions as food for thought when the committee considers the
question:
• To what extent will the advent of superfast broadband affect the ways in which
people view, listen to and use media content?
2. The suggestions are written from my perspective as a professional with over 12 years
cross-sectoral experience in the cultural heritage industry with particular interest in internet
and mobile technologies serving small organisations. I am now an independent heritage
consultant based in Cornwall.
3. Over the last decade millions of items in British museum, archive and library collections
have been digitised to improve access by greater numbers, and a wider variety of audiences
(c/f New Opportunities Fund Lottery-funded projects). Web presence of cultural heritage
institutions has improved immeasurably and at the same time so has ‘born-digital’ data.
4. Concerns over copyright, Intellectual Property and limited bandwidth have combined to
prevent the full potential of these invaluable resources being realised. In many instances,
once created, data languishes on servers, unknown and inaccessible by many who may have
the entrepreneurial spark and creativity to work with holding institutions to do something
socially worthwhile and/or financially profitable with them. Copyright legislation is woefully
inadequate and out of date, and is hampering progress towards more open access and uses.
5. The cultural heritage sector as a whole has not been able to adequately gain an overview
of the use of digitised resources in Britain owing to a proliferation of organisations and
regionally-based bodies that lack an over-arching vision and usable set of guidelines; there is
quite large fragmentation between the home countries. Therefore constructive thought and
debate about how radically-improved bandwidth for both users and institutions have also
been lacking. This has led to Parliament’s work on digital content and media focusing almost
exclusively on what the film, TV and high-impact media organisations can provide.
6. The growing academic field of Digital Humanities is beginning to assess use, reuse and
impact of digital heritage resources but these studies tend to be an end in themselves, rather
than as a fillip for the future development of digital heritage in Britain. However, it is early
days for this discipline and its reciprocal relationship with content creators.
7. At a time when economic constraints are causing many non-national, small, independent
and volunteer-led museums to close or severely curtail their services, broadband
connectivity has to be a crucial lifeline for their future survival, resilience and sustainability.
8. Take, for example, the situation here in Cornwall, a largely rural region with nonetheless
over 70 museums and heritage sites. Most are considered to be small, independent or
volunteer-led operations and yet provide a major draw for millions of domestic and
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Dr Tehmina Goskar – written evidence
international tourists every year. This tourism brings billions of pounds into the wider UK
economy and yet they are seldom the beneficiaries of investment.
9. Many of these organisations are also vital nodes for local, often isolated communities,
particularly for educational uses by schools, further education, training and lifelong learning.
And if they do not perform this function, there is certainly massive potential for them to do
so if they had access to the best wired and mobile 3G and 4G broadband could offer.
10. With the Superfast Cornwall roll-out underway, some of the connectivity issues will be
addressed, but it will be far from perfect as bandwidth will only be as good as the quality of
the copper wire emanating from the fibre-enabled exchanges. Many households and sites are
miles away from their local exchange meaning that adoption of 4G wireless networks will
surely be essential for these and similar areas.
11. Lack of skills and training in small, independent and volunteer-led organisations is
preventing a wealth of information and data being accessed and used in a manner that is
fitting to providing culture and heritage to diverse audiences in the 21 st century—particularly
via the fastest growing platforms via smart and mobile phones.
12. If all of these elements can be brought more closely together, it would improve the
resilience of these organisations by diversifying their role in their local communities, e.g. as
micro-educational organisations serving their local populations, as heritage sites that provide
experiences to domestic and international visitors that are unique and memorable, and
perhaps even become a hub for digital services provided to remote and isolated
communities.
March 2012
320

GreySky Consulting – written evidence
GreySky Consulting – written evidence
1. Submission
1.1 This submission is provided by GreySky Consulting Ltd (GreySky.
1.2 GreySky is a specialist consulting company currently focussing on the delivery
of broadband and superfast broadband in rural areas.
1.3 Our concern is specifically focused on the question of whether the
Government’s superfast broadband strategy, and its delivery by BDUK will
meet the requirements for superfast broadband in the UK’s rural areas.
2. Digital Divide
2.1 Approximately 86% of the UK population can currently receive broadband
connectivity at 2 Mbps or faster (Ofcom; Communications Infrastructure
Report, 2011). The failure to achieve full broadband availability throughout
the UK has resulted in a significant digital divide. The digital divide has
resulted in significant social and economic disadvantage, mostly in rural areas.
2.2 Currently the digital divide exists between those who have broadband and
those who do not. However, the development of superfast broadband risks
continuing the digital divide for many years. The approach to the rollout of
superfast broadband will result 90% having access to superfast and the
majority of the remaining 10% having only 2 Mbps basic internet access.
2.3 It is possible to use the internet with less than 2 Mbps. However, software is
now maintained and updated automatically over the internet. Users with less
than 2 Mbps bandwidth find it difficult to effectively maintain their PCs and
the software services they use. It is expected that the bandwidth
requirements for this maintenance function will increase over time as
software becomes more sophisticated, and the number and range of devices
within a home or business being maintained in this way increases.
2.4 The Government’s strategy to ensure 90% availability of superfast broadband
by 2015 is appropriate. It increases the rapid availability of superfast
broadband. This will in turn benefit the availability of services and applications
dependent on superfast broadband. This is expected to have a significant
positive impact on social and economic development.
2.5 The strategy to ensure at least 2 Mbps to the remaining 10% is of significant
concern. We believe it will result in a continuation of the existing digital
divide.
2.6 Overcoming the digital divide requires the sustainable delivery of new
infrastructure, giving communities access to improved bandwidth and services.
3. Sustainable Delivery
3.1 The aim of the current broadband delivery activity is to provide a long-term,
commercially sustainable superfast broadband infrastructure, supporting a
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GreySky Consulting – written evidence
range of new and developing advances services to support economic and
social development.
3.2 The “first generation” broadband rollout demonstrated that commercial
sustainability is not straightforward. At that time, simple internet connectivity
was not sufficient to ensure the long-term viability of broadband
infrastructures. Access to popular Internet Service Providers (ISPs) was
necessary to provide users with the required combination of content,
services and customer care. These ISPs also provide the necessary marketing
activity to promote take-up of the broadband services.
3.3 This need for ISPs is recognised by the European Commission and by BDUK.
The need for services to be delivered over an “Open Access Wholesale
Network” is a central requirement of State aid rules. The exact details of this
requirement are less clear, however.
3.4 The need for “Open Access” is important in two respects.
3.5 First, there is a need for retail choice to promote retail competition. Strong
retail competition in the UK broadband market has been highly beneficial to
the market. BT’s dominant Open Access wholesale infrastructure has
allowed and supported strong retail competition, with most ISPs present on
the network.
3.6 Where community networks were developed as a part of the early first
generation rollout, they often enjoyed some early popularity. However, they
did not provide a choice of ISPs. When BT then delivered its network, there
resulted a widespread move to “proper broadband” where users enjoyed a
choice of ISP, and professional customer services, very often a significantly
lower cost.
3.7 Some small scale community broadband services still remain in the most
remote rural areas. Fontburn in Northumberland is one such service. They
have a desire to establish an improved infrastructure and service. Their
desire is led principally by the desire for greater choice of ISP (Fontburn
Community Network user survey 2010).
3.8 Second, there is a need for market access. Demand for superfast broadband
services will grow as services and content becomes available and is desired by
users. This will establish a strong market for the services. The first
generation rollout suggests that this market will be served principally by a
small number of dominant ISPs. The dominant ISPs will compete for market
share. This means they will want access to the market.
3.9 As the market develops, the extent of commercial viability will increase. If
widespread commercial networks have been established that deny access to
the dominant ISPs then they will build their own networks to access the most
commercially viable customers in communities. They will offer a combination
of content, services and price that will attract users to their networks. The
result will be that community networks will lose their most commercially
viable customers to competing networks, and be left to serve only the most
expensive and least profitable customers. The community networks will fail
to remain commercially viable and will be forced to cease operation.
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GreySky Consulting – written evidence
3.10 The requirement for an Open Access Wholesale Network efficiently meets
these requirements for retail choice (for users) and market access (for ISPs).
3.11 However, an Open Access Wholesale Network is expensive and complex.
The Digital Region in South Yorkshire has demonstrated that technical
capability and significant investment alone do not provide the two
requirements. Despite significant public investment in the infrastructure, ISPs
and end users have failed to be attracted to the network.
3.12 “The Market” will provide retail competition in the “first two-thirds” of the
market using their own investment. The BDUK and local authority funded
projects will deliver services up to 90%. These are not genuinely hard-toreach
areas. Requiring an Open Access Wholesale Infrastructure to support
retail competition among ISPs in these projects appears fully appropriate.
3.13 However, the final 10% presents a much more challenging environment for
commercially sustainable services. Insisting on the requirement of a full Open
Access Wholesale Network in the final 10% risks leaving them with no
superfast infrastructure. It is necessary to reduce the barrier to delivery in
the final 10%.
3.14 It appears that reducing the barriers to provision of service for the last 10%
may require separating the considerations of bandwidth from the issues of
services and content.
4. Bandwidth Availability
4.1 Although the strategy is to provide “at least 2 Mbps” to the last 10%, the
approach taken to the rollout of the BDUK funded broadband programmes
appears likely to result in only 2 Mbps, and will establish a higher barrier to
the provision of improved services once the 2 Mbps services are delivered.
4.2 Current interpretation of State aid requirements separates basic broadband
services from superfast broadband services. This was established to allow
public sector intervention to establish superfast broadband services in areas
where good basic broadband services were already available. In areas where
broadband is available at 8 Mbps, it is still possible to invest to promote the
availability of superfast broadband at 24 Mbps or faster.
4.3 However, the interpretation appears also to be considered to operate in
reverse. Where reliable open access broadband is available at 2 Mbps then
public sector investment in infrastructure is only permitted where the
resulting infrastructure will deliver at least 24 Mbps (and preferably 30 Mbps).
4.4 Currently available technologies to deliver 30 Mbps are prohibitively
expensive for sparsely populated rural areas. However, reducing the
bandwidth requirement to 15 Mbps would allow significantly greater
deployment. There is a significant practical difference between 2 Mbps and 15
Mbps broadband services – and arguably little practical difference at present
between 15 Mbps and 30 Mbps. 15 Mbps is more than sufficient for most
domestic and small business internet use. This will change over time, but it
can be expected that over the same time period, the capabilities of the
installed technologies will also improve.
4.5 Reducing the bandwidth requirement for the superfast broadband market in
the most hard-to-reach areas will help to reduce barriers to implementation.
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GreySky Consulting – written evidence
4.6 Small scale commercial providers, such as Rutland Telecom, have proved that
delivery of broadband and superfast broadband in rural areas can be
commercially viable if the requirements for open access are removed.
However, this currently excludes them from the scope of public subsidy –
which could increase the wider commercial viability of their services.
4.7 It is possible that the two conditions of retail choice and market access that
ensure sustainability could be achieved through alternative routes.
4.8 If the network infrastructure were to be specified such that it is technically
possible for other ISPs to use it to deliver their services if they chose to
access the geographic market covered, and that wholesale prices were
available that did not exclude them, then the market access condition could
be met. This would not be expected to meet the retail choice condition at
“day-one” since the attraction to major ISPs would be limited (as
demonstrated by Digital Region). However, if demand were to develop and
ISPs wanted to access the market, then the existing infrastructure would
provide them with an available option to creating their own competing
network.
5. Service Availability
5.1 Currently access to content and services on the internet is largely governed
by ISPs. However, it is increasingly accepted that ISPs have little control over
their customers and the content and services they access over the internet.
5.2 The Leveson Inquiry has demonstrated that it is no longer appropriate to
concentrate the power to control our access to content in the hands of a
small number of dominant providers. This concern must be still greater if
extended to health-care and other essential services anticipated using
superfast broadband.
5.3 Separating control of user access to the internet from control of their access
to content will significantly change the conditions of the superfast broadband
market.
5.4 If all internet users were able to access any content then the criteria for the
choice of ISP would change, and become less critical for many users.
5.5 If content were widely available to all users (at appropriate commercial rates)
then the retail choice of ISP for users could be satisfied more simply than
requiring an Open Access Wholesale Network where each user is able to
make an independent retail choice. It would mean in the last 10% that the
community could join together and make a single collective decision regarding
the ISP for their community network. A regular open procurement exercise
could be undertaken to invite ISPs to bid to provide services to their
community over their community network and the most preferred offer
selected by the community.
6. Efficient Investment
6.1 Delivering internet connectivity in the “last 10%” is significantly more
commercially challenging than in other areas. Remote rural areas present the
double challenge of higher initial investment costs because of the lengths of
connections needed, and the lower revenue returns because of the sparse
population densities.
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GreySky Consulting – written evidence
6.2 The challenge of the last 10% demands a greater level of investment efficiency.
Encouraging collaboration rather than competition is important. Equally
ensuring that public sector investment is efficient in these areas is essential.
6.3 It is being demonstrated in Northumberland, Cumbria, Cornwall and
Lancashire that delivery of the 2 Mbps Universal Service Commitment to the
most remote areas is challenging and expensive.
6.4 The presence of the Universal Service Commitment as a central target of the
BDUK programme is essential to ensure at least basic connectivity to all.
6.5 However, the current separation of the BDUK and the Rural Community
Broadband Fund (RCBF) and other subsequent investments appear to result
in a far from efficient investment in the critical last 10%.
6.6 The BDUK programmes will generally be delivered first – before the rollout
of other community projects. At least this is true in terms of planning and
State aid approval. This means that by the end of 2012 (or at the latest early
2013) it is expected that all local authorities will be able to demonstrate clear
plans to provide at least basic broadband to all areas. Procurement exercises
will be undertaken and investment decisions made to commit funds to deliver
these plans. Hence significant investments will be committed to achieve 2
Mbps delivery throughout the final 10%.
6.7 In the most remote areas, investments of £1,000 per property (and even
higher) will be required to deliver this 2 Mbps commitment.
6.8 RCBF funded projects developed subsequent to these plans will need to
demonstrate superfast capability (24 Mbps or faster) to meet State aid
requirements – since plans will exist to deliver basic broadband in all areas.
They will also receive a maximum of £300 investment per property.
6.9 This does not make the Universal Service Commitment wrong. Ensuring
connectivity for all is essential. It is accepted that this will require significant
investment in the most remote areas, and the 2 Mbps requirement allows
services to be delivered now that will represent a significant improvement for
the most remote areas across the UK.
6.10 Greater coordination of investment in the last 10%, however, may enable a
far greater reach of superfast broadband capabilities in remote and rural
areas.
March 2012
325

Peter Griffin - written evidence
Peter Griffin - written evidence
Introduction
1. The Government’s broadband strategy, Britain’s Superfast Broadband Future, aims for
Britain to have “the best superfast broadband network in Europe by 2015”. The
House of Lords Select Committee on Communications (HoL SCoC) has announced
an inquiry into that strategy. In response to the Committee’s invitation for written
evidence, this document addresses:
a. Competition in broadband provision
b. Accelerating the availability of superfast broadband
c. Flexibility, efficiency, and standards for broadband providers
d. Impact on infrastructure and scarce resources.
The document also includes a series of proposals to support the government’s aim.
Competition in Broadband Provision
2. Within each delivery platform - fixed-line, wireless, and satellite - broadband
providers compete both in the technology used to deliver service and in the range
and cost of services offered. It is doubtful whether competition in technology actually
delivers significant benefit to customers.
3. Duplication of fixed-line networks arises in locations where, for example, BT and
Virgin are in direct competition and each of them operates their own network
between the telephone exchange and customer premises. Similarly, providers of
wireless broadband have their own networks of relay masts, often carrying
exclusively the traffic for their own customers. There is considerable variation in the
extent of national coverage offered by each provider.
4. Alone among the providers of fixed-line services, BT is required by law to provide
national coverage and to offer access to its network to other providers on terms
equal to those available to its own retail divisions. This has been achieved by the
establishment of BT Openreach as a totally independent division within the parent
company. There are no similar obligations on providers of wireless services, resulting
in duplicated availability in some areas and none whatsoever in others.
5. Duplicated coverage for fixed-line and wireless services not only delivers little in the
way of benefit to end-users, but also creates waste:
a. Manpower to maintain rival networks
b. Technical evaluation of equipment which other providers wish to install at BT
exchanges
c. Applications for planning permission to install wireless masts
d. Greater numbers of “holes in the road”
e. Materials used to construct and maintain the networks.
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Peter Griffin - written evidence
6. In the provision of gas, water, and electricity, delivery is achieved via a single grid for
each service, accessed by multiple suppliers who pay a fee to the grid operator and
compete between themselves on the cost and quality of supply. Each of these grids
provides nominally national coverage, except in those areas of the country where the
cost of provision would be prohibitive.
Accelerating the Availability of Superfast Broadband
7. The principle measures for determining the achievement of “the best superfast
broadband network in Europe” will relate to:
Fixed-Line
a. Speed of download and upload
b. Extent of national availability
c. Service reliability
d. Price
8. The fastest broadband delivery speeds are achieved over networks which run fibreoptic
cable from the telephone exchange directly to each customer's address, known
as FTTP "fibre-to-the-premises". Most BT customers receive FTTC "fibre-to-thecabinet",
with lower broadband speeds, because the final connection from street
cabinet to customer premises is only made over copper cable with a lower delivery
speed than fibre-optic. Virgin, formerly NTL/Telewest, operates a totally FTTP
service but only in certain large towns and is under no obligation to allow other
providers to deliver services over its network.
9. To achieve in the shortest time the four measures detailed above for the best
superfast broadband in Europe, the following actions are proposed:
a. Each broadband provider to create its own "Openreach", operating on the
same terms as BT Openreach, to enable any other provider to deliver their
services over its network.
b. Automatic migration of all customers to the fastest network, while leaving
them to receive their services from their preferred provider. Thus BT’s
customers who only receive FTTC service in areas where Virgin operates an
FTTP service would be migrated to the Virgin network and take their service
from whichever provider they preferred.
c. After this migration of customers, the slower networks to be dismantled and
their physical assets recycled to locations where there is no duplicate
network.
d. Staff who maintained the slower networks to be re-assigned either to the
gaining Openreach organisation, or to neighbouring locations where there is
no duplicate network, so that they may accelerate roll-out of superfast
broadband there.
e. All Openreach organisations to be amalgamated into a single, fully independent
company, free of any ties to the service providers.
f. Technical standards and commercial practice to be rationalised within the
integrated Openreach organisation.
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Peter Griffin - written evidence
Wireless
10. The major obstacles to achieving “best wireless broadband in Europe” are its
incomplete availability nationwide and its signal quality. To achieve the four measures
for determining success, the following actions are proposed:
Benefits
a. As for fixed-line networks, create an integrated and fully independent wireless
Openreach organisation from those providers currently offering wireless
services.
b. Rationalise the existing wireless networks to eliminate duplication and to
provide the greatest national coverage, available to all wireless providers.
c. Align the technical standards to “best-in-class”.
d. As for fixed-line networks, automatically migrate all customers to the new
integrated network, leaving them free to take their service from whichever
provider they prefer.
e. Establish a programme to extend the wireless network to those areas which
lack coverage, within technical and economic constraints to be approved by
Ofcom.
f. Collaborate fully with international organisations to rationalise and implement
standards and charges relating to such matters as call termination.
g. Collaborate fully with Ofcom and the fixed-line Openreach to ensure that the
greatest number of potential customers across the country has access to at
least one form of broadband.
11. By eliminating competition from the technical delivery of broadband services, it is
expected that customers will receive rapid and substantial improvements in quality of
service. These improvements will be reflected by the four key measures of success:
download and upload speed, service availability, service reliability, and price. Effective
collaboration between the proposed National Openreach divisions for fixed-line and
wireless broadband will ensure that a very high proportion of the population will be
provided with at least one form of broadband delivery. Retailers of broadband
services will be liberated to focus on what they do best: devising and selling services
to meet customer needs. The major benefits from the proposals made in this
document are:
a. Rapid upgrade to full Superfast broadband (i.e. FTTP) for all customers located
in areas where such a capability is already available from another fixed-line
broadband provider
b. Higher proportion of subscribers with access to full Superfast broadband (i.e.
FTTP).
c. Re-assignment of displaced Openreach staff to locations without an FTTP
network, resulting in accelerated roll-out of FTTC Superfast broadband in
those same locations.
d. Recycling of physical assets from dismantled networks, thereby reducing the
cost base at other locations.
e. Greater network security resulting from the decreasing use and theft of
copper.
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Peter Griffin - written evidence
20 February 2012
f. Fewer "holes in the road" in all locations where duplicate networks are
dismantled.
g. Eliminated cost of upgrading duplicated networks to superfast broadband.
h. Re-appraisal of the financial viability of FTTP roll-out to other parts of the UK,
as a result of cost savings from the elimination of network duplication.
i. Extended coverage and enhanced reliability of wireless broadband across the
country.
j. An integrated telecoms network (National Openreach), operating to common
standards and totally independent from all broadband service providers.
k. Faster delivery of new services from commerce and industry which depend on
the availability of Superfast broadband.
l. Increased competitiveness with other countries which already offer Superfast
broadband.
329

Groupe Intellex – written evidence
Groupe Intellex – written evidence
Introduction.
This response has been prepared by Groupe Intellex – a UK-based business development
agency and on-line publication with a long-standing interest in digital access network
strategy.
The author’s insight derives from a 30-year career in telecommunications followed by two
decades as a leader of enterprises that enable innovations across several sectors of the UK
economy.
Your Committee’s inquiry is timely and whilst focused on the Government’s broadband
strategy may also inform a wider consideration of national economic imperatives.
Your Committee’s inquiry will almost certainly attract inputs from a wide range of
commercial interests and organisations active in this arena – with, not surprisingly, diverse
motivations and detailed responses to the suggested questions.
Rising above the call for detail your inquiry presents an opportunity to fulfill the function that
comes naturally to the upper chamber; taking a measured and long-term view that whilst
practical is not unduly constrained by legacy technology issues, regulatory fashions, or past
policy and promises, and a perspective that equips the legislature with the intellectual
capacity for the design of future policy in an area that has become central to the UK’s
economic and social development.
Response
1. Observations
1.1 Your call for evidence is headlined by the demands of a ‘bandwidth hungry’
nation and is almost immediately focused on two aspects of that demand –
Consumer needs and Delivery (i.e. Download) capacity. It should not be forgotten
that Businesses and Public Sector organisations are themselves consumers (and
regarded as such by Ofcom) and that their needs, particularly in Upload capacity
and many other technical characteristics i , are often leading indicators of emergent
requirements within households and amongst the population at large.
1.2 Your call cites the current strategy aimed at Britain having ‘the best superfast
broadband network in Europe by 2015’. Definition difficulties apart your committee
might observe that any attempt to determine ‘fitness for purpose’ (a) requires
clarity of that purpose and (b) that relative performance will only reflect the
priorities, perceived needs and achievements of others ii .
2. Policy Principles
2.1 The priority for ubiquity of connectivity
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Groupe Intellex – written evidence
2.1.1. It is not possible or even wise to attempt prediction of future specific uses of
digital communications but there can now be little doubt that more usage by more
people across more aspects of the economy and society for more reasons and in
conjunction with ever more convenient devices will profoundly change the way we
all live and work.
2.1.2 In its cross-sector economic impact the long-term utility nature of
connectivity suggests that, as in rail, roads, water, drainage, gas and electricity, the
adequacy of provision expected by the vast majority of people requires at least a
minimum set of standards and that these should be expected to be rise over time.
Universal Access standards are a fundamental component for Enterprise and
Administrative ICT systems planning/investment and are applicable to fixed, Mobile
(cellular) and other wireless Access networks.
2.1.3 This ubiquity of connectivity is not suggested as a matter of societal fairness
but as a basic functional requirement for business and the public sector – relieving
major system designers of the need to compromise solutions or accept variable
performance below a given level in network operations. The expectations of
employers for flexibility in work-practices and of innovators (particularly in device
interconnection) in an environment of steadily rising level of default minimum
standards will enable service planning and ease pressure on locational clustering of
enterprise activity.
2.2 The distinction between Access and Service
2.2.1. In both mobile and fixed networks the realisation that the utility of Access is
distinct from the diversity of competitive Services has only become widely
understood in the last decade. This is not to suggest that users of vertically
integrated services are necessarily discontent with their chosen packages but that
from investment and regulatory viewpoints the nature of the Access and Services
businesses are different and are subject to different pressures – one being very long
term and technologically stable and the other highly competitive and fast evolving.
2.2.2. The single factor that has enabled this distinction is the emergence of globally
accepted standards – notably around the adoption for information of the Internet
Protocol (IP) but also informed by transmission standards in wireless and fixed
networks. In mobile (cellular) networks an effect parallel to that of fixed networks
has changed the landscape for spectrum requirements with the scope for wholesale
providers of shared infrastructure operating separately from service providers – a
challenging concept for network operators that have traditionally attempted market
differentiation in terms of coverage and network performance.
2.2.3. The resolution of the distinction between Access and Service is achieved
through use of an Open Access culture where the connected consumer chooses a
package of services customized to their requirements from a diverse range of
Services Providers – usually via an automated processes for switching between
suppliers. Some enterprise consumers make no service choices at all but simply
purchase basic connectivity (‘dark fibre’) for use within their own private networks.
Other consumers appreciate the inherent flexibility that enables rapid changes to
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Groupe Intellex – written evidence
capacity to meet short-term demand – e.g. for streaming video from a football
match or taking part in a multi-user event that demands higher than normal
responsiveness.
2.2.4. The regulatory implications of a determinedly Open Access culture include
consumer convenience – the expectation of easily enable supplier switching – a
reduction of regulatory oversight of Services and greater clarity on the avoidance of
cross-subsidisation by network operators. In much the same way that society has
formed a view on the separation of utility and investment banking it seems possible
that legislators may in future consider the desirability of reconsidering Access
network provision along the lines of the models adopted in New Zealand and
Australia.
2.3 The cross-sector perspective
2.3.1. The focus of attention for network policy has in recent decades
predominantly concerned the communications and media sectors but recent and
wider economic analysis, aided by the stark impossibility of being blind to digital
impacts, has linked national digital proficiency and performance to economic
growth. In Sweden, after several years experience of high quality network access,
researchers have extended this basic economic analysis to the area of social and
community development and shown more clearly the conventionally ‘uncaptured
values’ - the secondary and tertiary benefits of network infrastructure investment.
2.3.2 There is now no reasonable dispute of the cross-sector economic and
societal benefits of infrastructure investment and there are signs of a better
informed market. This heightened awareness has been driven not so much by
network operators but by device manufacturers (handsets, tablet and TVs for
example) and by increasingly innovative services that combine functions and
information from independently developed spheres.
2.3.3. This raised awareness has not however dislodged (from the telecoms sector)
a sense of ‘ownership’ of network policy. The debate, and desire for network
transformation is only beginning to make itself felt and a seriously-scaled demandside
focus has yet to influence regulatory policy or the mainstream media’s
understanding of the word ‘infrastructure’. The contrast with everyday business
views of ‘essential’ transport infrastructure is instructive. We have long left behind
the narrow sectional interests of road and rail builders but the critical digital
demands from Health, Environment and Energy have yet to dominate the network
debate. Discussion of the need for expansion of airport capacity is certainly not
restricted to a few flying fanatics!
2.3.4. Whether the current gradual upgrading of old networks will result in any
widely shared view of inadequate compromise is an open debate but the few UK
examples of high quality fully-fibred networks (designed along the lines of
continental experience) will inject an even greater level and awareness of inequality
and debate around ‘fitness for purpose’. This is an area where policy development
need not wait to be triggered by rising popular dissatisfaction but calls instead for a
rather more ambitious national approach. Tentative recognition of the economic
benefits by Treasury analysts does not signal a visionary approach and yet this is a
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Groupe Intellex – written evidence
3. Summary
relatively risk-free policy arena compared to projects such as HS2 and it is one that,
if not urgently prioritized, may engender dissatisfaction and court national
competitive failure.
3.1 The three basic principles, Ubiquity, Access/Service distinction and a cross-sector
viewpoint, need to be woven into government and regulatory policy but your committee
may also serve the country well by enlisting your colleagues in a wider acknowledgement
that digital access networks should now feature alongside ‘Deficit Reduction’ as an essential
national policy priority.
Notes:
Terms:
References:
A. VPN – Virtual Private Network – a connection made for a specific purpose
that may operate concurrently with many other digital activities over a single
access connection.
B. IP – Internet Protocol – a global standard for the organisation of digital
information (Voice, Video, Graphics and Text) in ‘packets’ that each contain
routing instructions so that on delivery the information can be reassembled and
checked for completeness.
i Access network characteristics. The use of headline Download transmission rates as the
dominant measure of network Access adequacy will become increasingly irrelevant with
changes in consumer requirements. User-generated content, the use of ‘cloud computing’
resources, machine-to-machine automated monitoring and control, the greater use of VPNs
and diverse multiple activities within the overall capacity of a single connection, will focus
attention on Symmetry and Upload transmission rates, packet loss, jitter, latency, VPN
capacity and dynamic bandwidth flexibility.
ii Relative network performance. The ready availability of data for actual network
performance as experienced by thousands of consumers provides a contrast with Network
Providers’ data on the theoretical performance of ‘available’ Access networks. Recent
studies by Ofcom have shown the large differences between what is advertised/sold and
what is delivered and have suggested that misleading claims for ‘up to’ maximum theoretical
headline speeds could be replaced in promotional literature by ‘typical speed ranges’.
An interactive graph reporting consumer experience is available at:
http://www.google.com/publicdata/explore?ds=z8ii06k9csels2_&ctype=l&strail=false&nselm=
h&met_y=avg_download_speed&scale_y=lin&ind_y=false&rdim=country&tdim=true&hl=en
&dl=en&iconSize=0.5&uniSize=0.035#ctype=l&strail=false&bcs=d&nselm=h&met_y=avg_do
wnload_speed&scale_y=lin&ind_y=false&rdim=country&idim=country:SE:LT:GB:DE&ifdim=c
ountry&tdim=true&hl=en&dl=en
March 2012
333

Mr John Howkins – written evidence
Mr John Howkins – written evidence
1. I live and work in a rural part of Norfolk. My business depends on fast reliable broadband
service 24 hours a day.
2. Your committee seems focussed on superfast broadband. I hope you will also look at
ordinary broadband because we need that first before we can dream of superfast
broadband.
3. In recent years, the level of ordinary broadband here has declined. I understand that the
network and local loop has improved but user demands have increased even faster. As a
result, it is often impossible to get any broadband service at all. The worse times are
after 6pm and at weekends when the number of users increases and file sizes increase
too. You say that ‘consumer demand for bandwidth is growing by around 60% a year’. I
doubt capacity is increasing at half that rate.
4. My ISP, BT, continually tell me speeds etc are increasing. But, in practice, speeds are
declining sometimes to zero.
5. Although I can usually work around this, I know others have found it impossible.
Nobody likes to admit their business is unreliable or failing but there is anecdotal
evidence of businesses closing.
6. Some people say that because I live in the countryside I should accept that broadband
service is intermittent. Your committee may take that view. I don't. I believe that
Britain can’t really claim to be a modern economy until broadband is reliable.
7. One of your questions asks if universal service is a good idea. Of course it is. A basic
reliable broadband service should be provided to all businesses and all homes. Without
that, the government’s claim that Britain will have the best broadband service in Europe
by 2015 is absurd.
12 March 2012
334

Huawei – written evidence
Huawei – written evidence
Executive Summary
The United Kingdom’s future rests on the successful implementation of its ICT strategy. Get
it wrong and the UK economy is likely to be significantly disadvantaged.
The once clear lines distinguishing buyers from suppliers, products from services, employee
from employer are disappearing, and the clear lines that exist between the haves and have
nots in our communities must be eliminated. Broadband has become a basic human need,
just like water and electricity and it will become a key component of all our lives as we
embrace the new century.
Without doubt digital communications technologies and a good mix of fixed and mobile
connections is the most important enabler to the long term health and wealth of the
underpinning our public private and corporate sectors. Digital communications will continue
to expand, becoming the key future enabler for all sectors of the economy, including; critical
services, communities and social sectors as well as our working and social lives.
There is a common belief that delivering 2Mbps for all UK citizens is adequate and will close
the digital divide, we do not believe this, and feel it will actually create a wider digital divide
stunting further growth in these areas. 2Mbps is about approx 4 times slower than the UK
average internet speed of 7.6Mbps (Ofcom 2011) and will soon become 50 times slower
compared to some of the more advanced city areas. A restriction to 2Mbps will relegate
parts of the UK to a historic version of the internet for a long time, thereby compromising
any business case for future speed increases.
335

Huawei – written evidence
Y axis: attached devices
Figure 1, summarises the trends we expect to continue over the coming years.
Looking back over the internet era, history shows clearly and dramatically how huge growth
in internet usage, demand for bandwidth and high speed requirements has always been
massively underestimated as we’ve ignored evidence to the contrary like Neilson’s law. The
internet has been of real value to the economy and is now intrinsic; some value its
contribution at approx £20 for every £1 of investment. Looking forward, the proven laws of
the internet economy can be realistically extrapolated to show that 2Gbps will be required
by 2022 and up to 6Gbps by 2025.
Digital communications however must not just be considered as the connection itself or the
speed of that connection. The ease and intuitive nature with which services, media and
applications can be consumed from the internet via a connection, and the relevance of those
services to the user are equally important
A connection, however fast, will not deliver the aspirations of the UK government without a
well considered end to end strategy on services and security in the internet, and the ability
to access those services on a wide variety of devices and heterogeneous connections.
Our lives will become more entwined with digital services and the digital world. Currently
we have many disparate touch points with the digital world, and our lives will be enhanced
along with our ability to create wealth and prosperity with the aggregation and
interconnectedness of these in a way that will make it easy to use and convenient to
consume. Social media is already pervasive and is set to become increasingly part of our daily
lives, as these services connect to others, whether this is at work or in a social context,
leading to further collaboration and engagement.
336

Huawei – written evidence
Y axis: Petabytes of data
Figure 2, summarises the increase in data traffic we expect to continue over the coming years.
This philosophy will transcend all aspects of digital life including government services – which
must be relevant, easy to access (e.g. single login), intuitive as well as holistic in a way that
the user sees and feels the benefit.
Glancing back highlights that pre 2000 we did not have 3G mobile, ADSL broadband,
Facebook, the iPhone, Digital TV, MP3 players, Blackberry, GPS navigation but simple telco
voice services and dial up internet. All of which have arrived and evolved rapidly, to become
subsumed in to our lives and are now considered vital. Looking out to 2020, and beyond,
functionality will continue to increase exponentially driving a huge rise in the use and
dependency of interactive internet and digital communications.
As much as the future is difficult to predict, there are however already significant trends and
research that show the possibilities of how the internet will further benefit society. Since the
turn of the millennium, we have witnessed great changes in the use of the internet, these
having been the result of a multitude of enablers aggregated into new services. Services will
need to be consumable across networks and devices. Adoption, change and commercial
advantage will be explicitly linked to user experience, as it will largely be embraced,
developed and creatively used by the next generation. Underestimating the needs of the
next generation with a limiting 2Mbps strategy can only be considered as short sightedness
by our generation.
The benefit of the internet will only be as good as the information it receives, stores,
processes and delivers. As a nation we must develop an inclusive society with connections
for life being a core concept. Huawei believes that fibre offers not only the relevant/required
capacity but also the future proofing capability to serve sustained and sustainable growth in
demand across all access networks. We see a need for improved delivery timescales
targeting areas where investment could be best utilised based on wealth creation and
commercial payback.
337

Huawei – written evidence
By 2020 there will be a need for enhanced interconnectivity between access technologies,
networks and service provider relationships to support the evolution of the internet as
described earlier. This is likely to be based on Fifth Generation (5G) technology. Fifth
generation will not just be a mobile service, but a holistic connection based philosophy, with
solutions utilising many networks and services. The implications for this are far reaching.
Therefore a strategic view of connected Britain and removing a digital divide must take the
implications of this in to consideration.
In a world of simplicity and intuition, digital communications is a vital part of any nationstates
infrastructure, touching on all parts of society. The correct technology solution will
allow nation states to compete in the future, supporting its population in a commercially
sensible way. Without due consideration of the century ahead and its requirements, we will
fail to deliver the broader benefits of a connected nation to society, the economy, the
environment, a connected government and the business community.
338

Huawei – written evidence
Question 1 the Committee will consider: What is being done to prevent a
greater digital divide occurring between people who can access superfast
broadband and people in areas where the roll-out of superfast broadband may
not be commercially attractive? How does the UK communications market vary
regionally and what is the best way to connect the areas that the market alone
cannot reach? Is a universal service obligation necessary to avoid widening the
digital divide?
Key Points:
• There are many ongoing projects both Urban and Rural in the UK working
to connect and develop the UK connected population. However, the
current programmes are disjointed and uncoordinated.
• Our view is any Universal Service Obligation particularly at 2Mbps will
widen the digital divide especially as urban areas are already receiving
100x this and will have 1000x this in the next 5 years. The only real
solution is to get fibre to the end user or within 500metres of the end user.
There are many projects and programs in the UK that are ongoing that are working to
connect and develop the UK connected population. However the programmes are
disjointed and uncoordinated. Both Urban and rural projects are being developed, the
similarities are there but also the differences.
A number of the initiatives are highlighted below:
• Broadband Delivery UK (BDUK: Initially having a budget of £530m, with an aim to
provide >25Mb/s to rural areas, but more like 2Mb/s to end users in Not Spots and
Not a lot Spots today.
• Super Connected Cities: A budget of £100m for only ten cities in the UK to have
80Mb/s to 100Mb/s to end users.
The question is, would Government need to fund higher BB speeds in rural areas to
overcome the Digital Divide, if our operators, were protected from unbundling their fibre &
assets, until they had made a reasonable return on their investment? We use operators in
the widest sense of the word, as we see a big potential for councils to implement broadband
networks for their local communities.
339

Huawei – written evidence
This could be achieved by a number of schemes, with the Government setting the targets.
A number of examples are as follows:
• Local councils can fund the deployment of fibre and recover the investment
through council tax's over a 20 year time period
• Local communities can be given the option to develop a solution that will
interconnect to the national network in a secure manner
• An operator (for e.g. BT could run a number of smaller networks on behalf of an
investor, thereby making a profitable return, without the risk of investment
• Services can be used to allow the cost of infrastructure to be subsidised as we
find that services often get more return than the infrastructure, making it a
difficult business case to justify, especially in the rural communities
• Areas of the UK could be auctioned off for exclusive investment by a single
network operator, offering a virtual network service, thereby improving the
business case.
Trial rural Broadband offerings with use of Government and EU funds include Cornwall and
Yorkshire. Other opportunities for areas with limited access see fixed and mobile operators
working together to find and develop synergies in the offerings and infrastructure. BT is
working with Everything Everywhere (EE) to deliver an infrastructure that can be reused in
mobile.
340

Huawei – written evidence
Greater exploitation of WiFi in a national sense. Municipal Wi-Fi in many cities has not had
the take up that could have been envisaged. We fully believe in City Wi-Fi and Wi-Fi
generally as a valid connection technology, but as with all connection technologies it must be
fit for purpose, easy to use, and most importantly give people and devices easy access to
what they desire from the internet.
Advantages of City Wi-Fi
• Promotes connectivity
and online use
• Promotes familiarity with
digital technologies
• Very good marketing
platform for the
community, city, region
or country to both locals
and visitors
• Offers cheap or free
access for basic bestafford
service
• Provides low cost services
• Allow local business to
access local public
• If implemented correctly
can promote adoption of
e-government and access
to public services online
Disadvantages of City Wi-Fi
• Limited adoption because of
poor ease of use and data
bundles with devices that could
utilise
• Take-up very low
• Investment has been limited to
small scale
• Competes against SP networks
and in most cases so far does not
work with them
• No cross network coordination
or services support
• No competitive business model
• Too much
regulation/intervention
• Access to Street furniture by SP’s
• It can have a negative social
impact if service perceived
inadequate
The viability of public and or community schemes is critical and an improvement to the
assessment of business cases is required. The ability to offer free access has to be countered
by either a coherent subsidy scheme, or other revenue stream such as sponsorship or
advertising that will in a sustainable manner support the investment. There is the example of
an unsuccessful public Wi-Fi scheme in Swindon, and others that have not developed
because of the lack of a sound business model.
341

Huawei – written evidence
Big City
Small City
Diagram Big and Small cities are different and need different strategies
The UK communications markets vary regionally; the UK has widely different geographic
densities with broadband connection being required by all regions, businesses and
households as well as mobile devices and services.
Problems
• Cost/MB backhaul
• Cost of Fibre deployment
• Need to cost business model
across wider service base
• Lack of tiered pricing
• Short-termism
• No support for long fibre ROI
No shared network – High risk
Remedy
• Local voices have nowhere to take
group request, i.e. a village wishing
to use their own money to enable
fibre with an SP or Fibre provider
• No business model with SP to
allow local investment
Our view is any universal service obligation as its stands at delivering a 2Mbps service risks a
widening of the digital divide. 2Mbps is even now only just fit for purpose for basic internet
access. As we have shown with the requirements of the internet and connected devices and
services in the future, 2Mbps will limit parts of the UK to a historic version of the internet.
342

Huawei – written evidence
Additional business cases in the future will be compromised by the 2mbps connection and is
likely to stop additional investment once it is in place out to 2020 and beyond.
Without the prospect of additional investment the widening of the digital divide is more
likely to arise. Should rural communities be given a 2mbps service, when urban areas are
already receiving 100x this, and the prospect of a 1000x this in the next 5 years, the
investment potential from revenue generated in rural broadband will be close to zero.
Revenue in broadband is the additional revenue SP’s can generate with new and exciting
services. 2Mbps won’t support any new, exciting or desirable services and therefore business
cases to upgrade the network will become increasingly hard to justify, especially as the
chasm of the divide rapidly becomes larger. Services from the internet will heighten this
chasm, marginalising any investment in rural broadband, as they become increasing designed
for consumption over higher speed connections with richer and more integrated content
leaving rural communities on the edge of society.
Diagram - The widening Digital Divide
With such a large chasm, application, content and service providers will also heighten the
divide as they create rich and high definition/quality services for the high speed connected
mass market and withdraw low bandwidth services or marginalize them to the sidelines of
technology and society.
We foresee as early as 2016 that 2Mbps will cease to be considered viable for entry level
internet access given the rapid progression of content and applications in the cloud, and the
connection needs of new home and business devices such as High Definition TV’s and Video
conferencing to name but two. Today for example, to stream iPlayer to your TV with BT’s
Vision Service, end users need a minimum of 4.5Mbps, before BT will sell them the service.
343

Huawei – written evidence
The only real option is getting fibre to the end user, or to at least copper to within
500metres. 4G/LTE and evolutions of these whilst helpful suffers from service degradation as
the distance increases (Shannon’s Law) so it can be useful in some places, but not
everywhere to extend the reach of fibre. An ideal solution therefore will include a mix of
technology solutions with fibre to the premises and 4G(for mobility) being key constituent
parts.
344

Huawei – written evidence
Question 2 the Committee will consider: The Government have committed
£530 million to help stimulate private investment – is this enough and is it being
effectively applied to develop maximum social and economic benefit?
Key Points:
• A rough EU estimate suggests a required investment of c.£26bn to 2020.
Whilst an estimate it provides an indication of the scale of investment
required.
• Existing pilot programmes also show that the UK Government’s current
commitment of £530m may not be sufficient to stimulate the necessary
private sector investment across the UK’s remote and rural areas to
achieve the Government’s targets.
The UK Government’s proposed investment of £530 million in the Broadband UK scheme is
for the period up to 2015 and aimed at funding Superfast Broadband fibre projects in 4 main
rural pilot area’s (Cumbria, Herefordshire, North Yorkshire and the Highland and Islands).
There are other rural/regional fibre schemes which are being funded primarily by EU funds
such as South Yorkshire ( c £90m) and Cornwall ( £132m ). In addition to these there is also
the funding of around £150m for mobile “Not Spots”. The primary aim of the BDUK scheme
is to trial via these rural broadband pilot schemes the practical means of bringing Superfast
fibre capacity to end users, commercial, community and residential. This totals to
approximately £0.75bn but is less than 3% of the funding required to deliver superfast
broadband to non-urban areas.
The UK Government’s policy is thus a twin-track one of pump priming private and
community investment in rural areas, and leaving free market competition by major
operators and other groups to invest in area’s, primarily urban, where demand is greatest
and the costs of roll-out are lower.
The UK Treasury National Infrastructure Plan [ November 2011 ) states that the “ current
regional performance looks particularly weak as far as coverage of superfast broadband is
concerned, with overall availability of superfast broadband restricted to 58 per cent of the
UK’s population, and very large regional variations. For instance, 97 per cent of Northern
Ireland’s population has access to superfast broadband, but only 30 to 40 per cent of Wales
and Scotland”
Figures from the Infrastructure Plan show that the Treasury assumes a total public and
private investment in BDUK schemes to 2015 of £1.65bn and to 2020 of £2bn. The
Government’s funding total of £530m to 2015 would be thus around 33% of the required
investment, and if the Government adds a further £350m to 2017 as mooted this would take
the total Government funding to above 40% for these specific schemes.
345

Huawei – written evidence
The EU Digital Agenda for Europe has estimated the costs of Broadband roll-out by a variety
of technologies, Copper, Fibre and Mobile, in the whole of Europe by 2020 to be up to Euro
270 bn, This is to achieve the EU target of 30 Mbps coverage for all by 2020 and of those
50% of households have 100 Mbps services. The EU estimates that only Euro 50bn of the
required investment (just under 20%) will be funded by private operators leaving a funding
gap of Euro 220bn. Obviously the majority of that private sector investment will be in urban
areas thus the vast amount of unfunded broadband investment will be in rural locations.
A rough EU estimate of the UK’s share of this required broadband investment would equate
to a total (all technologies) required to 2020 in UK of around Euro 30.9bn or approximately
£26bn. This would very roughly equate to £3bn per annum for each year up to 2020.
Treasury estimates of current year and future planned private sector investment as shown in
the National Infrastructure Plan total around £5bn, made up of BT’s fibre roll-out, Virgin
Media investment, and mobile infrastructure upgrades. While this is a very rough estimate it
provides an indication of the potential future shortfall in investment.
In the USA the FCC, the telecommunications regulator, has recently announced
implementation of a National Broadband Plan which will include Government subsidies and
changes to criteria of the national Universal Service Funding to focus on Broadband
investment and support programmes. Overall it aims to spend some $24bn (c £16bn) in
support to 2020 which if translated purely on a comparable per capita basis would equate
to around £3bn over the same period Government commitment.
While these pilot programmes are still in progress and not fully evaluated, it appears clear
that the UK Government’s current commitment of £530m may not be sufficient to fully
stimulate further private sector development across the UK’s remote and rural areas to
match the Government’s targets. Especially in the light of International and European
comparisons and estimates
Huawei believes that the UK Government needs to consider scaling up the size and scope of
these investments and rapidly implementing many of the measures proposed by the EU
Digital Agenda programme and EU Communications Regulatory recommendations. We
believe that investment in pure infrastructure without a services focus will result in the
infrastructure being underutilised and not being able to realise its true potential.
As we enter an era of digital communications there are several additional projects that need
to be considered as follows:
• Investment in our education system to ensure e-Skills are prioritised, by this we
mean the skills that we will need as a nation to develop a successful and sustainable
e-UK.
• Partnerships across government and private services that adds value to being econnected
to the UK on-line network.
• Better education of how the connected society will benefit, as today people are
connected in ways that is not obvious and still maintain that they do not need or
want the Internet.
• More focus on schemes that encourage innovation that will address many of the
problems we face as a society by utilising the power of the Internet, for e.g.
improved energy use by video conferencing as opposed to physically travelling to
346

Huawei – written evidence
meetings, more support for online education as opposed to only 5-10 days a year to
go away to attend training etc.
• As we see with many of the knowledge workers in cities and towns, we need a
program to get encourage more refuseniks to get online and to help them
understand how the Internet can make them even more productive and benefit the
economy so we can compete more aggressively with the Asian tigers.
We believe there is much the UK can do to build and maintain a highly successful economy,
but the current levels of investment and the lack of focus may result in this being derailed
due to not planning successfully for the future at this early stage.
347

Huawei – written evidence
Question 3 the Committee will consider: Will the Government’s targets be met
and are they ambitious enough? What speed of broadband do we need and what
drives demand for superfast broadband?
Key Points:
• The government’s targets for broadband should not be wholly driven by
speed, it should be driven by the services, applications and content plus
the number of household’s subscribed to the service.
• The EU target for BB for 2020 is 100% coverage of 30Mbps with 50% of
household’s subscribed to a 100Mbps service. Clearly this is far in excess
of the current minimum UK target of 2Mbps by 2013. Given current
trends nearer 1Gbps will be required by 2020.
The government’s targets for broadband should not be wholly driven by speed, it should be
driven by the services, applications and content that users and businesses wish to consume
from the internet. A target for internet access must include some thought as to what will be
consumed through e.g. HD streamed video, ultra HD, 3D, residential video
calling/conferencing, cloud gaming, educational services...(so called consumer hygiene
services) . Households will simply not pay for or use broadband that does not deliver direct
tangible benefits to them, even if it does deliver savings and benefits to the government and
the environment.
As highlighted earlier, the digital divide will continue to widen, resulting in there no longer
being a gap between the haves and the have nots, but more importantly between the digitally
disadvantaged versus the digitally advantaged. It is our concern that if we follow a universal
broadband strategy of at least a 2Mbps minimum connection and if we put lots of public
money into realising this, then those parts of the nation that have a better service and who
deliver the most benefit to the economy may begin to feel that tax payers money has been
wasted on a service that will fall below par in the very nearfuture.
Government investment should be extended to other drivers including: human capital (to
secure broad community inclusion, promotion & education in respect of benefits), services
(e-health, e-gov, e-learning), applications (privacy, security (electronic and physical), with
policy and regulation for privacy and security rather than just being focused on the
infrastructure.
The current target is far from ambitious and this lack of ambition may also lead to reduced
investment. A speed of 2Mbps could be delivered over copper technologies to all but the
furthest and most remote premises/dwellings utilizing legacy telephony systems. What is
really required is for these legacy copper based systems to be replaced with fibre. However,
once low quality Broadband is in place using copper it will be hard to justify any business
case to remove it.
348

Huawei – written evidence
Diagram - The widening Digital Divide
The EU target for BB for 2020 is 100% coverage of 30Mbps and 50% of household
subscribed to a 100Mbps service. Clearly this is far in excess of the current minimum UK
target of 2Mbps by 2013. Given industry trends, for internet access, shows a requirement
for service provision up to and including 1Gbps by 2020 and 6Gbps by 2025. For those UK
urban/suburban areas which are passed by fibre, BT is aiming for 66% of households with
access to a connection of 300Mbps, while Virgin is already delivering 120Mbps to some
customers today. BT’s offering is fibre to the premises (FTTP), this being a future proof
investment with the ability to easily increase the speeds with a change to the equipment at
either end of the fibre when the equipment is commercially available. Virgin has announced
that in April 2012, it will test a service of 1.5Gbps (This is almost one thousand times
greater than the governments aspiration of an acceptable service) A service of 30Mbps will
enable HD, 3D, ultraHD entertainment streams, as well as interactive rich communications
services, cloud Gaming and other vital consumer and enterprise applications whereas a
2Mpbs service will not support these in an adequate way.
In fact, as we move into the future, the value of services for the economy and the society
are huge but their delivery will be dependent upon the capacity of the networks.
We believe that the government needs to look beyond just setting targets for access, and
that there is also a consideration of the services and how these services can be employed to
solve some of our key challenges, such as:
• Reducing energy usage
• Reducing the need to travel and burning fossil fuels
• Improving the education of the nation through on-line tools
• Helping the population to become more skilled
• Reducing the cost of health care by using the Internet in innovative ways
349

Huawei – written evidence
Question 4 the Committee will consider: In fact, are there other targets the
Government should set; are there other indicators which should be used to
monitor the health of the digital economy? What communications infrastructure
does the UK ultimately need to remain competitive and meet consumer
demand over the next 20 years?
Key Points:
• No single measure, like GDP contribution, can provide all the information
required to assess and manage the success of Superfast Broadband without
adequate appraisal of for example the sustainability of that growth. A
dashboard of measures will be required that is directly related to the
original goals/objectives.
• We should therefore be measuring direct, indirect and induced affects on:
the economy, social progress, and the environment at a personal, local,
national and international level. It is measures of changes and gains in
these that can best indicative a wider benefit to UK society.
It is important that target measures are at least aligned with the goals of government and
industry and due to the importance of this question it should also have wider stakeholder
involvement.
As we can see in the diagram "The Broadband Value Chain" below, defining success for the
internet, given its wide ranging affects and as an enabler of wealth creation and social
progress cannot be linked to connection, or speed of that connection alone. The internet is
a sum of its parts and success is related to end-users being willing and able to access internet
services, and the ease in which this can be done, plus the benefits that accrue from online
interaction.
No single measure, like GDP contribution, or even a limited set of measures can provide all
the information required to assess and manage the success or otherwise of Superfast
Broadband without adequate appraisal of the sustainability of that growth. A dashboard of
measures will be required that is directly related to the original goals/objectives.
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Huawei – written evidence
We should therefore to be measuring direct, indirect and induced affects on the economy,
social progress, and the environment at a personal, local, national and international level. It is
measurements at these levels that can best indicate a wider benefit to UK society. Measuring
the social benefits will not be easy, conceptually any measure of social progress should be
value based and answer the question “progress towards what?” Social progress measures
must also go beyond purely economic realms and include such measures as levels of
education, crime, population growth, employment, income, environmental impact,
transportation, reduced energy costs etc - they are very much longer term measures.
351

Huawei – written evidence
Question 5 the Committee will consider: How will individuals and companies use
Cloud services for distributed storage and computation? What network
properties are required to enable efficient provision and use of such services?
Key Points:
• Today the Cloud is at a formative stage it is potentially pervasive and much
more, it becoming a real time extension and augmentation of the individual.
The benefits of the Cloud are as wide and varied as the individuals and
organisations using it to consume or deliver products and services and
include gains in productivity, efficiency and reduced costs to deliver broader
economic and social as well as environmental benefits.
• Network qualities to support/underpin the Cloud need to be ubiquitous or
pervasive, secure, reliable, available, convenient, private, and quick above all
else with users able to access what they want, when they want, where they
want and how they want. If the Cloud is slow and cumbersome with
unreliable connectivity and it costs more than the alternative of local CPU
and hard drives then it will risk failure.
Cloud computing is the delivery of computing as a service rather than a product whereby
shared resources, software and information are provided to computers and other devices as
a utility over a network. The Cloud provides not only computational and storage but can
host applications, provide data management, security and privacy from a central and
distributed location where the location is in fact irrelevant to the user.
Over time the Cloud will make doing and accessing things more secure, reliable, convenient,
and intuitive. At the extreme the Cloud might replace your computer’s CPU and hard drive
with applications and content held and managed remotely but for this to work it
fundamentally must be: reliable, secure and be available anytime, anyplace, anywhere and
from any device. Concerns whether real or perceived surrounding privacy and security will
need to be dealt with explicitly for it to succeed.
Today the Cloud is at a formative stage with many using it but not knowingly, and where the
focus is very much on basic storage and computational capability, but it is potentially
pervasive and much more than this, it is becoming a real-time extension and augmentation
of the individual.
The benefits of the Cloud are as wide and varied as the individuals and organisations using it,
to consume or deliver products and services. The benefits also include gains in productivity,
efficiency, reduced costs (improved affordability with pay as you access to products and
services). Beyond these tangibles it is expected to deliver broader economic, social as well
as environmental benefits.
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Huawei – written evidence
The flexibility, agility and the ability to use more portable or cheaper devices are all
advantages. Management, security, access and costs are all much more manageable. Services
can be run in the Cloud and only pertinent information sent to the user or sent from the
user. This means an employee can still be in touch through even a basic smart phone even
phone with the right user interfaces in place. Cloud storage, computation are now an
essential element of the internet.
In terms of the network qualities to support/underpin the Cloud it needs to be ubiquitous
or pervasive, secure, reliable, available, convenient, private, and quick above all else with
users able to access what they want when they want, where they want and how they want.
If the Cloud is slow and cumbersome with unreliable connectivity and it costs more than the
alternative of local CPU and hard drives then it will risk failure.
353

Huawei – written evidence
Question 6 the Committee will consider: To what extent will the advent of
superfast broadband affect the ways in which people view, listen to and use
media content? Will the broadband networks have the capacity to meet demand
for new media services such as interactive TV, HD TV and 3D content? How will
superfast broadband change e-commerce and the provision of Government
services?
Key Points:
• Demand for higher quality on-demand content which will be richer as we move
from a standard definition (SD) world to high definition (HD) to ultra high
Definition (ultraHD) and 3D variants thereof.
• Multi-tasking and multi-user households will drive exponential growth in typical
household usage to Gbps with SMART homes further adding to this demand for
higher bandwidth.
• Yes if services are planned to support a minimum 100Mbps for the next 2-3
years, but this will be driven by higher quality on demand content, multitasking
and multi-user households, the SMART home will rapidly rise to 1-10Gbps.
• There’s more to successful e-commerce and e-government service than a
broadband connection: users need to have a reason to use the services and they
must perceive and realize true value. Ease of use, ease of access and an
efficient end to end delivery process are essential components.
To what extent will the advent of superfast broadband affect the ways in which
people view, listen to and use media content? Superfast broadband will free people of the
current constraints of today’s speed limited network, which means that today they can only
do one or two things at a time before it all grinds to a stop. It will bring connectivity to
every device whether it be a TV, PVR or washing machine and fridge. It will improve
connectivity with friends, family and between businesses at home and abroad with them able
to use proper “lifelike” UltraHD video conferencing leading to reduced car, plane and train
journeys. Life will become even more multi-screen than it is today the kids will be able to
do their homework whilst Dad watched National Geographic is Ultra HD and mum catches
up with her friends in Australia in a lifelike video conference with no blocking or judder. It’s
a multi HD Screen world with multiple people doing multiple things all together but
separately. They will be able to do things we haven’t even dreamed of (who would have
predicted Facebook…)
Will the broadband networks have the capacity to meet demand for new media
services such as interactive TV, HD TV and 3D content? Yes and no! As it depends on
what broadband network we are talking about, at 2Mbps it will support one person watching
a low quality TV feed but not 2 or 3 people doing the same or similar activity in a different
room or indeed with some emerging TV technologies using the same screen but watching 2
different programmes as a result of the angle they are viewing from. The main driver of this
need for greater bandwidth will be lots of video content, a multi-screen experience, multiuse
pervasive computing and connectivity.
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How will superfast broadband change e-commerce and the provision of Government
services? It completely depends on what we mean by e-commerce: if it is buying groceries
on line then the speed of connection today is less important than if you’re taking a 3D HD
virtual tour of a house, car or other similar activity where the video experience is key to the
service. We see a time where government services from various departments will work
across the platform, and therefore believe that a video conference between several people
may be the best way to solve problems and will of course rely on fast and reliable
communications channels to be delivered.
The connection needs above all else to be reliable and secure with the speed fit for purpose.
If you are only ordering groceries then ultrafast BB is probably not necessary but it becomes
more important as the richness of the service or the content you are buying or engaged
with increases (e.g. film downloads….). Bandwidth will also become important when
“previewing” products especially as we move towards 3D HD imaging, virtual tours of say
cars, homes,…. and so the speed of connection becomes much more critical in enabling
these products and services even though it may not strictly speaking be an e-commerce
transaction. Few people today buy a large ticket item on line without at least one physical
viewing – virtual tours won’t completely replace this visit but it will reduce the number of
visits and make those visits ones from genuinely interested purchasers.
In considering the broader value chain for e-commerce the quality of the links between the
various elements from ordering through to delivery are hugely important and BB plays an
important role in the efficiency and effectiveness of this.
In terms of e-government the challenge with this question is where do you draw the line in
terms of what is a government service: but that aside in the majority of cases superfast or
ultrafast broadband is not a critical element for most services. What is more important is
access for all to all online services and critical to this will be simple, reliable and intuitive
access including security. A single simple password or security gateway and a simple
intuitive user interface where one the user is in they can access all the products and services
ach with the same or at least very similar look and feel. End users must feel secure in this
environment and they must feel in complete control of their data and that the government is
not snooping.
We believe that several enablers will help to drive a wealth of new services based on higher
speed bandwidth, all of which open up the option to develop and deliver new economic
services.
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Question 7 the Committee will consider: Will the UK's infrastructure provide
effective, affordable access to the 'internet of things', and what new
opportunities could this enable?
Key Points:
• There is no single solution – the UK will need a mix of technologies: fixed,
mobile and wireless, with an upgrade path to higher speeds.
• Business models will be a key driver of new services, driven by customer
perception of benefit and affordability.
• A whole myriad of new opportunities will be enabled bringing economic, social
and environmental benefits.
Currently the UK’s broadband infrastructure consists of a wide mixture of access and
management technologies utilizing a combination of legacy and new architectures. The
implementation of any particular type of infrastructure varies widely both geographically and
between types of end user. They of course currently also vary in terms of affordability,
quality and access speeds of up to 120Mbits.There will be a need to provide for a mixture of
access technologies if only to maximize the benefit to end users of a range of options by
cost, quality and ease of use.
Diagram showing the mix of current access technologies deployed in the UK
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The achievement of effective and affordable access to the “internet of things” by 2020 will
require a widespread roll-out and provisioning of Superfast Broadband with speeds of up to
1 Gbps. At these speeds optic fibre and cable access connectivity are better suited to the
capacity, security and quality considerations needed. Mobile Broadband access through 4G
spectrum will provide an alternative for unwired locations and lower bandwidths but cannot
provide the capacity required at the very fastest speeds. Ensuring provision of service in a
location by a number of service providers or through regulatory oversight will provide the
drivers to make services affordable.
In the future a combined 5G technology will evolve which will be regarded as a connection
service which can use either wired or mobile access depending on which type is best suited
for the service, application, device and end user when required. This will require the
availability of sufficient spectrum in new radio bands to provide the mobile element.
In talking about UK infrastructure, consideration should be made to include the human
capital investment to enable both the population in general and business users to better
utilise the “internet of things”. Changes in business thinking and behaviour will enable the
capability to develop new content and advanced applications and achieve heightened levels of
business performance via new business models.
Diagram showing how the connected society will benefit from cross-platform services,
supported by a high-speed Internet
Widespread access at superfast speeds to the Internet would allow UK end users and
business the capability to create a better quality of life by harnessing technologies to provide
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smart and applied solutions to practical problems. Things, homes, cities become smart
through a major transformation in the internet economy powered by content, applications,
services and devices.
Millions of devices connected both personal and M2M including public ones like ATM’s and
parking meters and personal such as household goods and cars. These have the ability to
communicate and transmit and receive data via a connected architecture with services
running on the Cloud accessed through M2M interfaces and personal access via a variety of
personal devices.
Below is a list of the services that are likely to result from the deployment of a coordinated
High-Speed network.
• The Smart GRID, Smart City, On-line Metering, High Speed Applications, The Home
network etc.
• The emergence of the Broadband World with Glocal Content, growth in the way
people use the internet for local consumption
• Convergence of services across platforms, the virtualisation of computing power,
new online storage and Services, the Semantic web emerges
• Seamless connectivity, allowing the users to attach and work on the network from
their current location, with contextual services
• Sensor based technologies and Machine-to-Machine services will grow, with Trackable
data being a key driver supporting Data Mining to deliver more customer value,
services will become Video and space aware
• Inclusive and directive ‘smart’ government, with Partnerships between Locally
governed communities
• Services become Web evolves into a 3D platform (virtual reality), with Services
proliferating in Telecare, eHealth, e-Government, and eEducation
Examples could include easier ways of controlling energy costs via metering and control,
maintenance of household and industrial goods via monitoring and download of new
updates, access to e-health services and reductions in commuting because home based
working is made practical and HD video conferencing/calling become lifelike in its
presentation.
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Question 8 the Committee will consider: How might superfast broadband
change the relationship between providers and consumers in other sectors such
as content? What aspects of this relationship are key to enabling future
innovations that will benefit society?
Key Points:
• Broadband has the potential to radically change relationships and in
particular the balance of power between consumers and suppliers, we will
see greater collaboration and co-competition between providers and
throughout the value system.
• Business models, content and applications will be the key driver of
Broadband, it will not be only about the infrastructure.
Technological change is not important for its own sake, but is
important if it affects competitive advantage and industry structure.
It can play a major role in industry structural change, as well as
creating new industries/businesses and business models.
Of all the things that can change the rules of competition,
technological change is amongst the most prominent.
M.E. Porter
In this respect we believe superfast broadband could be a game changer and major enabler
of radical social, economic and environmental change.
The changes are not easy to predict and will often take unpredictable paths but history helps
us appreciate the potential. For example, the change in relationship between BT and its
customers in the late 80’s early 90’s as the telecoms market was liberalized, compared to
today is phenomenal. As are changes in the relationships between mobile operators and
their end users which has changed dramatically in the past 5 years since mobile data began
to take hold and the network operators’ perceived “ownership” of the relationship with end
users was challenged by over the top providers of products and services who nibbled away
at the things operators thought their right like: micro-billing, location awareness….
Superfast Broadband, driven by the challenges it’s deployment poses, and a desire to close
or avoid digital divides both in country and across borders is already showing that a radical
reshaping of the industry lies ahead. It will give rise to new entrants across the value chain,
at a global, national and a local level. Already, companies like Google are deploying their own
fibre networks and consumers are joining co-operatives to secure improved broadband
quality if not fibre in their community. New business models like Netflix are challenging what
were only recently considered new and innovative business models like that of LoveFilm and
Blockbuster. We are also seeing consumers tear down borders and challenge huge
multinationals (the recent case of a UK publican using a Greek decoder to watch football in
the UK thereby bypassing Premiership content rights held by Sky in the UK). This is just the
start of a revolution!
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Traditional players with strong hands in the media and content delivery side like Sky will also
face challenges from new entrants as alternative content distribution channels open up, that
is of course if the new entrants can secure content rights (an important issue) These new
channels enabled by superfast broadband will be able to offer even more choice, even better
quality and greater interactivity at lower cost will completely reshape the industry and give
customers much greater choice. It might remain rather chaotic for a time but customers in
our view in the end will become strongly affiliated with a particular “aggregator”/“curator”:
and till then there will remain a great deal of competition for their attention.
What aspects of this relationship are key to enabling future innovations that will
benefit society?
Innovation is enabled by many factors – business models are a key one. With all major
innovation over the past couple of centuries, if not beyond, new business models have been
critical to their success: railroads and telecommunications needed the creation of
corporations; semiconductors needed venture capital and so on. Given the challenges
behind the business case for Superfast Broadband especially in “rural” areas finding the right
business models will be critical. These need to balance competition with co-operation and
the regulatory frameworks need to be flexible whilst offering players some certainty. These
balances are undoubtedly tricky but critical to its success.
Diagram showing how a new economy could be based on the Internet
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Question 9 the Committee will consider: What role could or should the different
methods of delivery play in ensuring the superfast broadband network is fit for
purpose and is as widely available as possible? How does the expected demand
for superfast broadband influence investment to enhance the capacity of the
broadband network?
Key Points:
• It’s important the UK Government creates an environment that encourages
investment yet is competitive – it’s a difficult but necessary balance to strike if
digital divides are to be closed rather than opened. Co-operation will be a critical
success factor in less commercially viable areas with direct local government and
community input.
• Various technologies will be needed including: fixed, mobile and wireless – no one
technology solves all the challenges and these will need to work together
seamlessly for maximum effect.
• Demand will significantly drive the value and capacity of the network, predictions
are of continued exponential growth in demand for bandwidth and speed as a
result of richer content being consumed on demand, simultaneous use and
multitasking.
• Optical fibre must form the foundations of the technology solution, given its 30
year working life and upgrade capabilities.
There’s a technical and business model aspect to this question.
Taking the technology first, there is no single technology that will serve the country’s
superfast broadband requirements. That’s not least of all because the UK’s topology and its
geo-demographics are so varied but because timing is also an important factor; what can be
done today is different from what will be possible in 5 years time plus it takes time to deploy
technology and we have objectives to meet in the next 3 years. What we need to be careful
of is compromising the longer term future just to meet these shorter term 3yr goals. By
definition then the move towards Superfast Broadband will be evolutionary and will involve
the use of several technologies including xDSL, DOCSIS, FTTX, 3G, 4G, WiFi, satellite and
others, to ensure the solution fits the need, is cost effective and ubiquitous (widely available).
The fact that several technologies will be needed over time requires the involvement of
several players, and since these technologies are often but not always complementary as
opposed to substitutional, co-operation and competition between the providers will be
necessary. The business case is also different by geographical area with payback in some
areas being a few years (less than 10) to perhaps 30 or more or never in others. For these
areas where the business case is “challenging”, different more intense levels of co-operation
will be required involving different stakeholders including government and communities
themselves as less readily measured or tangible induced benefits dominate the business case.
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In these environments many seem agreed that new public private partnership models will be
required that rely on co-operation amongst all parties and where a shared superfast
broadband network the 6 th utility next to: gas, electricity, water, sewage and basic telephony.
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Question 10 the Committee will consider: Does the UK, for example, have a
properly competitive market in wholesale fibre connectivity? What benefits
could such a market provide, and what actions could the Government take to
ensure such a market?
Key Points:
• The FTTx market is still in the early stage and at this point over-regulation
might end up doing more harm than good. Regulation may limit future business
cases and stall innovation.
• The fibre wholesale offers need to increase over time to reflect more
competitive wholesale markets similar to those in Scandinavian countries,
particularly Sweden and Denmark
• Promote network sharing with open access networks models
The UK has one of the most competitive broadband markets in the world. This can be easily
observed by the variety, quality, availability and affordability of services offered, the number
of players in the market as well as end user demand, usage and overall internet traffic
generated.
Yet, despite a competitive overall telecoms market and regulation, true FTTH/B
deployments through the UK have only just begun and as a consequence the UK ranks quite
low among the EU countries in terms of superfast broadband penetration. As evidenced
from a chart produced recently by the FTTH Council, the UK does not even rank among
the top 20 FTTH countries, nor the top 10 EU countries.
On the other end of the argument, after a slow start, the rate of growth of FTTH/B
penetration shows rapid rate of growth. One of the major reasons for the delay in the rollout
of superfast broadband in the UK was the omnipresence of high quality low-priced
broadband alternatives, both in terms of infrastructure and services offered. The UK is
indeed one of the lowest priced countries in the world for broadband.
As it is still a nascent market, wholesale competitiveness might play at this moment a lesser
role to the overall market development. Over-regulating a market at its early stages of
development might cause the costs to outweigh the benefits. That said there are clearly
cases where wholesale access should be mandated and we believe that is where public
money has been used to extend the reach in to less commercially viable areas and a single
shareable network has been built almost as a national/public asset. In this respect though, it’s
less about regulation and more about encouraging co-operation and getting the right
business models including PPPs.
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Huawei – written evidence
The key benefits of a fully competitive wholesale fiber connectivity market are – like any
other market or industry –that the end consumer – be it private or business – will benefit
from a wider range of high quality services at a lower price from a number of service
providers. In a macro-economic perspective a superfast broadband market will contribute to
the country’s economic growth more than any other infrastructure related investment. For
example, broadband investment produces £20 of benefit for every £1 spent in deployment
as opposed to £2 for every £1 spent for rail infrastructure (Shearman 2011).
At the moment, there is some regulation in deploying fibre, following EU mandates, and
despite at a very early age, the wholesale offerings that exist are quite competitive. Given
the small size of the FTTx market in the country, however, although the current wholesale
offerings are very competitively priced, they are very limited in scope as they stand,
especially in the access front.
In addition, market competition has surged in commercially viable densely populated areas,
mainly financial districts and urban centers. Competition is on the other hand practically
non-existent in smaller towns and rural communities besides a few commendable projects
(such as Yorkshire) mainly pilots or newly launched commercial offerings. These are a
number of municipal projects, public-private partnerships and community involvement that
have evolved and which need a different approach in planning, financing and business models
and they are less dependent upon existing incumbent wholesale offerings but rather on open
access and net neutrality. This problem of availability in digitally isolated areas is admittedly
challenging to deal with, even where residents in such areas may be willing to pay a premium
to escape slow service.
Hence the UK government is faced with two major issues:
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a) How to ensure considerable competitiveness for the wholesale fibre market
throughout the country
b) How to stimulate network investment, thus services availability, in remote rural areas
without burdening taxpayers.
In 2011 BT Openreach introduced and lowered the price – following regulator pressure – of
its PIA (Physical Infrastructure Access) offering. However, not many providers have been
attracted despite lower prices and initial trial. Allegations of a very expensive PIA offering
are not supported by an Ovum benchmark study commissioned by Ofcom, which suggests
that overall the UK is consistently below the EU average; in some instances by up to 40 per
cent
An area that the UK is not active as opposed to more advanced FTTx countries is wholesale
dark fibre offering. Ofcom has decided not to mandate the unbundling of dark fibre. Many
EU countries, mainly Scandinavian, have been implementing the practice for quite some time
and the EU has recently requested its member states to consider opening up dark fibre
unbundling. Should the government decide to open this market to competitors, BDUK
procurement winners would need also be obliged to provide dark fibre at a wholesale level
as well as BT’s PIA customers.
Furthermore, the regulator needs to work toward establishing the terms and conditions for
how access will be provided as disagreement and lack of clarity in such definitions has caused
alternative providers to stall deployment plans. This includes defining the forms of wholesale
access. The level of technical and business detail required here is often the subject of much
dispute
More importantly, the UK government might want to consider encouraging network sharing
with competition at all – or most - network layers. Such a strategy could lead to a truly
competitive market with the end user be able to pick and chose services from different
operators whilst not being forced to commit to lengthy contracts.
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Layer Shared Infrastructure
0 (Substratum
Layer)
1 (Physical Layer
Unbundling)
2 (Data Link Layer
Unbundling)
3 (Network Layer
Unbundling)
Duct, Conduit and collocation
facilities.
Dark fibre leasing, or perhaps,
Optical Layer unbundling (CWDM
or DWD Min PONs)
Dark fibre and link-layer
electronics at each end. For
example, Ethernet-based VLAN, or
ATM-based PVCs.
Basic networks service provided.
For example, IP Layer 3 service
over cable using policy-based
routing to multiple ISPs
UK’s regulated wholesale
fibre product – access
network
PIA – regulated price
No regulated product
No end to end fibre regulated
product yet. VULA (SLU)
product offers virtual access to
multiple SPs for the copper end.
Good for FTTC deployments
No regulated product yet
Implementing a network-sharing practice, will in turn, help create different fibre business
models especially in rural areas, while encouraging the participation of several local and nonlocal
players, such as a truly open access model. Such a model would lower maintenance
costs and make it financially sustainable. In contrast with the existing wholesale model where
the incumbent owns the network and there is usually only one service provider – if any –
covering a rural area, the open access network sharing model allows many providers to
compete over the same network at wholesale prices. Open networks have proven
particularly successful in many parts of the USA, Europe and Asia. In Europe, a most
successful case study operating the open access model would be that of in Västerås, Sweden,
a city of about 40,000 homes. The Västerås OAN has dozens of providers, and more than a
hundred services available to users.
Naturally an open access model of network sharing will benefit not only semi-rural and rural
zones but also densely populated urban areas promoting competition, availability and quality
of service, low price as well as end user choice. It is, after all, the urban areas that
predominately contribute to a nation’s economic growth and they will have to remain the
focus of a nation’s wholesale strategy toward superfast broadband deployment.
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Question 11 the Committee will consider: What impact will enhanced
broadband provision have on the media and creative industries in the UK, not
least in light of the increased danger of online piracy? What is the role of the
Government in assuring internet security, and how should intellectual property
(IP) best be protected, taking into account the benefits of openness and security?
Key Points:
• Enhanced Broadband will enable the effective and very low or no cost
distribution of incredibly high quality content to a global audience on a global
scale.
• Media companies benefit substantially from the ease of distributing content (at
reduced/zero cost) as do “Pirates”. We understand that to address online Piracy
the underlying perceptions of injustice, unfairness and delays to access need to
be addressed whilst upholding the rights of the content and media companies
themselves.
• The Government has an important role to play in creating and enforcing
relevant and practical laws – thereby creating a trusted environment.
• Companies and individuals need to have complete control over their own
personal and company data (IP) and who can / cannot access it. The challenge
is heightened as the internet becomes increasingly personal compared to a few
years ago.
Digital technologies have changed the media and creative industry more than most, some
might say beyond all recognition. We’ve seen whole new businesses and industries within
this broad category not only be born, but live and die within hugely reduced lifecycles
compared to the past. It’s a fast paced dynamic sector in which digital technology plays and
will continue to play a crucial disruptive role.
Enhanced broadband will underpin further radical shifts in this sector many of which will be
unpredictable. What we can predict is that content is going to improve massively in terms
of choice, richness and quality. The change from black and white to colour will be nothing
compared to the change from standard definition to High Definition to UltraHigh Definition
TV, Film, Video etc and this content will be consumed not only in the front room of the
house but everywhere on a whole myriad of devices. These changes will take place at an
alarming pace if allowed by technology.
The opportunity presented by the internet is huge but slow adoption from the music
industry and other media providers; with one eye on maintain existing revenues from
traditional sales, led to piracy and widespread copying and internet sites along people to
share media.
Piracy has existed ever since the world’s oceans were plied for commerce, driven at least in
part by a sense of injustice amongst the common people who see companies making huge
[unjust] profits. This in no way legitimises piracy but it does perhaps point to the fact that
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any solution needs to address the underlying social issues. The internet is simply a modern
day ocean on which distances are destroyed and commerce takes place in a blur with plenty
of places for pirates to hide. The perceived and indeed real injustices that exist on both sides
of the equation must be addressed if a solutions to be found.
A number of things have come about to reverse this tide of piracy. Primary though has been
the ease and simplicity of services like Android Market and iTunes have had on users
propensity to buy. Along with this is a change in pricing, no longer is the price seen as so
high that piracy is the better option. People are happy to pay a reasonable price for the ease
of access and use and it is this that has changed the media market on the internet to a paid
for but mainstream service. It is worth noting that Android and iTunes go to significant
lengths to maintain their own revenue and do it well by owning both the market place and
the device operating systems the media is consumed on as well as the storage in the cloud
for individuals. There is still no doubt significant piracy but it has been relegated to a more
niche audience.
An interesting problem the industry has which generates piracy is ownership of certain types
of media, sport for instance. Ownership or broadcast rights by just one provider or more
complex arrangements when disputes happen between providers and the media is
withdrawn and the end user can no longer watch the media they wish to see and believe
they have paid for. In these cases the end user is often pushed in to piracy as there are
limited alternatives. There is a case to help the consumer watch one off media with a similar
model to iTunes et al. Encourage micro payments for access, maybe even to non real time
access at a different cost. An interesting example is ‘Formula 1’ which this year, 2012, is split
between Sky and BBC. The BBC will only screen 50% of the races. Non Sky subscribers will
then be encouraged to seek an alternative and often illegal ways to watch the remaining 50%.
The population of F1 viewers, like many other examples, is large enough to speak and share
‘solutions’. Sadly this is an excellent way to educate internet users to the ‘benefits’ of
privacy. As the music industry has taught us, the best way to get a payment and encourage
legitimate use is to deliver services at an acceptable price to market in a simple and easy
way.
Helping the industry find common ground is a sounder solution than legislation which is
extremely difficult and often has more adverse effects on innovation and revenue generation
in new services and industries than the benefits it seeks to achieve.
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Additional Question 1. What changes in the use of digital communications can
be anticipated over the next 20 years, and how should these affect strategic
investment in our digital infrastructure?
Key Points:
• Increased number of connected devices per person and Machine-to-Machine
communications grows
• Bandwidth hungry services will become mainstream: High-Definition content,
e-health, telepresense, e-learning, gaming, etc
• More people will be connected online simultaneously on a 24/7 basis
• The continued exponential growth in demand means that speeds of 1GBps
or more are likely to be required by 2020 to support demand and 10s of
gigabits per second in the next 20.
• The only solution anywhere near supporting this is Fibre to the home with
other technologies adding mobility within the home/building and outside.
Few would argue with the Government’s own view that: “consumer demand for bandwidth
is growing by around 60% a year [exponentially].”
For all the talk about killer applications the fact is there is no one killer application driving
this growth: The growth is driven by the number of devices we now all own that are
internet connected, from smart phones, to tablets, PC’s, TV’s Games consoles etc and the
ability of these devices to deliver content such as TV programmes, Clips and movies to the
user. This wealth of devices being connected din the home as lead to a combination of more
people doing more stuff online simultaneously as others in the house/office. For example,
parents watching iPlayer in HD on the TV, teenagers using a PC to watch YouTube clips
while passively the work laptop gets emails and the younger children chat with Facebook and
swap images. TV will become interactive, the content will not be just a stream to us but an
uplink interaction with the programming, voting, sharing moments with friends, having spilt
screens with friends and family online too while watching favourite programming chatting as
if in the same room together. The use of the internet for media will only be constrained by
the imagination of the program and application makers. Users are also expecting to do
“new” things and the “now generation” want it instantly not in minutes and definitely not in
hours like it is for the majority today, i.e. the want to watch a clip so it must start and run
straight away.
New technology coupled with higher bandwidths are enabling consumption of richer content
and applications in nearer real-time which in turn drives the need for more bandwidth and
new technology. What is a virtuous circle to some is a headache to others.
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Superfast broadband will not only be critical in advancing knowledge based economies it will
provide the foundations on which important social, economic, political and environmental
changes will be built. For example, superfast broadband will not only enable super high
quality video to be consumed in real-time or downloaded instantly it will enable at long last a
credible video conferencing and telepresence experience with bits and bytes substituting the
movement of people (fewer plane, train and automobile journeys) with people attending not
only small meetings via this technology but university lectures, conferences and virtual
exhibitions. Telepresence though is changing to be aggregated in to our viewing experiences
and take up of this social rather than phone call type of telepresence will drive increasing
traffic over broadband.
This continued exponential growth in demand means that speeds of 1Gb/s or more are
likely to be required by 2020 to support the demand of businesses and consumers for these
richer and more bandwidth hungry services like: telepresence, e-health, education, egovernment,
SMART seamless and integrated services/products, HDTV, HbbTV, SmartTV…
as well as quite simply more people doing more low bandwidth stuff simultaneously. As the
internet of things grows a great deal more passive networking will further fuel growth in
traffic driving demand for greater bandwidth. . The internet of things will create a
background constant requirement for traffic, the background load, and we as consumers of
media will add massive bandwidth to this load at peak hours of the day. We will have to
build for the peaks but the peaks increase year on year as does the background load.
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Huawei – written evidence
The growth seems unstoppable, and solution must be future proof and capable of supporting
multi-gigabits per second within the next 10 years and 10s of gigabits per second in the next
20. The only solution anywhere near supporting this is Fibre to the home with other
technologies adding mobility within the home/building and outside.
To facilitate this future the government has an important and finely balanced role to play in
encouraging and facilitating co-operation as well as competition at a national and local level.
It must give consideration to how the industry is structured and we believe the Government
and its agencies have an important role to play in creating and enabling this. As part of this
process the government needs to decide on its role, not only in area where there’s a
commercial business case but in areas where there is not, if the digital divide is to narrow
rather than widen. Our view as expressed in detail elsewhere in this document is that 2mbps
is already inadequate and given the pace of change the divide will widen significantly not only
between town and country but between one city and another and one region and another.
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Huawei – written evidence
Additional Question 2. Is the Government’s investment being effectively applied
to develop maximum social and economic benefit?
Key Points:
• We don’t think £530m is unlikely enough, we believe that the electronic
communications infrastructure of the UK will become the MOST important
part of the economy, and needs more focused investment.
• The government can play a crucial role in facilitating collaboration among
industry players
As the Government it's self has pointed out the proposed investment of £530m is unlikely in
itself to be sufficient. Assuming the solution is FTTH then costs of nearer £20bn will be
required and that will still leave many remote communities at a disadvantage, possibly a
greater disadvantage than they are at today.
The money required does of course rather depend on what's required and what mix of
technology is deployed which is in turn driven by a number of factors. A key question is
whether an evolutionary approach is taken or revolutionary where technologies are
leapfrogged and FTTH is deployed. In the short term FTTH might be more expensive but if
forecasts of demand for 1Gbps connections are anything like realised then FTTH is the only
viable solution technically, as well as the only future proof one. Other alternatives involving
xDSL will be inadequate for the real needs of internet users though may deliver 2Mbps
which is already not enough.
In “divide” areas the key issue will be securing support and investment and collaboration
from network operator(s) and the fact is that even if the money were focused entirely on
these areas it would still in our view be insufficient: By way of a simple comparison the
French government is proposing to invest almost this amount every year for the next 10
years.
That said it’s not all about the money. The government has a very legitimate and crucial role
to play in creating a shared vision for the UK and for facilitating co-operation amongst key
players/stakeholders including investors, network operators and local communities. These
co-operatives or public participation models including PPP will be critical to closing the
divide and just as important as the money will be facilitating the evolution of this structure.
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Huawei – written evidence
Additional Question 3. Is speed the best way of monitoring this?
Key Points:
• Speed is just one measure. There are a lot of other measures that need to be
factored in that will show the greater economic and social benefit.
• Success for the internet is speed, access, service and ease of use.
There are many metrics for monitoring the effectiveness of the internet, its use and its
benefit to the UK, speed is one of these and is valid but a blunt tool that missing more
challenging aspects. Speed, therefore on its own, is not the best way to look at whether the
Government’s investment is being effectively applied to develop maximum social and
economic benefit. It's important the measures are at least aligned with the government’s
goals which mean that at very least the numbers of households enabled and % adoption
should be tracked. In addition, longer term measures that capture the impact on wider as
well as local society, economy etc should be tracked. This will be affected by what people
do with the technology and may be directly related to job creation, and local improvements
in GDP. Many of the benefits will be hard to measure and relate directly/exclusively to the
adoption of broadband including environmental effects from reduced travel.
No single measure or even a limited set of measures can provide all the information
required to assess and manage the success or otherwise of Superfast BB. GDP is often
misused and often gives a false impression of economic performance that focuses on the
“goods” produced not the “bads” without adequate appraisal of for example the
sustainability of that growth.
The decision we make and our perception of benefits will depend on what we measure, how
we measure it and how we interpret what we measure. If we measure the wrong things we
can be easily be encouraged to take the wrong path.
Defining success for the internet, given its wide ranging affects and as an enabler of wealth
creation and social progress cannot be linked to connection, or speed of that connection
alone. The internet is a sum of its parts and success is related to the users willingness and
ability to access the internet plus the services, and the ease in which this can be done plus
the benefit the user gains from the interaction.
A dashboard of measures will be required that is directly related to the original
goals/objectives, which themselves must be SMART. We ought therefore to be measuring
direct, indirect and induced affects on: the economy, social progress, and the environment at
a personal, local, national and international level. It is measures of gains in these that must be
sought and employed, speed will therefore be one measure along with, households passed,
household attached in target areas as well as GDP (locally and nationally), measuring the
social benefits/progress won’t be easy, conceptually any measure of social progress should
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Huawei – written evidence
be value based and answer the question “progress towards what?”. Social progress
measures must also go beyond purely economic realms and include such measures as levels
of education, crime, population growth, employment, income, green house gas emissions,
sustainable transportation, air quality,…… they are very much long term measures,
important and should relate back to the goal, similarly the positive environmental impacts
due to reduced travel etc must also be identified and quantified as they are an important
benefit from as travel is substituted by telepresence.
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Huawei – written evidence
Additional Question 4. What is being done to prevent a digital backwater in
areas where the roll out of superfast broadband isn’t commercially attractive?
Key Points:
• The digital divide is more likely to widen than narrow if a 2MBps
deployment strategy is followed
• For areas where the network deployment and service delivery is not
commercially attractive, new business models and Public Private
Partnerships need to be developed
The Digital Divide (Digital Backwater) is real but the availability of a broadband connection
in itself will not close that gap: It is just as much about people knowing how to use the media
effectively and understanding the value of e-government or e-health for them personally
when for example they are surprised by receiving medical treatment remotely without
having to travel to a hospital which might be miles away.
Perhaps this question really ought to be about "what can be done" rather than "what is being
done". Preventing a digital backwater where the rollout of super fast broadband isn't
commercially attractive requires the changing of mindsets and business models amongst the
stakeholders. Competition at least at the network level is most probably not the way
forward in these areas; co-operation is more likely to succeed in delivering the benefits.
How the co-operation is structured is important and we would suggest looking at PPP, cooperatives
or public participation models (PPM) with operators etc all working together for
the greater good as opposed to the bottom-line in 3 years time.
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Huawei – written evidence
Additional Question 5. What role could or should the different methods of
delivery play in ensuring the superfast broadband network is fit for purpose?
Key Points:
• There is no single delivery method that fits all. A Technology mix and
combination of business models is necessary.
Various technologies and business models will be required. The technologies will include a
mix of fixed like Fibre to the premises, home, office, cabinet as well as 4G mobile technology
to add mobility in to the mix. It may also help extend the reach of the broadband service
but at a reduced speed and other “fixed” wireless technologies (FWA) will help in other
areas and include WiFi, WiMAX, LiFi helping distribute connectivity locally within a building
or in local area even outdoors.
• A connection, however fast, will not deliver the aspirations of the UK government
without a well considered end to end strategy on services and security in the
internet and the ability to access those services on a wide variety of devices and,
heterogeneous connections.
• The correct mix of technology along with alternative business models where
necessary will allow nation states to compete in the future, supporting their citizens
in a commercially sensible way. Without due consideration of the century ahead and
its requirements we will fail to meet the needs of the nation.
March 2012
376

The Independent Networks Cooperative Association (INCA) – written evidence
The Independent Networks Cooperative Association (INCA) –
written evidence
INCA’s response to the House of Lords Call for Evidence is in three parts:
1) A short summary answers to the questions below
2) A detailed paper on Investment in Next Generation Access based on a series of
interviews with key players in the latter part of 2011
3) 2020 Vision, a short paper proposing a different approach to policy-making in this
area in future.
1. About INCA
The members of the Independent Networks Cooperative Association (INCA) are
supporting, planning, building and operating sustainable, independent and interconnected
networks that advance the economic and social development of the communities they serve
and permit the provision of applications and services through open competition, innovation
and diversity. They are working together to create cohesive interconnected next generation
networks.
INCA's role is to:
� Promote the development and adoption of common technical & business standards
amongst local projects
� Underpin the development of next generation networks by developing joint
purchasing and marketing approaches
� Act as a unified voice for local projects to government and industry
� Promote the sector and explain why next generation broadband is important
� Support the development of next generation broadband projects by sharing expertise
and information
� Work with other agencies to promote and support local project opportunities
� Encourage partnerships with public, private and community sector organisations to
facilitate investment and faster roll out of next generation broadband infrastructure,
particularly in under-served areas – the ‘Final Third’ of the country.
INCA's members and subscribers include over 380 organisations in the private, public and
community sectors including:
� Fujistu Telecom, Cable & Wireless Worldwide, Alcatel-Lucent, Geo UK Ltd, City
Fibre Holdings, UK Broadband;
� Public sector organisations like Manchester Digital Development Agency, Digital
Birmingham, Gateshead G-Ti, NYnet;
� Nearly 100 community broadband projects including Alston Cybermoor, Angus
Broadband, CPEND Broadband and many others.
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The Independent Networks Cooperative Association (INCA) – written evidence
INCA has published ‘Beyond Broadband’ 87 , a popular guide to next generation broadband
issues with an accompanying online, expert knowledge base.
2. Select Committee Questions:
What is being done to prevent a greater digital divide occurring between people who can access
superfast broadband and people in areas where the roll-out of superfast broadband may not be
commercially attractive? How does the UK communications market vary regionally and what is the
best way to connect the areas that the market alone cannot reach? Is a universal service obligation
necessary to avoid widening the digital divide?
INCA’s starting point is that as a nation our digital infrastructure underpins much social and
economic activity today and will become ever more important in future. Demands for
bandwidth and greater symmetry, at affordable prices, will continue to grow and those areas
that do not have access to future-proofed digital networks will suffer economically. By
‘future-proofed’ we mean moving as quickly as possible towards an infrastructure based as
far as possible on FTTH and high speed wireless/mobile services.
Government intervention is targeted at those areas, mainly rural which are outside of Virgin
Media’s current footprint and which BT has declared to be commercially unviable. The
current approach through BDUK is heavily weighted towards a gap-funding approach which
INCA members believe strongly favours the incumbent. Alternative models are available and
have demonstrated success in other parts of the world. The European Commission has
recently codified five models for public intervention 88 . These are described in INCA’s paper
‘Financing UK NGA’. Government started with the aim of encouraging infrastructure
competition and on that basis many INCA members, large and small, entered the dialogue
around the proposed BDUK framework. All had expertise, experience of deploying
networks (in some cases FTTH), and under the right conditions could have brought
additional private sector capital. All bar one have decided that the dice are too heavily
weighted in favour of the incumbent to continue the process.
Some communities are taking matters into their own hands and raising funding and seeking
to develop or procure their own solutions.
The Government have committed £530 million to help stimulate private investment – is this enough
and is it being effectively applied to develop maximum social and economic benefit?
£530m is not enough to create a genuinely future-proofed next generation access network.
The first domestic broadband connections were installed in March 2000. Since then we have
seen a decade of innovation. Online banking and shopping are commonplace; social
networking has exploded; services like Skype and Youtube have become part of everyday life
for millions; wikipedia is putting the world’s knowledge into the hands of everyone with a
connection – and encouraging us to share our knowledge and experise. Few of these
innovations could have developed to the extent they have without mass broadband
availability. Few would work successfully at the broadband speeds of ten years ago – typically
87 See www.beyondbroadband.coop
88 Guide to Broadband Investment, European Commission,
http://ec.europa.eu/regional_policy/sources/docgener/presenta/broadband2011/broadband2011_en.pdf
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The Independent Networks Cooperative Association (INCA) – written evidence
512kbps downstream. Availability of infrastructure was a necessary pre-condition to the
explosion of applications and services that we have seen in both fixed and mobile broadband.
Today the average speed of connection is more than ten times the original 512kbps (30x
higher in cities) and most in the industry believe that we will continue to see ever greater
demands for bandwidth, along with demand for greater upload speeds.
Full FTTH deployment would cost £25-£28bn according to the Analysys-Mason/BSG study
of the Costs and Economics of NGA. A subsequent (unpublished) supplement to the report
suggested that by changing some of the underlying assumptions the costs of FTTH could
come down to £15bn. Most INCA members believe that the UK’s aim should be to deliver
FTTH and high speed mobile coverage as a preferance. Services based on the copper
network including FTTC/VDSL are cheaper, but inevitably carry the same ‘up to’ distance
and copper quality-based limitations as existing services using copper lines. They also tend to
entrench the market power of the incumbent.
INCA commented publicly on the current process for disbursing funds in November 2011. 89
We argued that from the point of view of the non-incumbents the process was far from
optimal. Inputs like PIA have still not been defined in a way that enables challenges to
participate on a level playing field and the emphasis on gap funding also tends to skew the
competitive process. Taken together these have reduced the appetite for alternative
investors to come into the frame. In the end it is likely that very many local authorities will
be faced with a procurement choice of one provider, mainly offering a limited shelf-life
technology: BT and FTTC.
Will the Government’s targets be met and are they ambitious enough? What speed of broadband
do we need and what drives demand for superfast broadband?
In fact, are there other targets the Government should set; are there other indicators which should
be used to monitor the health of the digital economy? What communications infrastructure does the
UK ultimately need to remain competitive and meet consumer demand over the next 20 years?
The balanced scorecard approach to measuring progress against the 2015 target will almost
certainly be defined in such a way that the target is met.
INCA members broadly take the view that for the UK economy to be competitive and for
the UK to capitalise on its strengths in the digital and creative sectors, we need an
infrastructure that is mainly fibre to the premises and high speed mobile. FTTP eradicates
bandwidth scarcity based on the physics of copper lines. It enables consumers and businesses
to choose the services they want and are willing to pay for with no bandwidth restraints.
The next milestone are the more closely defined (and more challenging) European 2020
targets for 100% of the population to have access to 30mbps services and 50% to have
100mbps. These imply much greater investment in fibre, particularly fibre to the premises
and fibre to the mast (for high speed mobile coverage).
89 Article on the INCA website, http://www.inca.coop/bduk-right-track
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The Independent Networks Cooperative Association (INCA) – written evidence
Beyond 2015 we argue for a radically different approach to developing policy for the nation’s
digital infrastructure as set out in our paper ‘2020 Vision’.
Speed as a driver for demand is only really relevant to early adopters and to those with poor
existing services. For the vast majority of consumers and businesses the service mix is a
more important driver that raw speed. This has been demonstrated clearly in more
advanced next generation broadband markets outside the UK. Community engagement,
particularly where communities help to develop or fund the services, can also make a big
impact on demand stimulation. The most successful broadband project in the world, in
terms of take up, is the Dutch OnsNet (‘OurNet’) community co-operative project in
Nuenen near Eindhoven, with over 90% take up of FTTH services 90 .
INCA will shortly publish a report from a two day study tour of Dutch fibre projects in
March 2012. This highlighted the drivers of both successful and less successful projects.
How will individuals and companies use cloud services for distributed storage and computation?
What network properties are required to enable efficient provision and use of such services?
Cloud-based services offer businesses and consumers opportunities for accessing
applications and services and storing data in a highly cost-effective and secure way.
One of the pre-requisites for mass adoption of cloud-based services for storage, software as
a service (and other innovations yet to come, e.g. 3-d design and print) is much more
symmetry available in the network – i.e. the opportunity to upload data as quickly as it can
be downloaded.
To what extent will the advent of superfast broadband affect the ways in which people view, listen
to and use media content? Will the broadband networks have the capacity to meet demand for new
media services such as interactive TV, HD TV and 3D content? How will superfast broadband
change e-commerce and the provision of Government services?
As noted above the first domestic broadband connections were installed in the UK in 2000.
For the average 12 year old, who has grown up with broadband, Youtube has already
become a channel of choice, Facebook is a normal part of social interaction and the lates
online game is a topic of hot conversation. Social networking and cloud services mean that
we are increasingly becoming producers of content as well as consumers. However, today’s
networks, their bandwidth and variable quality, struggle to cope with video uploads. In fact it
makes no sense to try to upload high definition video produced on a standard domestic
camera over a standard broadband connection.
If the networks struggle to cope with today’s applications, they will not be adequate for
tomorrow’s. However as noted above, there is a chicken and egg situation: new applications
need an infrastructure over which they can be deployed. Without the infrastructure there
are no new apps. Without the apps, telcos struggle to identify the drivers of bandwidth
demand.
90 Onsnet case study on the INCA Beyond Broadband website, http://www.beyondbroadband.coop/kb/nuenendevelops-fibre-home-model
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The Independent Networks Cooperative Association (INCA) – written evidence
Will the UK's infrastructure provide effective, affordable access to the 'internet of things', and what
new opportunities could this enable?
How might superfast broadband change the relationship between providers and consumers in other
sectors such as content? What aspects of this relationship are key to enabling future innovations
that will benefit society?
What role could or should the different methods of delivery play in ensuring the superfast
broadband network is fit for purpose and is as widely available as possible? How does the expected
demand for superfast broadband influence investment to enhance the capacity of the broadband
network?
Today we live in a mixed economy of technologies, copper, fibre and wireless (including
satellite) and will continue to do so for many years to come.
The problem of demand and investment is significant. Private investors are understandably
unwilling to invest ahead of proven demand and many of the reasons for this are set out in
our paper ‘Financing UK NGA’.
INCA takes the view that to move towards the end game of FTTH and high speed wireless,
we need to align public policy and the regulator in such a way that investment is encouraged
and competitive providers operate on a level playing field. If infrastructure competition in
less commercially attractive areas is not a public policy objective then we inevitably move
towards a debate about full structural separation of BT.
Does the UK, for example, have a properly competitive market in wholesale fibre connectivity? What
benefits could such a market provide, and what actions could the Government take to ensure such a
market?
The UK does not have a competitive market in the provision of wholesale fibre. Encouraging
such a market to develop would have wide ranging impacts on competitive provision of next
generation broadband services and unlock investment, particularly in the middle mile and
backhaul infrastructure.
Geo UK Ltd, an INCA member has summarised the position well as follows:
“A condition of the procurement should be the requirement to offer “open access” to the resulting
fibre network. This means offering duct access and dark fibre – technology neutral “passive”
elements, rather than managed or “active” services. This creates maximum competition in the
market and lowers barriers to entry by allowing operators to come in and compete at the most cost
effective level of the network. An open access network (offering access to fibre, duct and colocation)
is also a requirement under the European Commission State Aid Guidelines for networks
built using public funds.
If service providers are given open access to the passive elements of the network, they will have the
freedom to deploy their own active products with choice and flexibility over broadband speeds, usage
caps and pricing. It allows service providers further to differentiate their service offering and compete
on a level playing field with large vertically integrated players such as BT. It is the model adopted by
the Fibrespeed network in Wales, which is a joint venture between Geo and the Welsh Assembly
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Government. If access to the network is restricted to the active layer only, service providers are
limited to reselling the incumbent’s prescribed active products, leaving little room for product
differentiation or competitive pricing.
Where incumbent infrastructure exists, the incumbent should contribute its infrastructure (i.e.
provide a reference offer for duct and fibre access) before it participates in any procurement in
order to make the process fair and competitive to all bidders. Without access to the incumbent’s
infrastructure, any other bidder would automatically face higher deployment costs which would, in all
likelihood, render a project unviable.”
What impact will enhanced broadband provision have on the media and creative industries in the
UK, not least in light of the increased danger of online piracy? What is the role of the Government in
assuring internet security, and how should intellectual property (IP) best be protected, taking into
account the benefits of openness and security?
INCA does not have a formal position in the debate about IP. However several INCA
members are city authorities keen to develop their digital and creative industries sectors.
These businesses are the lifeblood of digital innovation. They are often located in ‘digital
districts’ that require a high speed, affordable, symmetric networks as quickly as possible to
ensure their future competiveness.
13 March 2012
382

KCOM Group PLC – written evidence
KCOM Group PLC – written evidence
1.0 Introduction to KCOM Group
1.1 KCOM Group is a FTSE 250 company that delivers communications services to a
range of businesses and consumers throughout the UK under a number of different
brands, including the KC brand. In Hull and parts of the East Riding of Yorkshire, KC
is the main provider of communications services to businesses and consumers.
Broadband services delivered using ADSL2+ technology are available to our entire
customer base. KCOM welcomes the opportunity to provide input to the Select
Committee on these important issues. KCOM owns and operates the network in the
Hull and East Yorkshire area as one of the two UK incumbent providers, BT being
the other. As such we are aware of increasing consumer demand for bandwidth and
of the importance of high speed broadband services.
1.2 In July 2011 KCOM announced plans for an initial deployment of a broadband fibre
access network to 15,000 homes over an 18 month period. Our first customers
were connected in September 2011 on a trial basis and we formally launched KC
Lightstream and KC Lightstream Business services in January 2012
(www.kc.co.uk/lightstream). At the same time we also announced details of the areas
in which we will be deploying fibre in 2012. Details can be found here:
http://www.kc.co.uk/about-us/media-centre/2012-to-be-lightning-fast-for-15000-localhomes-and-businesses/
1.3 In March 2012, leading broadband speed test site netindex.com showed Beverley as
the fastest broadband location in the UK with average speeds in excess of 40Mb/s. As
KC commenced deployment of its Lightstream services in Beverley just a month
earlier in February 2012, the results are testament to the quality and speed of the
service we are providing.
1.4 Our technology of choice for the delivery of superfast broadband services is Fibre to
the Premises (FTTP) which allows us to deliver guaranteed download speeds of
100Mb/s. FTTP delivers faster download speeds than Fibre to the Cabinet (FTTC),
which is BT’s technology of choice for the bulk of its deployments. KCOM has opted
to deploy FTTP not only because of the faster speeds it can deliver today but also
because it will allow us to meet our customers’ broadband speeds well into the
future.
1.5 Our initial deployment of fibre services to 15,000 homes will enable us to understand
better the commercial and technical challenges which NGA (Next Generation
Access) presents and ensure that we take the optimal approach to the ongoing
deployment of NGA within our network area.
1.6 We are also investing heavily to ensure that every customer on our network will
achieve the Government’s targets of minimum 2Mb/s download speed. The
Government’s target date for this is 2015 and we are planning to ensure that 100% of
our properties have access to this during 2012.
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KCOM Group PLC – written evidence
1.7 In responding to this call for evidence, KCOM would like to focus on three key
areas:-
• The availability of Government funding for the deployment of superfast broadband;
• The potential for conflict between the approach being taken to meet the UK 2015
targets versus that for the more ambitious European 2020 targets and the
implications;
• Regulation of wholesale superfast broadband services.
2.0 Ensure Government funding is effectively applied
2.1 The UK Government has committed £530 million to bring superfast broadband to
the third of UK homes and businesses not covered by commercial deployment of
fibre services. Allocation of the funds is being managed by Broadband Delivery UK
(BDUK). County councils, unitary authorities and Local Enterprise Partnerships can
apply for a share of the money by developing a local broadband plan setting out how
everyone in the area will receive superfast broadband access.
2.2 KCOM has actively engaged with BDUK recognising there are some unique issues
which exist in relation to its network area. East Riding of Yorkshire Council is unique
in the UK as it is covered by two incumbent operators both designated with
significant market power (BT Group plc and KCOM Group PLC). Hull City Council
is also unique in that it is the only local authority in the UK which does not have BT
as the incumbent communications provider.
2.3 Because our initial deployment of fibre is still at an early stage, we have not yet
achieved a sufficient understanding of the commercial and technical challenges. Future
deployments and the speed of roll-out will be dependent on these learnings.
2.4 Therefore, we are concerned that in our network area, decisions may be made to
spend public monies that may not be necessary. This is because we have every
intention to roll out fibre across our network area but we are not, at this stage, in a
position to confirm the precise nature and timings of our roll-out plan.
2.5 However, we are aware that the East Riding of Yorkshire Council has submitted a
broadband plan to BDUK which specifically excludes the KCOM incumbent area as
the Council is aware of KCOM’s intention. This approach will ensure the maximum
impact from the public monies that are available. We would urge Government to
adopt a flexible approach in scenarios like this in order to ensure Government
funding is targeted to only those areas where it is needed.
3.0 We believe the imposition of a near term target may not be in the best
long term interest of consumers and the economy
3.1 As noted above, KCOM’s technology of choice for the delivery of superfast
broadband services is Fibre to the Premise (FTTP) which allows us to deliver
guaranteed download speeds of 100Mb/s. We believe that FTTP will not only exceed
the UK Government’s aspirations, but also meet the more ambitious European 2020
target of 100% coverage for high-speed connections, within 50% of European
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KCOM Group PLC – written evidence
households having access to at least 100Mb/s. KCOM also believes that a FTTP
approach is a better model for meeting future customer requirements. However, the
higher capital investment required to pass/connect homes is likely to drive longer
timescales for rollout.
3.2 Currently, Fibre to the Cabinet (FTTC) appears to be the technology of choice for
the bulk of UK deployments. While it provides a step change from ADSL to 25-
40Mb/s and costs less to provide than FTTP, we believe it is only an interim solution.
Indeed, the Vice President of the European Commission’s Digital Agenda strategy,
Neelie Kroes, suggested in a speech to the Cable Congress of the European Cable
Communications Association on 8 March 2012 that it was “not possible” for FTTC
technology to “really provide 100 Megabits.” FTTC still gives the same “up to”
challenge that exists today with ADSL technology, given that the proximity of the
premises to the cabinet is the key driver of speed.
3.3 Policy makers must remain mindful of likely future bandwidth requirements and how
they might be met effectively and efficiently. This is why we have deployed FTTP in
Hull and East Yorkshire to ensure that we future-proof our network capabilities and
consumers’ broadband speed aspirations.
4.0 A stable regulatory environment is essential to encourage fibre
investment
4.1 The economics of NGA are challenging and the regulatory framework will have a
fundamental impact on decisions regarding deployment of superfast broadband
services and the development of competition in the UK broadband market. Clearly
any commercial investor contemplating entering this market will be concerned that
their legitimate commercial returns may be eroded by regulatory remedies,
particularly with respect to the allowed rate of return on capital employed in the
provision of any wholesale services they may be obliged to provide to other service
providers.
4.2 To deliver NGA, significant new investments will be necessary, at the active
electronic system level and in terms of passive fibre and duct infrastructure, as well
as at the support systems (OSS/BSS) layer. In order to avoid damaging the prospects
for such investment it is important that appropriate economic signals are sent. In
regulatory terms, we believe that a flexible approach to the pricing of active
wholesale products is vital, allowing a higher cost of capital, which reflects the real
risks of speculative investment. We believe the provision of services should always
be subject to a reasonable demand test and full cost recovery.
4.3 We remain unconvinced of the need for obligations to provide “passive” wholesale
products such as duct access. Whilst it is true that there are significant assets of this
nature already in the ground, it is not clear that they form an essential economic
bottleneck for FTTP or FTTC solutions. We are aware that Ofcom has imposed
specific obligations on BT in this regard and we will be watching closely to
understand the impact that an obligation to provide such services has.
4.4 The key regulatory question is this: What would sustainable competition look like
with these new network architectures? Whilst accepting the current regulatory
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KCOM Group PLC – written evidence
encouragement of investment at the deepest level of network competition possible,
we believe that there are different considerations that need to be taken into account
when considering competition in this emerging market. The economics are
fundamentally different to the deployment of ADSL services with very high
incremental investment levels needed per customer served. Ultimately it may be that
competition at deeper network levels would be economically inefficient and
unsustainable and the regulator must be mindful of this in determining the
appropriate regulatory framework.
4.5 It is also vital that pricing for existing wholesale copper services is not subjected to
downward pressure despite suggestions that reducing copper prices could be used to
encourage greater investment in fibre. Indeed, KCOM believes that any moves to
decrease these prices would simply result in lower returns for network providers,
which in turn reduces the scope for further superfast broadband infrastructure
investment. The aim should be to create stable and predictable regulation of both
existing and emerging services in order to provide the certainty required to support
investment.
13 March 2012
386

Robert Kenny – written evidence
Robert Kenny – written evidence
Introduction
1. My name is Robert Kenny. I am a founding director of Communications Chambers, an
advisory firm specializing in telecoms and media strategy and policy. 91 My clients are
regulators, policy makers, trade bodies and corporations in the UK and internationally.
I have held senior roles in various consulting firms and also headed strategy and M&A
for Hongkong Telecom and Reach (large Asian telcos), and headed M&A for US-based
Level 3, the world’s largest internet backbone provider.
2. I have written extensively on issues related to the societal case for superfast
broadband, both in academic journals and otherwise. I have presented my views to
various conferences, and to a large group of Australian MPs. References for some of
these papers and presentations are available at the end of this evidence.
3. In this evidence I first make some general observations, in part responding to explicit
and implicit assumptions in the call for evidence. I then provide responses to many of
the questions raised by the Committee. I offer this evidence in a personal capacity.
General observations
4. Conventional wisdom is that superfast broadband to the home brings wider societal
benefits, externalities that justify government intervention to support its availability and
adoption. However, my research (initially from a neutral standpoint) has led me to the
conclusion that conventional wisdom may be in error. Very frequently, the evidence
offered for such benefits turns out to be surprisingly weak, or simply not relevant.
5. A first critical point is that superfast has no inherent value – rather, it is a means to an
end. Any form of broadband is only as valuable as the applications it delivers. The case
for superfast must be made on the basis of the applications it delivers. Moreover, the
applications must pass three tests to be relevant: (i) they must be applications relevant
to the home; (ii) they must be applications that depend on superfast, and not
deliverable over basic broadband; and (iii) they must be applications with externalities.
6. Applications must be relevant to the home firstly because most businesses already
have high speed connections available to them (though they may or may not pay to use
them) and secondly because the great majority of the cost of widespread roll-out is
associated with taking fibre to residential neighbourhoods. Remote surgery may be an
exciting application, but it cannot be used to justify digging up suburban streets to
deliver superfast to homes.
7. Applications must depend on superfast, because basic broadband (with limited but
important exceptions) is widely available. If an application can be delivered over basic
broadband it is a simple error of logic to use that application to justify superfast. There
is no need to spend the extra money to get the benefit of that application. However, it
is an error that is frequently made. For instance, smart grids (which have the potential
91 Further information available at www.commcham.com
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Robert Kenny – written evidence
to reduce electricity consumption) are often cited as a reason to roll out fibre. 92 But
smart grids use very little bandwidth, and have already been rolled out using
conventional fixed and wireless connectivity. Telemedicine is another example. There
are many medical applications that are perfectly feasible over basic broadband,
including remote monitoring, videoconferencing and so on.
8. Applications must have externalities since otherwise there is no reason for the
government to intervene. Superfast networks are expensive, and outside densely
populated areas (where unit costs are lower) most consumers are unwilling to pay the
full commercial cost. The same might be said of BMWs or Rolexes, but governments
do not seek to subsidise such goods because they do not bring wider societal benefits.
However, many of the applications cited for superfast appear to be similarly lacking in
such benefits. HD or 3D TV on demand is often mentioned, but it is very unclear how
society benefits from my viewing of Avatar in 3D. If other citizens don’t benefit, why
should they as taxpayers be asked to subsidise my viewing enjoyment? We certainly do
not provide similar subsidies for satellite TV, for instance. The societal case (or
otherwise) of such high bandwidth entertainment is particularly important because it is
one of the few applications that may actually critically depend on superfast speeds.
9. Sometimes the argument for superfast is made not on the basis of applications, but
rather on the more general basis that demand growth has been rapid, and is likely to
continue ever upwards. There are two problems with this argument.
10. Firstly, robust demand growth would normally be seen as an excellent commercial
opportunity, rather than a rationale for government intervention. If however it is
demand that consumers are unwilling to pay full price for, it begs the question why the
government should value that demand more highly than consumers do themselves.
11. Secondly, it seems to be very risky to presume bandwidth demand growth will carry
on at historic rates. Past growth has been driven by three factors: (i) the number of
internet users in a given house; (ii) the amount of time each of those users spend
online; and (iii) the bandwidth used when online.
12. The first two are clearly finite. There are only so many people per house, and so much
time in the day, and we may already be approaching ‘saturation’ on these two
dimensions. (There are households that are not online at all, but that is a separate
issue). Bandwidth use when online has been growing over the last decade as pictures,
applications and video have been added to the original text internet. This has
(primarily) involved moving existing media online. The next step change upwards in
consumption will depend increasingly on material that does not yet exist in material
quantities, such as 3D video, or possibly changes of behavior to, say, HD video
conferencing. This is significantly more speculative than simply adding existing photos
to a website. In combination these factors suggest that simply carrying forward historic
bandwidth growth rates may substantially overstate future demand.
13. Moreover, projecting forward historic growth rates can suggest bandwidth needs that
are very hard to reconcile to actual applications. The average household size is 2.5
people. Even a household of four people, each simultaneously watching their own on-
92 See for instance European Commission, European Broadband: investing in digitally driven growth, October 2010
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Robert Kenny – written evidence
demand HD video stream (presumably a rare scenario) has a bandwidth requirement
of 20 Mbps – far lower than the EU 100 Mbps target, and well within the capability of
fibre-to-the-cabinet technology.
14. Finally, the capabilities of the current copper infrastructure are constantly improving.
This further narrows the set of applications that depend uniquely on fibre-based
solutions, and creates the risk that significant money will be spent overbuilding the
copper, when in fact the copper would have been well capable (in a relatively short
time frame) of providing the necessary bandwidth.
15. While I am skeptical of the externalities of superfast broadband, I should emphasise
that I am not skeptical of the benefits of basic broadband. The ability to access
government and commercial services online, to be in email contact with friends and
family, to telecommute and so on is clearly substantial. Ensuring widespread availability
of basic broadband, and encouraging its uptake where it is already available, are both
highly desirable.
Responses to questions
What is being done to prevent a greater digital divide occurring between people who can access
superfast broadband and people in areas where the roll-out of superfast broadband may not be
commercially attractive?
16. We accept a wide range of divides between urban and rural areas (very roughly
speaking, the split between those with and without access to superfast broadband).
Those in cities have lower ambulance response times, more choice of schools, better
access to public transport and so on. Those in the countryside have cleaner air, more
space and so on. We do not seek to equalise between city- and country-dwellers on all
these dimensions, and it is not clear why superfast broadband should particularly be
the target of significant expense to avoid a ‘divide’ – all the more so because the
externalities of superfast are so unclear.
How does the UK communications market vary regionally and what is the best way to connect the
areas that the market alone cannot reach? Is a universal service obligation necessary to avoid
widening the digital divide?
17. A universal service obligation at any speed approaching ‘superfast’ would carry
substantial cost to the country as a whole, in my view an unjustified expense, in part
for the reasons set out above. Ofcom has described the rationale for the existing basic
telephony USO as follows:
“[It] provides services to help vulnerable customers and customers in remote
and rural areas, … allowing them to take their full part in the economy and
society. In addition, all citizens benefit by having a larger telephone network; they
can contact and be contacted by more people”. 93
18. There is simply no case today to argue that superfast is necessary for citizens to ‘take
their full part in economy and society’, and nor is there a case that such necessity is
93 Ofcom, Review of the Universal Service Obligation, 30 June 2005
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Robert Kenny – written evidence
likely to arise in coming years. The starkest evidence for this is the relatively low takeup
of superfast where is already available. Further, the network effect that Ofcom
refers to (the benefit to all citizens from a larger telephone network) is also far less
relevant to superfast, since it will primarily be used for communications between the
household and a server, not between servers – unless 3D videoconferencing becomes
a critical social tool.
The Government have committed £530 million to help stimulate private investment – is this enough
and is it being effectively applied to develop maximum social and economic benefit?
19. If the government has money to invest in broadband, I believe it is best focused on (i)
supporting the 2 Mbps target; and (ii) encouraging the adoption of broadband where it
is available. The benefits of going online in the first place (for someone currently not
using the internet) are substantial, and it seems likely are far greater than those from
improving the access speed of someone who is already using the internet. Moreover, it
seems at least plausible that the former is actually cheaper than the latter. Countries
such as Korea and Portugal have run successful programmes to encourage take-up of
the internet. With the honourable exception of the (slimly funded) ‘Race Online’
programme, the UK has made only modest efforts in this area.
Will the Government’s targets be met and are they ambitious enough? What speed of broadband
do we need and what drives demand for superfast broadband?
20. For the reasons above, I believe the Government’s targets are too ambitious. The
speed of broadband we need depends on who ‘we’ is. Large households with an
enthusiastic demand for on-demand HD TV might need tens of Mbps. However, if the
question is how much we as a society need – that is, the level of bandwidth that brings
real externalities as opposed to purely private benefits – then I would suggest that
answer is significantly lower.
21. The evidence from overseas markets is that the key driver for superfast adoption has
been aggressive pricing. In order to achieve meaningful penetration of fibre, markets
such as Hong Kong, South Korea and Japan have had to price superfast at a very
moderate or even negative premium to copper based technologies. Moreover, demand
for superfast appears to be saturating in some of these markets. For instance, in Korea
penetration of 100 Mbps services appears to be saturating at a little over 30% of
households 94 , despite the aggressive pricing.
22. As to which applications driver superfast, it is one of the puzzling aspects of the debate
over superfast that it has been available for many years in Asian markets, and yet there
are no obvious examples of applications being developed there that critically depend
on superfast. Fibre advocates lament that their markets lag East Asia, but do not seem
to be able to identify what tangible benefits superfast in these markets has brought.
In fact, are there other targets the Government should set; are there other indicators which should
be used to monitor the health of the digital economy?
94 See Malcolm Turnbull, Korea’s Broadband: An overview and implications for Australia, June 23, 2011
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Robert Kenny – written evidence
23. I would argue that uptake of basic broadband is far more important than availability of
superfast.
What communications infrastructure does the UK ultimately need to remain competitive and meet
consumer demand over the next 20 years?
24. There is an important distinction between these two questions. It is possible that there
will be consumer demand for superfast. This of course does not mean government
intervention is required, any more than it is for thousands of other products where
consumer demand outstrips willingness-to-pay. For competitiveness, I suspect strong
wireless data services likely have greater importance to businesses than faster
broadband speeds. At a per-firm level, there is evidence that the latter makes little
difference for most businesses. 95 Moreover, nations that lead in the internet economy,
most notably the US, do not actually have particularly high broadband speeds. The US
ranks 16 th , well behind markets such as Latvia, UAE and Belgium, all of which are in the
top 10 for average peak connection speed. 96
How will individuals and companies use cloud services for distributed storage and computation?
What network properties are required to enable efficient provision and use of such services?
25. Cloud services are not new. One of the first was Hotmail, a cloud-based email service
launched in 1996. Today they are used for a wide variety of applications, such as
accounting (eg Freeagent), sales force management (salesforce.com), file storage (eg
Dropbox) and word processing (Google Docs). Superfast broadband has not been
necessary, though faster broadband (and lower latency) will bring moderate
enhancements.
To what extent will the advent of superfast broadband affect the ways in which people view, listen
to and use media content? Will the broadband networks have the capacity to meet demand for new
media services such as interactive TV, HD TV and 3D content? How will superfast broadband
change e-commerce and the provision of Government services?
26. HD TV is not a very high bandwidth application. Typical needs are 4-6 Mbps, well
within today’s average UK broadband speed of 7.5 Mbps. 97 Interactive TV doesn’t need
higher bandwidth than normal TV. 3D TV does require higher speeds, but is of course
a nascent and unproven market.
27. Most e-commerce and Government services will be little changed. Tax returns or
driver’s licence applications are unlikely to benefit from 3D video, and nor is most ecommerce.
Video by its nature is less interactive – it tends to be passively consumed.
Thus it is simply less relevant to interactive activities such as e-commerce and
government services. (Very high end video brochures for certain products may be a
partial exception).
Will the UK's infrastructure provide effective, affordable access to the 'internet of things', and what
new opportunities could this enable?
95 See for instance A. Grimes, C. Ren & P. Stevens, The need for speed: impacts of internet connectivity on firm
productivity, Motu Economic and Public Policy Research, October 2009
96 Akamai, State of the Internet, Q2 2011
97 Ofcom, Infrastructure Report, 1November 2011
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Robert Kenny – written evidence
28. Since machines watch little video, the internet-of-things is relatively low bandwidth.
For instance, the requirement per household for electricity smart grids (even those
involving separate meters for multiple devices in the home) is measured in Kbps, not
Mbps. For reasons of in-home connectivity, there are also substantial advantages to
wireless over wired solutions. Thus, while the internet-of-things has great potential, it
is not a strong argument for superfast broadband.
How might superfast broadband change the relationship between providers and consumers in other
sectors such as content? What aspects of this relationship are key to enabling future innovations
that will benefit society?
29. [No comment]
What role could or should the different methods of delivery play in ensuring the superfast
broadband network is fit for purpose and is as widely available as possible? How does the expected
demand for superfast broadband influence investment to enhance the capacity of the broadband
network?
30. Governments should be careful about being prescriptive about technology, not least
because it is developing so fast. The UK has done well in this area, for instance
avoiding a dogmatic favouritism for fibre to the home (unlike some other countries).
This has proven wise, as the capabilities of the existing and far cheaper copper
infrastructure have improved dramatically. BT have recently announced 98 that they
plan to use existing copper (in combination with fibre to the node) to offer speeds of
up to 80 Mbps. 99
Does the UK, for example, have a properly competitive market in wholesale fibre connectivity?
What benefits could such a market provide, and what actions could the Government take to ensure
such a market?
31. [No comment]
What impact will enhanced broadband provision have on the media and creative industries in the
UK, not least in light of the increased danger of online piracy? What is the role of the Government in
assuring internet security, and how should intellectual property (IP) best be protected, taking into
account the benefits of openness and security?
32. One way in which superfast has made a difference to media elsewhere is to enable a
wave of video piracy. In Korea, one of the markets with highest penetration of
superfast broadband, DVD sales fell by 62% between 2002 and 2008 100 compared to
98 BT, Openreach to transform broadband speeds, 5 October 2011
99 For ADSL, ‘up to’ speeds can often significantly overstate the achieved speeds, which in practice depend on how
far you are from the exchange. However, because the copper loop lengths in FTTN are so much shorter, ‘up to’
speeds are likely to be much closer to achieved speeds. It is worth noting that FTTH often fails to achieve
advertised speeds, because of constraints in the non-access parts of the network
100 M. Kapko, “Warner Bros. To Release Films On Demand In South Korea Two Weeks Before DVD Release”,
paidContent.org, October 1 2008
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Robert Kenny – written evidence
86% growth in the US 101 . In 2008 85% of Koreans with high speed connections were
believed to be illegally downloading movies. 102
References
I discuss in detail the issues covered in this evidence in the following papers (as author or
co-author):
Optimal investment in broadband: The trade-off between coverage and network Apr 2010
capability
Superfast - Is it really worth a subsidy? [academic paper for info, with Charles Feb 2011
Kenny]
Are you considering a fibre subsidy? Questions to ask [presentation to Australian Mar 2011
MPs]
Korea’s Broadband: An overview and implications for Australia [research for Jun 2011
Malcolm Turnbull MP]
Does the Superfast Emperor have any clothes? A sceptical look at fibre subsidies Sep 2011
Fact checking Stephen Conroy’s NBN speech to the Press Club Dec 2011
These are available at www.commcham.com/publications, except for the Korea paper, which
is here.
101 Digital Entertainment Group, “U.S. Home Entertainment Spending Tops $22 Billion For Sixth Straight Year”
(Press release), January 8, 2009
102 S. Hansell, “Internet Video in Korea Eclipses the DVD”, New York Times, November 14 2008
393

Leire Exchange Broadband Action Group – written evidence
Leire Exchange Broadband Action Group – written evidence
1) Leire Exchange Broadband Action Group (LEBAG) is a group of residents and
businesses in South Leicestershire whose broadband connections are unacceptably
slow; all are connected via the BT telephone exchange at Leire.
2) LEBAG was formed after an initial meeting on 26 January 2012, when over 170
residents and business representatives, mainly from the villages of Ashby Magna, Ashby
Parva, Claybrooke Magna, Claybrooke Parva, Dunton Bassett, Frolesworth, Leire, and
Ullesthorpe attended a meeting to discuss the very low broadband speeds in the
community. Speakers at the meeting included Matthew Kempson (Leicestershire
County Council), Paul Bimson (BT), and Michael Mulquin (East Midlands Broadband
Consortium).
3) The purpose of the meeting was to:
• Explore the reasons why the community does not have fast reliable broadband
• Identify the possible options for improving the speed and reliability of broadband
• Demonstrate that there is a demand for faster reliable broadband
4) The fact that 170 people turned up on a cold January evening, and many more
expressed their interest but were unable to attend, gives an indication of how serious
the situation is. In villages connected via the Leire telephone exchange, some people
are unable to get download speeds above 0.5Mb/s. The talk is now of superfast
broadband but many of us do not even have acceptable first generation broadband.
5) Of the people attending the meeting, 87% filled in a short survey form. Attendees
were asked to indicate whether they used broadband for business, working from home
and/or personal use. The results were as follows:
Yes No
Business 41% 59%
Working from home 54% 46%
Personal 89% 11%
It can be seen from the figures that there are many businesses (SMEs: Small and
Medium-sized Enterprises) based in the community, as well as many people working
from home.
6) From a series of case studies collected in the area, there is evidence that because our
broadband is so slow and unreliable:
• Businesses are being made less competitive
• Employment opportunities are being reduced
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Leire Exchange Broadband Action Group – written evidence
• People who could work from home continue to commute, wasting time and
creating an unnecessary carbon footprint
• People who want to work from home are choosing to live in places with faster
broadband
We also know that children in the villages are not able to access the internet for their
studies in the same way as their peers in neighbouring towns.
7) We are very concerned that we are in an area where there are no plans by
commercial providers (e.g. BT, Virgin Media) to deploy superfast broadband. We are
concerned that we are being increasingly disadvantaged in our community: new
businesses are less likely to be established, existing businesses cannot thrive,
employees cannot work effectively from home via the internet, and children and
students find it is difficult to quickly get access to the learning material they are
expected to obtain.
8) We welcome the government funding to support deployment of superfast broadband,
but we believe it does not go far enough. The amount of funding is not adequate to
bring superfast broadband to those areas of the country for which commercial
providers have no current deployment plans.
9) From the £530 million set aside by the government, £3.14 million has been allocated to
Leicestershire, and £4 million has in addition been set aside by Leicestershire County
Council (LCC). However, LCC estimates that around £20 million will be needed. The
current funding is therefore inadequate, and further funding is needed.
10) LCC is currently carrying out a survey to ascertain the level of demand for superfast
broadband across the county, to help determine which communities will be prioritised
to receive a share of the limited funding available. This is a valid approach based on
limited funding; however, superfast broadband should be considered an essential utility
that is available to all communities, and government funding made available accordingly.
11) While superfast broadband is available in urban areas, rural communities including our
own are struggling with connection speeds so low that some internet applications are
barely workable. Our community is very close to towns that already have superfast
broadband: we are within a 5-mile radius of Lutterworth; we are within a 5-mile radius
of Broughton Astley; we are within an 8-mile radius of Hinckley; we are just 12 miles
south of Leicester City; yet we may be sidelined for years to come.
12) We call for the government to fully fund deployment of superfast broadband to all
areas where commercial providers have no current deployment plans.
11 March 2012
395

The Liberal Democrats Action for Land Taxation and Economic Reform (ALTER) –
written evidence
The Liberal Democrats Action for Land Taxation and Economic
Reform (ALTER) – written evidence
Background The Government have committed £530 million to help stimulate private
investment in those locations where the commercial investment case is weak.; the
Government’s ambition is to provide superfast broadband to at least 90% of premises in the
UK by 2015 and to provide universal access to standard broadband with a speed of at least 2
Mb/s.”
This submission is ALTER’s answer to the following question: “Is £530 million enough and is
it being effectively applied to develop maximum social and economic benefit?”
Answer: Unless special measures are included, public money will not be used to its
maximum effect. There is a danger of considerable wealth transfer from the general taxpayer
to rural property owners, and measures should be taken to minimize this unnecessary cost.
Rationale: The effect of high speed broadband will be to increase productivity and amenity
in the less prosperous and rural locations which receive this subsidy. On the assumption that
the property market is competitive, it is already the case that owners sell properties, or rent
properties, at the rate that the market will bear.
If taxpayers money is provided for broadband, and this increases productivity locally, then
new and more profitable businesses will arise in the area, and competition will increase for
land and homes. Since the availability of housing and business premises is constrained by cost
and planning laws, property owners will be able to demand higher rental or sales prices and
still be able to find tenants or buyers. This will continue until the return on employed capital
and labour in the area reverts to the normal market rate 103 .
In the absence of measures to capture the land value uplift caused by broadband for the
public benefit, for example a tax on land’s location value, a significant amount of benefit will
be captured by land owners, especially owners of residential property 104 . The general
taxpayer, which includes some of the poorest members of society, will be cross subsidizing
property price increases benefiting the owners, not necessarily the current occupants, of
residential lands in less prosperous or rural areas. Even if net economic activity increases,
this transfer of wealth from the general taxpayer to landowners provides no social benefit
and is a dead weight cost which reduces the efficacy of public spending.
ALTER suggests that active measures should be included to ensure that property owners,
who will benefit substantially from this measure, provide some of the funding for broadband
themselves. Measures could include inviting them to provide a proportion of funding, and
directing subsidy to those areas where property owners provide most commitment. This
would maximize the social and economic benefit of the stimulus cash, increase available
investment funds, and would utilize knowledge of local conditions. Land owners would
become actively participating beneficiaries, rather than enjoying a free ride. They would also
be under competitive pressure to provide best value commitments. ALTER is happy to assist
with defining and developing mechanisms that enable this.
13 March 2012
103 Some economists refer to this process as the capture of “economic rent”..
104 Business land value uplift will be partly captured by business rates, which are directly related to rental value.
396

Suvi Lindén – oral evidence (QQ 1-28)
Suvi Lindén – oral evidence (QQ 1-28)
Evidence Session No. 1. Heard in Public. Questions 1 - 28
TUESDAY 13 MARCH 2012
Members present
Lord Inglewood (Chairman)
Lord Bragg
Lord Clement-Jones
Baroness Deech
Baroness Fookes
Lord Gordon of Strathblane
Lord Macdonald of Tradeston
Lord Razzall
Lord St John of Bletso
Lord Skelmersdale
________________
Examination of Witness
Ms Suvi Lindén, Special Envoy for the Broadband Commission for Digital Development
and former Minister of Communications for Finland
Q1 The Chairman: Ms Lindén, can I welcome you and say how grateful we are that you
have agreed to speak to us this afternoon? It is a great pleasure to us. Before we formally get
underway, we have one brief housekeeping point because this is the first hearing in our new
inquiry, and I have to just ask the Members if they have any declarations of financial interest
they would like to declare. Perhaps I may start on the right. Does anybody on my right have
any specific financial interests they want to declare?
Lord Macdonald of Tradeston: I declare an interest as an adviser to Macquarie
Infrastructure and Real Assets, whose funds hold a 32% share of Arqiva, the communications
infrastructure company operating in broadcast, satellite and mobile markets.
Lord St John of Bletso: I am an adviser to the board of 2e2 Group, which is a private IT
services company with broadband coverage. I am also a patron of Citizens Online, which is a
charity committed to promoting universal access to the internet and tackling issues of digital
inclusion.
Q2 The Chairman: Thank you for that. If I might now formally welcome you, Ms Lindén,
I am extremely grateful, as I said, that you have come. You are special envoy to the UN
Broadband Commission and a former communications minister in your own country of
Finland. If I might, let me just explain that the meeting is being sound recorded so, if you
397

Suvi Lindén – oral evidence (QQ 1-28)
could, just before you start please identify yourself for the record. In addition, if you would
like to make any kind of opening statement, we would be very pleased to hear it from you.
Thank you.
Ms Lindén: Thank you, my Lord Chairman. First of all, I am very delighted to be here. I am
Suvi Lindén—can you hear me? [Interruption.]
The Chairman: Can I just stop you for a moment. There is a Vote going on. Some of our
Members are going to leave, but we have arranged to pair off so that the hearing can roll on
without any interruption. The Division Bell will stop in a moment. It is called democracy.
Ms Lindén: Yes, I know.
The Chairman: I think we can now proceed. It will ring again, briefly.
Ms Lindén: Yes, okay. [Interruption.]
The Chairman: Sorry, it is called Murphy’s law. I think that really is the end of it for now.
Ms Lindén: Okay. My Lord Chairman, my name is Suvi Lindén. I am a former minister of
communications in Finland and ITU special envoy for the Broadband Commission.
[Interruption.]
The Chairman: It could not be worse. It is not until you have one of these sorts of things
that you realise how many times the Division Bell rings. Can we try again, please?
Ms Lindén: Okay. My Lord Chairman, my name is Suvi Lindén. I am a former minister of
communications in Finland and ITU special envoy for the Broadband Commission. First of all,
I want to thank you for the possibility to present my views and opinions about the role of
broadband in societies. In Finland, the former Government changed the communications
policy completely. There were two reasons for that. First of all, we realised that good
communication connection is a necessity for today. It is not any more a luxurious thing but
something that we need and that everyone needs. The other reason was that we also found
that market forces will not bring this connection to everyone in Finland. So we had to decide
our broadband strategy, and we had two steps in it. First of all, we made 1 megabit per
second a legal right for every citizen in Finland starting in July 2010. The other strategy is
that by 2015 we hope to be able to provide around 100 megabits per second for every
household in Finland. Lord Chairman, this is my intervention and I think that we can
continue with questions.
Q3 The Chairman: Thank you very much. That is an extremely helpful opening
statement for us. If I might, I will begin. From what you have said, it seems to me that you
are strongly of the view that, in the modern world, broadband should be treated as a utility.
Do you think that it is as important for the workings of civil society in the future, as, for
example, water, energy and so on?
Ms Lindén: I think it is as important. At least, we have seen that today’s societies are very
dependent on good telecommunication infrastructure. Especially in developed countries, the
public sector is not very effective and productive providing services for people, and I think
that by using ICT technology and communication networks the public sector can be much
more productive with its services. Also, in rural areas people also used to have all kinds of
services and we all see what is happening with the state of the economy, that for
398

Suvi Lindén – oral evidence (QQ 1-28)
Governments and public sector it is harder and harder to be able to provide the services for
citizens in the rural areas. Good communication technology and telecommunication
infrastructure can provide a new chance and possibility for those people who live in sparsely
populated areas to be able to get good services also. I very strongly believe that there is no
future without good broadband connection. At the same time, we have seen what has
happened in developing countries in the past five years, when people in Africa have got
mobile phones. That provides new possibilities for economic development and for citizens in
those societies, where getting the traditional infrastructure base would take much longer
than getting the telecommunication infrastructure.
Q4 The Chairman: Speaking for myself, as somebody who lives in rural Britain, I am
extremely encouraged by your remarks. But if I might move on, how would you define being
competitive internationally in the context of the provision of broadband and superfast
broadband?
Ms Lindén: I think that the most important thing is first of all that there is accessibility, so
that everyone who wants to have access has that possibility. Also the affordability is
important. If there is a telecommunication infrastructure but it is not affordable, then it is
not of any use. Then of course the speed of the broadband should be of the kind that is
needed. Businesses and companies quite often need more speed than households, so I think
that when you are planning for the infrastructure it should be that kind of long-term
visionary plan, even though nobody can really know what is happening in the future. We
have seen what has happened in the past five years with the amount of data transfer, for
example. But still I think it should be flexible, so 24 megabits might be fine, but if you are
making fibre-based networks then you can easily reach much more speed than 20 megabits
or 50 megabits.
Also I think one very nice thing is that technology is advancing all the time, so wireless is one
possibility for certain areas also to provide quite good access for infrastructure. I would not
say that there has to be 20, 50 or 100 megabits or 1 gigabit. It is about what the businesses
need for them to be able to provide the services, what speed is needed for the public
services—for example, for this kind of video-conference or telemedicine—and of course, for
households, what kind of access people want to have.
Q5 The Chairman: When people like us—and, indeed, yourself when you were a
minister—think about the future, should we aim to provide more than what looks
appropriate at any particular time?
Ms Lindén: If you look back, so much has happened in a couple of years and the demand for
quality, high-speed broadband access has grown a lot. We have seen in Finland, for example,
that since we started with our strategy to talk about broadband and all the possibilities, the
demand has grown a lot and the service providers have started to provide more fast,
broadband-needed services. In my opinion, by 2020 in Finland, for example, every household
should have a fibre fixed connection to the home, and then also we need the mobile
broadband since we are moving around. We have tablets, we have portable devices and we
have our smartphones, so in a way it is a combination of that good-quality fixed broadband,
which nowadays should be fibre. Fibre is long-term, provides 40 gigabits per second and can
provide very high speed access. Then along with fibre comes the wireless broadband, which
is very important also.
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Q6 Lord Razzall: This may seem to be a silly and rather naive question but I think it is
quite important that we should get it on the record. In general terms, why did you decide as
the Finnish Government that all households or certainly every community—more than a
dozen or so households within two kilometres of every community—should all have access
to fibre? I know it sounds a silly question, but I think it is quite important that you should
make a statement as to the rationale for this.
Ms Lindén: We made 1 megabit per second broadband access a legal right, and we could do
it without any public funding because we have very good coverage now with the 3G
network. Every household all over the country, including in very sparsely populated areas,
has a legal right to 1 megabit. This 2015 plan for a fibre-based trunk network and fibre within
two kilometres from households is not a legal right, but Government is putting public
funding behind this goal. In Finland we have been developing e-services for decades, and
nowadays 86% of bank clients, for example, do their banking through Netbank, using the
internet. We send e-mails, we have e-invoicing and the public sector is providing services for
elderly people more and more to their homes using video-conferencing and all kinds of
services. If you really want to provide these services, it is very hard for a politician to say,
“Okay, we will do it but not everyone has access to them”. The ideology for it was that
everyone should have access.
With 1 megabit you can buy today’s needs. Many people only send e-mail and maybe use
search engines and use Skype, but if you look to the future you can see all kinds of more
bandwidth-demanding services coming, especially for the public sector and telemedicine.
Then you really need to also start to build up the fibre-based trunk network because it will
take time, and hopefully we will be able to manage with this goal. I would like to add that in
our plan for 2015 we believe that 95% of the households will be provided the fibre by
market forces. The last 5% is the one that the public sector—the Government—is funding.
That is the way we hope to be able to build up our fast-speed network in Finland.
Q7 Lord Razzall: What you are saying is the main driver for this was that, unless all
households had access to fibre, they would be missing out on internet-related services that
are now becoming commonplace?
Ms Lindén: Yes, and I think that not yet, but in a few years, I am quite sure that certain
services will be provided only through the internet. Finland has been very decentralised with
public services, but now with the lack of money things are available only in bigger cities and
still we have a lot of people living in sparsely populated areas. Through the internet they can
still be provided with the same services as people living in the cities. We found out that, for
example, in today’s farming you cannot be a farmer without a good broadband connection
because you need the robot cameras for cows and all these kinds of things. For businesses
to be able to do their things in the rural areas, they really need to have good access. So, in a
way, there is no future without good access and that was why we decided to do these
strategies.
Q8 Lord Gordon of Strathblane: I shall ask a supplementary question, if I may. Your
plan for 2015 takes fibre to within two kilometres of clusters of houses. A chain is only as
strong as its weakest link. What happens to the link from the fibre connection to the house
itself? Is that where the subsidies are coming in?
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Ms Lindén: No, subsidies come to this within two kilometres. The household knows what
they demand and what is their need, and they also pay for the subscription. So quite often
the last mile will be wireless because the cost of the wireless is cheaper than getting fibre to
the home. Of course, there are houses where the family may be watching television while
the kids are on computers, so their demand for high-speed broadband is more than in the
household of one person. This kind of household might get fibre to the home, but the main
philosophy is that the household pays the last two kilometres, so they have to be able to
decide whether they want to have the mobile broadband or whether they want to have the
fibre to the home.
I believe myself that by 2020 the services will have developed so strongly that everyone
should have fibre to the home. But at this moment many households think that we can do
with mobile broadband, and when the fibre comes to the two kilometres from the
household the mobile broadband access is already very good quality and fast.
Q9 Lord Gordon of Strathblane: But if there is superfast broadband, there is the
possibility of downloading films and watching television programmes and so on online. That
will change, arguably, the pattern of usage if everybody in a community decides to download
films at the same time. Will that not put pressure on anything other than fibre?
Ms Lindén: Fibre is the best technique for this kind of use of broadband, and in Finland I
also see that now, when people are getting the mobile broadband access for the last two
kilometres, they will be changing that later on for fibre, because when there is more demand
for better quality services then there will be more demand for high speed access also. The
challenge here is also that at this moment I know that there is a lot of discussion going on:
“Do we need 100 megabits or do we need 500 megabits? Can we do it with 10 megabits?”
This is because we do not have many services that require high speed access. But I would
not like to be the one who says that we will not have those services in 10 years. For the
public sector, we are not putting in money to provide better entertainment for households,
but I think that there might be services that really require better access. Especially, you have
to remember that mobile broadband is not symmetric, so the download and upload speeds
are different, which will present some challenges for some kinds of services. In a way, I
strongly believe in fibre combined with the mobile broadband access.
Q10 Lord Clement-Jones: I think what is very interesting is not just the public
provision, but your enshrining the right to 1 megabit broadband in legislation. I think you
were saying that obviously you hope for 2 megabits by 2015 but you will not be enshrining
that in legislation—or perhaps you will. Why did you decide to go for a legal right? Has that
been enforced in the courts at all?
Ms Lindén: When we introduced the legislation, one of our operators with responsibility
for the most sparsely populated areas estimated that there were in 2010 about 4,000
households that did not have any access. In Finland we have certain areas where even mobile
broadband is a very big challenge. With this 1 megabit per second, we kind of wanted to
make sure that everyone has the basic access for internet, and without the legislation I think
that we would still have a lot of households that just would not be provided for by telecom
operators. When you live in very sparsely populated areas or in this kind of white spot
where even the 3G network is hard to reach, then the operators just will not offer. You
would pay a lot of money for that. With this legislation, we made it possible. In a way,
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although the telecom operators of course were not very happy about it, it was not too big
of a problem for them. At this moment everyone has the possibility of access and it has also,
I think, boosted many things and brought new possibilities in certain areas for companies.
Even with 1 megabit access you can do a lot of things.
The legislation was done so that we can increase the speed quite easily. The speed is not in
the legislation. We did 1 megabit. If we had said 2 megabits then we would have needed a lot
of public funding, because 2 megabits is not possible with 3G networks, but 1megabit, which
is average speed, is possible. We wanted to do it this way so that we would not have to put
any taxpayers’ money into this. When 4G comes, I am quite sure that we will increase from
1 megabit to 2 megabits. We do not want to put public money into this legal right. I just
want to make that clear.
Q11 Lord Clement-Jones: That is very interesting. So, over a period of time, might you
increase not only to 2 megabits but even further using that legislation?
Ms Lindén: Yes, especially when you do not have to take it into Parliament. The legislation
is meant so that the Government can increase the speed. But, of course, since it is a
universal service there are directives that say we cannot impose unreasonable costs or
burdens on teleoperators, so in a way it is a delicate matter what the speed is. Now 1
megabit is okay, and when we have better mobile broadband network we can increase it and
not have any reason to provide subsidies to teleoperators.
Lord Clement-Jones: That is very cunning. Each time you have waited for the technology
to come on so that the Government does not have to spend too much money.
Ms Lindén: Yes.
Q12 Baroness Fookes: Have I understood correctly that you have not one target but
two—one for 2015 and one for 2020?
Ms Lindén: We have two targets, one of which we have accomplished. The first target was
1 megabit for everyone. Knowing that 1 megabit will not be enough, we made the other
target for 2015. But my personal target is that I strongly believe that by 2020 there should
be fibre to the home for everyone and also high-speed mobile broadband, but that is my
personal 2020 target. We will see what Government does when we get to 2015.
Q13 Baroness Fookes: Is the 2015 target likely to be accomplished without difficulty?
Ms Lindén: There are difficulties, and I would like to mention some experiences we have
had since we have been doing that for a couple of years. We have about 800 subsidised
projects for white spots in all of the country. Not only in the northern part of Finland but all
over the country we have these white spots where markets will not provide high-speed
broadband. Our model is that two-thirds of the investment is public money and one-third is
private money from the telecom operator. We really thought that, with two-thirds provided
by public subsidies, we would get things going. Unfortunately, we were very surprised that
when we had offerings—for example, in Lapland—not a single teleoperator was interested in
those areas, even though two-thirds would come from public money. Our three big
operators have been very passive with this project, but the small local operators have been
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very active, and that tells us already their different attitude. The big operators that are on
the stock market have to get a lot of profit for what they are doing, so they are not
interested in this 2015 plan, even though they would get public money. However, the local
operators have this kind of social conscience and they want to take care of the region where
they are working, so in those areas where there are local telecom operators they have been
quite successful with starting to build up the fibre.
Then we have also areas where there are no local telecom operators. For example, in the
eastern part of Finland, 20 municipalities established a company that is going to construct the
fibre network for the whole region. We have also non-profit-making smaller organisations in
smaller areas than these 20 municipalities that have founded a non-profit company that is
going to construct the network because no private company is interested in doing that. That
means, in a way, there are challenges for financing since the public aid is given after the
construction is finalised. These non-profit companies established by the community usually
do not have the money, so we have this kind of mid-term review going on now. I think that
we have to provide some kind of loans for them so that they can do the construction work.
The biggest surprise for us was that, with such a big amount of public money, the white
spots are still so challenging for private companies that you will really need special things to
get the high-speed broadband in those areas. That is something that we could not have
thought beforehand would happen.
Q14 The Chairman: There is one thing arising from that, if I might just interject. Under
the system you have described, how do the local operators get connection to the internet
to and from the larger operators?
Ms Lindén: Of course, we have a network covering the whole country, and these local
operators do not have any spectrum; they have fibre networks, so they are connecting with
fibre to the national networks. Since they do not want to have as much revenue as the big
companies, they can manage to do it and they want to do it because they have seen how
much this affects the local economics and boosts small companies in the small communities.
Q15 The Chairman: Is there some kind of Government protocol governing the
connection charges and so on?
Ms Lindén: In Finland, copper is regulated but fibre is not. Those networks that are built
with public money or public subsidies are open-access networks, and in this way there is
access for all service providers. These local networks built by local telecom operators are
their networks so they are not open access, but all these 800 projects we are going to do in
Finland will have public money so they will all be open-access networks.
Q16 Baroness Fookes: You mentioned that some of the small companies were
interested where the big boys—if I may call them that—were not. Are they all not-for-profit
companies, or are there some that are for-profit in the smaller group?
Ms Lindén: We have in Finland something like 30 telcos and we have a long history of
having over 200 private phone companies, and in certain regions those old phone companies
are now telecom operators. Their expectations for profits are much lower than these big
national and international companies, and we have seen that the local players are better
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players in a local society because it seems that the big players are not interested in small
things or small societies or these regions that do not have very much population. But I think
it is very good that we have these local operators—life used to be such that even the big
companies aimed for some kind of growth and doing things together rather than only
thinking of their profits. The world has changed and the competition is really very hard, and
this way these big companies, which are national and international companies, just compete
against each other and they just do not have an interest in these small areas or regions that
are not very populated.
Q17 Lord Macdonald of Tradeston: This is a two-part question. By setting this target
for 2015 is there evidence that this has accelerated the rollout of high-speed broadband in
the way that the market would not have provided anyway? Secondly, with the advances you
have made to date, have you seen any impact there that has been of very visible help to your
economy or sections of your economy?
Ms Lindén: I think this whole process has accelerated the investments for broadband. First
of all, with this legal right, the 3G networks—the three companies with a licence for the
spectrum we are building—had to speed up their investments because they had planned to
have nationwide networks by the end of 2012, whereas we wanted them to have them ready
by 2010. They had to speed up their investment, and in this way people got accessibility
earlier than had been thought at the beginning. Also, this 2015 plan has really brought up the
discussion about the role of broadband and why broadband is important, and what kind of
services are possible to be provided using broadband. Through this discussion, demand has
grown. I think it has been very important to have this public debate because broadband is
still for many people—especially for elderly people—a very strange definition. What is
broadband? What do I do with it?
I think also, especially in sparsely populated areas, the municipalities have realised that their
only hope for a better future, or a future at all, is that they have fast-speed broadband
access, and they are working very hard to get these networks done. I think that one of the
very good things for these local communities has been the activeness in building up the plan
and getting people interested in it, because of course the more subscribers there are, the
easier it is to get offers even from the local telecom operators to build up the network. So it
also has brought the society together somehow. We already have experiences of some small
villages that a have fibre connection network all over and they are very pleased. This way
they can also create, together with other municipality services, all kinds of online services,
and of course the Government is also providing e-government services. I think that this has
been a very good process.
Also, Finland is a country that, because of Nokia, has had a very strong ICT-based economy,
and we have a lot of small start-up companies that are building applications for smartphones,
PCs, tablets and the internet. I think that there have been a lot of positive effects from this
process.
Q18 Lord Macdonald of Tradeston: Just finally, if as a minister or as a Government
you had a to choose between putting your money into surface transport, such as roads and
rail, and putting your money into broadband to stimulate the economy, which would you
prefer—old transport or new communications?
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Ms Lindén: Broadband is much cheaper. You need money for broadband—the British
Government is putting in a lot of money—but with £500 million or £1 billion you do not get
much highway. So, in a way, if you get a good fibre-based network in the whole country, I
think the boost for the economy is much bigger than what you can do with £1 billion
invested in roads.
Q19 Lord Skelmersdale: If I could move slightly on to the international scene, we in this
country think of the Nordic countries as the paragons of virtue as far as internet penetration
and broadband penetration are concerned. Why do you think the Nordic countries as a
whole have taken such a different approach from that of the rest of the world?
Ms Lindén: Maybe it is our history. In Finland we did put a lot of money in R&D in the
1990s when we had our economic crisis and we were building a society that was based on
innovations and developing an information society. Sweden has achieved it through Ericsson
and with ICT. Also, we are very sparsely populated countries, and we have the philosophy
that people should be able to live where they want to live. To be able to make that happen,
you really need broadband. In both Sweden and Finland—of course, Norway is a very rich
country with the oil mining so it does not have to tackle it with the taxpayers’ money as we
have to do—we have seen an ICT-based economy, which I believe is very strong in future. In
Finland, we have gone through very deep changes in our industry. We have been very
dependent on, for example, the paper industry, and now we see what is happening with
paper when everything goes to internet. So I think that a third or fourth revolution will be
happening with the internet and internet-based economy, and the highway is needed—the
good infrastructure is needed—for that revolution.
Q20 Lord Skelmersdale: So you do not think it has anything to do with your long dark
winters?
Ms Lindén: It might also be so because, of course, in the winter time logistics are very hard.
Another good example is that, when we had our bank crisis in the 1990s and lost many
banks, the banks had to do things in a new way and be more efficient and they started to
open e-banking. The result now is that the Nordic banks are the most efficient in the
banking world and they are really doing everything electronically in the digital world. That is
just a good example of how certain kinds of services can be provided in a very efficient and
productive way using digital tools. Of course, when we think, for example, how much we are
saving and how great this session is that we are doing through video-conferencing—and
when we consider that this technology still develops and gets better—there is no use always
having to travel for these kinds of meetings or conferences. I think that the internet and the
development of the information society is on the table of all Governments all over the
world, whether you are a developing country or a developed country.
Lord Skelmersdale: I should have explained that my reference to winter was put into my
mind by your own comment about the difficulties of transport.
Ms Lindén: Yes, we still have so much snow now.
Q21 The Chairman: As well as having been the minister in Finland, you obviously have
viewed the world more widely in your current role. What major differences do you see
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between different Governments’ policies? In particular, do you have any views about which
are better?
Ms Lindén: Just last week I was in Doha at a summit and it was very neat to see there 18
ministers from all the Arab countries, who were really all tackling the issue about what kind
of national broadband strategy they should have. It is seen that in developing countries the
first telecom infrastructure will be a mobile broadband infrastructure. For example, India has
just announced that the 700 megahertz bandwidth—used by broadcasters in the western
world—will be used to launch mobile broadband, which will make it less costly to invest in
rural areas. These developing countries want to have the telecom infrastructure, but they
have to do mobile first because they do not have any kind of infrastructure.
I think that the European countries are a little too lazy compared to the emerging countries.
Of course, we have high levels of social standards and the public sector spends a lot of
money, so the questions we tackle are about whether we should build roads or telecom
infrastructure or provide health services. A big challenge is presented by what is happening
in Asia and Latin America, where people are quickly building high-speed broadband
networks. If the European countries cannot achieve the goals of the digital agenda by 2015, I
think that we will face a lot of problems in the future.
Q22 Lord Gordon of Strathblane: Could I just ask a supplementary on that one? In
fairness to some of the European countries—the United Kingdom included—part of the
problem might be that, whereas developing countries perhaps have no infrastructure at the
moment and it makes sense for them to go for either mobile or fibre, some European
countries have a fairly highly developed copper-wire network and people want to recoup, as
it were, their investment in that before scrapping it.
Ms Lindén: You are very right. That is a big challenge for politicians because, if you have 1
megabit and you do not desire more for the future, you will not have a lot of possibilities to
win in this battle. Since the emerging countries do not have any accessibility, for them the
goal can be to do it well to start with, whereas for us it is easy to say that we can get by
with the copper networks so 1 megabit is fine if we do not need more for the next five
years. But it takes a lot of time to improve the networks, and therefore I think the political
decisions should be made now because it will take five or six years before we have the
networks built up.
Lord Gordon of Strathblane: Thank you.
Q23 Lord St John of Bletso: You spoke a lot about the advances in mobile broadband
as well as talking about the proliferation of mobile phones in Africa, and you also have been
talking about the advances in technology, particularly going towards 4G. Just following on
from the last question, do you think that developing countries are going to overtake
Europe—and, in particular, the UK—in terms of the effectiveness of their superfast
broadband infrastructure?
Ms Lindén: The mobile broadband technology is advancing a lot, and of course it seems
easier for developing countries to allocate spectrum quite fast. For example, the 700
megahertz is a challenge for us because it is now used by broadcasters. With the broadband
networks the developing countries will advance very fast, but to get the fibre-based trunk
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network, I think, for the poorest countries it will take a lot of time. However, I would say
that the developing countries that are in the middle and are not LCD countries—the leastdeveloped
countries—still have some money to do the fixed networks, and they will go fast.
Also, of course, in China and India, development is going to be very fast—especially in China.
I think that in Europe we really need to be serious with this matter. If we wait now, the time
will go by us.
Q24 Lord St John of Bletso: Going just a bit further, would you agree that the debate
about superfast broadband is about not just installing the physical infrastructure but, just as
important, educating the population? You mentioned those in their latter years, in their 80s,
in Finland. For those people to fully understand and embrace the opportunities that
superfast broadband can bring, the issue is not just infrastructure but how businesses and
others can fully embrace what broadband can bring them.
Ms Lindén: That is the most important thing. That is why we told the networks that this is
not just about the technology of the network itself but about what we can achieve with that,
especially for elderly people. For them, quite often their need might be for good videoconferencing
for telemedicine or for the home service so that they are able to stay at home
longer. Finland is the fastest ageing country in the OECD countries, and especially we have
been working very hard on researching and designing all kinds of tools and services for
elderly people for their security and healthcare, so as to let them stay at home longer than
they could without this kind of service. We just cannot afford to provide the same level of
care as we are doing now and that people are used to having in Finland. I have quite often
said that, for some municipalities that have these elderly people living, for example, 80
kilometres from the centre of the municipality, “It is cheaper for you to build up the fibre to
this old lady than to take her to live in the city centre in the nursing home”. It costs what it
would cost for the municipality to have her living in the public-provided nursing home for
two months. This way, the municipalities and local politicians who should be active with this
matter also should weigh these different options and the challenges in healthcare and taking
care of the elderly people. The broadband provides a very good tool for that. Everyone is
now designing all kinds of services, so nowadays you can already find a variety of different
kinds of telemedicine services and services for elderly people and for their security. This is
one field of new business and there are new jobs to be created in this field.
Q25 The Chairman: Can I interject there with one point? You mentioned the challenge
from, among other countries, China. Do you think the European Union in its role in all this
has a strong grip on it? Are we as a whole in western Europe taking these problems
seriously enough?
Ms Lindén: I think the Commission and Neelie Kroes have worked a lot, but the challenge
in this field is that, for example, the digital agenda for the European Union is horizontal and it
is not enough that the Commissioner who is responsible for the telecommunication is active
with it. I have a feeling that it is still not taken, in the whole Commission, as seriously as it
should be. I think it should be the number one item on the table for the European
Commission, and unfortunately I have the feeling that it is not. When the superfast
infrastructure is built in Europe and when we get our domestic markets and one market for
e-services, then we have a possibility to boost the economy and get a lot of new jobs. But
the challenge is not only the infrastructure; it is, for example, very fragmented markets for e-
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services in Europe. Every country has its own copyright legislation and its own legislation for
healthcare and what kind of things need to be considered, so when innovation is made, for
example, in e-services you have to implement that in 27 different countries that have 27
different kinds of rules and laws for that. There is a very big challenge for Europe. It is much
easier to do that in the United States, and I suppose the one reason for them to be very
advanced is that they have had a different kind of perspective for supporting e-service
markets.
Q26 Baroness Deech: I am not sure how much you know about the United Kingdom
and its policies, but if you have some views, how successful do you think the current United
Kingdom superfast broadband strategy is likely to be? How does it compare with the rest of
Europe?
Ms Lindén: I do not know the present situation in the UK, but I think it is important that
you have the strategy. Of course, the implementation of the strategy is the challenge. I think
that it is very important to review what is happening all over the country and be ready to
change certain things in the strategy if it seems that things are not going forward as you
wanted. In Finland I saw that it has been a big challenge. It took us, first of all, over a year to
notify the public subsidy for broadband to the Commission, and now slowly it has started,
even though we have worked very hard already for two and half years. I think that it is very
important to make sure that things are going on rather than just rely on the fact that there is
a strategy that the Government has approved if you do not know whether things are
happening or not.
Q27 Baroness Deech: With your experience of success and maybe some failure in
Finland, do you have a message for us here in the United Kingdom about what we should or
should not do, or what lessons we should learn from Finland?
Ms Lindén: Of course the strategy is made top down from the Government, but when you
implement the strategy the demand has to come from the people, so it must be bottom up.
It is very important to talk about the issue, talk about what you will achieve with broadband
and give people and companies information, because that will provide both demand and
supply. But it is not only the issue of people and companies; the municipality should be
active. We have experienced in our strategy that, in those municipalities where local
politicians are very active and want to do it, the results have been the best in these cases.
Q28 The Chairman: Thank you very much indeed. We have now, I think, detained you
for an hour, which was all you have committed yourself to, which is entirely reasonable.
Thank you. Is there anything you would like to say to us in conclusion, having heard our
questions?
Ms Lindén: Lord Chairman, I just want to thank the Committee for letting me go through
this with you, because I think it is very important to challenge: is the broadband strategy
working and is it benefiting with the results? I think that you are doing a great job because,
without this review, there may have been some obstacles that would not be taken on the
table and maybe those obstacles might need new political decisions also.
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Suvi Lindén – oral evidence (QQ 1-28)
The Chairman: Thank you very much indeed. All committees like being told they are
doing a good job. We are no exception to that. We are also very grateful to you for
speaking to us in English in the way you did. In fact, one of our staff is half Finnish and he
explained to me how I could welcome you in Finnish, but then I thought that would be a
mistake because then you would expect me to respond to you in Finnish. However, can I
please say “Paljon kiitoksia”, which I think—
Ms Lindén: That is great.
The Chairman: Thank you.
409

John McDonald – written evidence
John McDonald – written evidence
1. What is being done to prevent a greater digital divide occurring
between people who can access superfast broadband and people in
areas where the roll-out of superfast broadband may not be
commercially attractive?
1.1. There is insufficient attention being paid to addressing the issue of the
digital divide and, based on present superfast broadband roll-out
strategy, that divide will only worsen.
1.2. The key issue here is that the superfast infrastructure providers believe
that their "low hanging fruit" for take up is in the urban areas. I contend
that this is misleading.
1.3. Urban areas are already well served by ADSL/ADSL2+ services offering
a peak of 24Mbps. Those areas served by BT infinity can get a current
maximum of 40 Mbps; in areas covered by Virgin that increases to
100Mbs.
1.4. In sharp contrast, non-urban areas receive anything from 512Kbps to
around 3 or 4 Mbps. (I comment further on the universal service
obligation of 2Mbps below).
1.5. The thrust of the superfast broadband roll out should therefore be refocused
and more biased. Not on making the fast go ever faster but on
allowing the already slow to catch up.
2. Is a universal service obligation necessary to avoid widening the
digital divide?
2.1 The provision of a universal service obligation is sound in principle and I
have no issue with it as a concept save for the fact that the target is set
far too low for an infrastructure to be worthy of the 21st century.
2.2 With broadband bandwidth demand increasing as time goes by there is a
danger in allowing the provision of such a low threshold universal
service obligation to become an accepted norm. This may then lock
some parts of the UK into a low 2Mbps level of provision for some
considerable time.
2.3 To be more equitable there needs to be a firm commitment that, if the
already limited ambition of a 2Mbps target remains, then there will be a
priority follow up to bring that closer to a more sensible 21st century
target of 10Mbps or higher.
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John McDonald – written evidence
3. The Government have committed £530 million to help stimulate
private investment – is this enough and is it being effectively applied
to develop maximum social and economic benefit?
3.1 This sum is somewhat inadequate. I do not wish to get into politics but
if HS2 warrants an investment of £32Bn with at best a marginal business
case and limited benefits then an infrastructure project of this nature
that benefits the country as a whole should receive an equally high
priority and an appropriate level of funding to match. A comparison
in terms of opportunity cost and benefits might be to compare
broadband roll out with the importance and benefits flowing from the
deployment of the national grid in the 1930s.
3.2 A secondary problem is that even that sum is not being effectively
applied. The issue here is that the sum has been distributed widely
across the country to various local councils. This is a problem simply
because the development of a broadband infrastructure is of national
importance and so should be a national project, not a localised and
fragmented one.
4. Will the Government’s targets be met and are they ambitious
enough? What speed of broadband do we need and what drives
demand for superfast broadband?
4.1 The Government's targets will likely be met but the targets themselves
are set too low. Other countries already have general availability of
premium consumer products in the 100Mbps range and that should be a
realistic target for the UK. The only parts of the UK where such
products are available to individuals is in those areas that are, by happy
coincidence, already served by Virgin fibre.
5. In fact, are there other targets the Government should set; are
there other indicators which should be used to monitor the health of
the digital economy? What communications infrastructure does the
UK ultimately need to remain competitive and meet consumer
demand over the next 20 years?
5.1 To remain competitive the focus of attention needs to go beyond a
twenty year horizon. Copper based communications infrastructure has
served well over the last tens of decades. Now is the opportunity to
replace swathes of that infrastructure with 21st century technology.
5.2 To do this successfully the time horizon of twenty years is too short. It
implies that this issue will be revisited at some time in the relatively near
future rather than being seen as a national long term investment in UK
plc.
6. How will individuals and companies use cloud services for
distributed storage and computation? What network properties are
required to enable efficient provision and use of such services?
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John McDonald – written evidence
6.1 Cloud based services are the way that the world is presently moving.
That opens up opportunities for entrepreneurs. It also opens up the
threat of controls being imposed on the sites that host the cloud
contents and so has dangers of an emerging "big brother" scenario with
consequential erosion of privacy and freedoms. Governments will need
to be aware of these issues to ensure that personal privacy and
freedoms are not challenged.
6.2 A more immediate problem, however, is that the present targets for UK
broadband, especially in the context of the universal service obligation,
will make cloud services unusable for those people tied to that 2Mbps
service.
6.3 For example, at 2Mbps, backing up each gigabyte of data stored on a PC
will take nearly seventy minutes. Sending large amounts of digital data -
music, photos, videos etc. - to be stored in the cloud becomes
unfeasible.
6.4 Even if there was mass take up of cloud based services, I fear that the
present plans and targets for UK broadband roll will prove woefully
inadequate to service that demand with the consequential loss of
opportunity in the emerging information age.
7. To what extent will the advent of superfast broadband affect the
ways in which people view, listen to and use media content? Will the
broadband networks have the capacity to meet demand for new
media services such as interactive TV, HD TV and 3D content? How
will superfast broadband change e-commerce and the provision of
Government services?
7.1 There are already many 'on demand' services available for viewing
content. Obvious ones include the various 'catch up TV' services from
the likes of the BBC, Channel 4 and 5 etc. There are also increasing
content streaming services from companies such as Amazon's LoveFilm.
These classes of service/content provision demand high bandwidth
availability
7.2 This increase in demand for services will not be restricted solely to
content providers per se. It will also encourage information and other
service providers to implement a network based supply channel. For
example services provided by Government
7.3 In this context the broadband infrastructure will need to have ever
increasing bandwidth to support increasing consumer demand for
services and increasing supplier demand for distribution bandwidth. As
presently constituted, the UK broadband strategy does not appear to
adequately address these points.
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John McDonald – written evidence
7.4 There is also the effect of on-line shopping which appears to be having
consequential affects on Britain's high streets.
7.5 To meet these demands it is essential that the UK's broadband
infrastructure is designed and implemented in such a way that these
consumer and supplier demands can be met. It is for these reasons that
I believe that UK Broadband has to be a national, not localised, project
(see paragraph 3.2) and that an appropriate commitment to broadband
infrastructure funding has to be made now on behalf of the nation. It is
too high a risk to the nation's wealth to leave such infrastructure
provision solely to market forces.
8. Will the UK's infrastructure provide effective, affordable access to
the 'internet of things', and what new opportunities could this
enable?
9. How might superfast broadband change the relationship between
providers and consumers in other sectors such as content? What
aspects of this relationship are key to enabling future innovations
that will benefit society?
10. What role could or should the different methods of delivery play in
ensuring the superfast broadband network is fit for purpose and is as
widely available as possible? How does the expected demand for
superfast broadband influence investment to enhance the capacity
of the broadband network?
11. Does the UK, for example, have a properly competitive market in
wholesale fibre connectivity? What benefits could such a market
provide, and what actions could the Government take to ensure
such a market?
The following points address issues arising in questions 8, 9, 10 and
11 above:
11.1 The UK does not have a properly competitive market in wholesale fibre
connectivity. There are two prime suppliers of fibre for domestic
premises in the UK - BT and Virgin.
11.2 Virgin's infrastructure, by and large, comprises elements of the earlier
roll out of cable TV in the 1980s. BT's fibre is the result of their move
to non-copper based communications technology.
11.3 The upshot is that BT and Virgin are the only major players in what
might be termed 'widespread domestic fibre infrastructure' (as
compared to more localised and limited corporate/company specific
leased networks which may be supplied by other companies).
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John McDonald – written evidence
19 February 2012
11.4 A major issue with the BT/Virgin fibre duopoly is that, for competitive
reasons, they are laying fibre next to each other in the same geographic
locations.
11.5 A way to encourage a more strategic approach to laying fibre in a
rational manner that benefits the nation as a whole would be for the
Government to establish UK Broadband plc with partners including BT,
Virgin and others. UK Broadband plc would have a national focus.
11.6 The Government's role would be in providing the necessary finance to
ensure that social benefits were realised where strictly commercial
considerations would mitigate against installation in certain areas.
11.7 On completion of the national rollout, Government funding and, to an
extent, it's day to day involvement, would cease. The returns to the
Government from this enterprise would be in dividends paid from
profits generated by UK Broadband plc leasing infrastructure to
commercial ISPs.
11.8 Such other primary partners as there may have been in UK Broadband
plc would have the option of buying out the Government share once
reimbursement of the Government investment had been recovered.
11.9 In this way taxpayers money is properly invested in a national
infrastructure project that benefits the whole nation.
414

Miles Mandelson – written evidence
Miles Mandelson – written evidence
Executive summary
1. The submission addresses the role of rural communities in the development of rural
broadband services and provides an account of the formation of the East Cumbria
Community Broadband Forum (ECCBF) and the progress of five BDUK-initiated
broadband pilot projects. The account is primarily a reflection of the submitter’s own
experience but is also informed by contributions from other member groups of ECCBF.
It is set against the backdrop of the Government’s policy to secure for the UK the best
broadband services in Europe by 2015 and its allocation of a £0.5b fund by which to
achieve that aim, a further Government initiative of a £20m rural broadband fund, and
Cumbria County Council’s project to procure a solution that will deliver superfast
broadband to 90% of premises in the county by 2015.
2. The following key points arise.
a. The Government’s commitment to improving broadband services and the creation of
the Broadband Delivery UK-administered fund has stimulated considerable interest
and activity amongst community broadband groups and local authorities.
b. The Rural Community Broadband Fund (RCBF), targeted as it is to deliver superfast
broadband (SFBB) in the least well provided rural communities, is welcome but is
enmeshed in a bureaucratic process operating what feels like arbitrary and inflexible
rules that disadvantage the very smaller rural communities it is supposed to help.
c. The benefits of organised community broadband groups working together are
illustrated, as are both the benefits and pitfalls of them working with local authorities
and government agencies in trying to improve rural broadband services.
d. At the behest of BDUK, five community broadband groups (all working on an
unremunerated, voluntary basis) engaged with suppliers and formulated detailed pilot
projects to deliver superfast broadband services in their areas and submitted
applications for funding to RCBF. The process they encountered was tortuous and
after ten months of endeavour two applications appear likely to fail while success is
by no means certain for the other three.
e. Defra and BDUK have adopted an approach to administering RCBF that can be
characterised as arbitrary, inflexible, risk-averse and community-unfriendly – in terms
of both the financial and the technical aspects of broadband service development.
f. The need for certain constraints and safeguards in administering large sums of state
aid is recognised but even government agencies must be prepared to take risks and
adopt a flexible approach if an initiative like this is going to help the communities they
claim to support. This is particularly so in relation to pilot projects which, by their
very nature, involve a significant element of risk and cannot be expected to deliver
guaranteed success.
g. In imposing a condition that RCBF-funded projects must deliver SFBB only in areas
that neither commercial development nor BDUK-funded county roll-outs will reach
(the so-called ‘final 10%’), Defra cannot logically begin to appraise applications until
procurements are completed and the boundaries of those roll-outs are finally
determined. Until that point is reached, applications are destined to fail.
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Miles Mandelson – written evidence
h. There is a sense amongst the pilot groups that, by undertaking the task of
promulgating pilot projects at the instigation of BDUK, Defra and CCC, they have
expended considerable resources for no clear gain and jeopardised their
communities’ chances of securing superfast broadband within a reasonable timescale.
i. The Rural Community Broadband Fund has been launched nationally and two rounds
of expression of interest submission and one round of full application submission are
currently in progress. It would be instructive for the Select Committee to
examine how well the processes are operating now and whether other
organisations are enjoying a better experience and meeting better success than the
pilot groups. Most important to examine is whether any of the fund has actually
been spent on improving rural broadband services in fulfilling its original purpose.
The submitter
3. Miles Mandelson retired in 2006 following a long career in the NHS as a clinical
psychologist, a mental health service manager, and most recently Director of Informatics
at a NHS mental health trust. He has served as Chairman of Great Asby Broadband
Community Interest Company since 2006 and as Vice-Chairman of East Cumbria
Community Broadband Forum since March 2011.
The evidence
4. Improving broadband services has been a concern for communities in Cumbria for the
best part of this century. Around 2002 an initiative called Project Access was launched
in Cumbria with the aim of raising awareness of the benefits of broadband amongst
businesses and improving access to good broadband services for businesses and
communities. £20m was spent in this endeavour but the general consensus is that its
success was limited to the unbundling of a number of exchanges to increase access to
ADSL services, assisting businesses in getting connected and installing a small number of
wireless community broadband networks in communities that were out of reach of
conventional ADSL.
5. Rural communities in Cumbria in particular became increasingly aware both of the
limitations of existing broadband services in their localities and of the urgency of
rectifying this situation to meet existing and future needs. There was a risk that, as the
incumbent telecoms providers continued to argue that no viable business case could be
made for extending next generation access to broadband (NGA) into remote rural
areas, those areas would be left stranded, unable to communicate electronically with the
rest of the world. Ironically, it is those areas that are in greatest need for such
communication given their geographical remoteness.
6. The concerns of communities became sharply focussed with the advent of the rural
broadband campaign launched by Rory Stewart MP in 2010. Rory Stewart’s
constituency, Penrith & the Border, is the largest, most rural in England and is the
epitome of all those remote rural areas unreached by good or NGA broadband
services. In September 2010, Rory Stewart and his team organised a national
conference on rural broadband at which rural communities described what was needed
and incumbent telecoms companies described what could be done if additional public
funding was made available. The team also launched a website called Broadband
Cumbria on which community groups could register, gain knowledge and information,
and exchange views. The website currently has 501 individual members and 36 member
groups.
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Miles Mandelson – written evidence
7. In November 2010, the Government announced an allocation of £530m for the purpose
of developing broadband infrastructure in those areas that the market was unlikely to
reach and identified four regions that would be in the vanguard of this initiative, the
county of Cumbria being one. Broadband Delivery UK (BDUK) is the government
agency (within the Department of Culture, Media & Sport – DCMS) charged with
administering the broadband fund and county councils are charged with overseeing local
procurement and implementation. Towards the end of 2010 contact was made with
community broadband groups in East Cumbria by Mike Kiely of BDUK and in early 2011
there was a move, with Mike Kiely’s encouragement, to form those groups into an
organised representative entity.
8. As a result the East Cumbria Community Broadband Forum (ECCBF) was
formed and adopted its terms of reference in March 2011. A factsheet about the Forum
is at Annex 1. The Forum brings together a wealth of enthusiasm, commitment,
experience and knowledge in respect of broadband that exists within local communities.
9. It should be noted that, although ECCBF was established to represent community
broadband groups in a substantial part of the county, Cumbria County Council
(CCC) undertook a separate initiative to enable representation of community
broadband groups across the whole county as part of the superfast broadband (SFBB)
procurement that it was embarking on under the banner of Connecting Cumbria. This
resulted in the formation of the Connecting Cumbria Hub Coordinators group.
How successful that group has been in informing and influencing the County Council’s
deliberations and holding it to account is outside the remit of this submission but would
be worthy of separate examination.
10. In March 2011, the Secretary of State for Environment, Food & Rural Affairs
(Defra) visited Cumbria and announced a further broadband fund of £20m, specifically
for rural areas, which was subsequently called the Rural Community Broadband
Fund (RCBF) and was to operate as part of the Rural Development Programme
for England (RDPE).
11. Under Mike Kiely’s direction ECCBF set about developing a statement of requirements
from a rural community perspective that could be presented to prospective suppliers as
part of CCC’s superfast broadband (SFBB) procurement. As an adjunct to that
exercise, five community broadband groups were invited to formulate pilot projects to
develop SFBB infrastructure and services in their areas that might inform, and be
undertaken in advance of, the main county council procurement. The groups were
Fibre Garden CIC (Garsdale & Dentdale), Upper Eden CIC (Fell End), Great Asby
Broadband CIC (Great Asby), Eden Valley Digital CIC (Morland, Cliburn, Crosby
Ravensworth, Maulds Meaburn, Kings Meaburn, Bolton), and Northern Fells Broadband
(Boltons, Caldbeck, Castle Sowerby, Ireby and Uldale, Mungrisdale, Sebergham and
Welton, Westward and Rosley). In July 2011 an Industry Day was held at which the five
pilot groups presented their requirements and suppliers were invited to meet with them
in breakout sessions to discuss how the requirements could be met. Further meetings
with suppliers took place after the Industry Day and firm proposals for pilot projects
were developed by each of the five groups.
12. In August the first of a series of meetings took place between the pilot groups, BDUK
(Mike Kiely), CCC (Jim Savege), and Defra/RDPE (Karen Spriggs) to review progress and
prepare for the submission of expressions of interest in respect of the Rural
Community Broadband Fund. These were duly submitted by 31 October 2011 by the
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Miles Mandelson – written evidence
five pilot groups and all five were subsequently invited to submit full applications by 31
January 2012, supported by detailed business plans.
13. In December 2011 Defra and DCMS jointly appointed a consortium of consultants
(consisting of Genecon, Adam Wellings Consulting and Grey Sky Consulting) to provide
advice and guidance to the five pilot groups in the preparation of their RCBF
applications and business plans, and to BDUK and Defra/RDPE in the development of
the RCBF application process.
14. Three of the pilot projects focussed on proposals by BT Openreach: one fibre to the
premise (FttP) project – Fell End; and two fibre to the cabinet (FttC) projects – Great
Asby and Eden Valley Digital. Northern Fells pursued a project based on the white
space wireless technology and Fibre Garden pursued a project based on FttP over a
wide area, both working with a number of different suppliers. Five full applications to
RCBF were duly submitted by the deadline. The pilot groups were informed of the
outcome on 17 April 2012. None of the applications was approved and all five were
required to resolve a number of queries and outstanding issues in a further written
submission by 29 June 2012 if their applications were not to be rejected.
15. Brief accounts of the pilot groups’ project proposals and experiences are at Annex 2.
16. The pilot projects have been the main focus of ECCBF activity over the past year and
that experience prompts the following observations.
Observation Commentary
a) The pilot projects
have served as ‘guinea
pigs’ for Defra and
BDUK in developing a
workable approach to
administering the
RCBF.
b) The pilot projects
have served as a kind of
‘Trojan horse’ to test
what suppliers had to
offer and how far
boundaries might be
pushed outside the
formal procurement
process.
Defra and BDUK operate RCBF strictly within the standard
RDPE framework (no flexibility for small community groups is
offered or allowed). They provided limited guidance to the pilot
project applicants and urged them to work with the consultants
they appointed to support the pilots and develop the application
process. Many requests for further guidance were made, some
resulting in helpful clarification.
This was particularly the case in respect of BT, one of the
bidders for the CCC contract. Initially BT offered GAB and
EVD no more than standard FttC. When it was pointed out
that this would not reach anywhere near the whole of the
communities in question, BT offered to equip each cabinet with
a FttP footway. But BT required the community to negotiate
wayleaves for fibre laying and meet the total cost of the
associated civil engineering works – with these in turn being
carried out to BT’s civil engineering standards.
The expansion of BT’s offering resulted in a new product being
launched by the company in 2012 that enabled any business or
household to purchase an FttP installation in localities where an
FttC cabinet was already situated.
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Miles Mandelson – written evidence
Observation Commentary
c) Demand registration
was a key element in all
the pilot projects.
d) There was no
certainty that the
efforts of the pilot
groups in respect of
observations a) and b)
would be rewarded
with SFBB.
e) The RCBF applies an
arbitrary limit on the
amount of grant
available per premise.
f) The RCBF is
administered according
to rules that minimise
the chances of success
for community groups
that do not have large
cash reserves.
Primarily to justify public funding, but also to convince suppliers
that there was a business case for the project, it was necessary
to contact every member of the community, explain the context
and rationale for undertaking the project, and elicit an indication
or otherwise that, should the project succeed, the service
would be taken up. BT Openreach required a 60% indicative
take-up as part of their proposals.
It was apparent from the outset that the pilot projects might fail
to be funded leaving pilot groups and their communities with
nothing to show for their efforts. Pilots were assured by CCC
and BDUK that in this case the pilot communities would be
“first in the queue” for SFBB in the CCC roll-out in recognition
of their efforts.
The limit is £300 per connectable premise. After we sought
clarification, Defra conceded that VAT would be funded
additionally. Smaller pilots identified average costs that
exceeded this limit, economies of scale being absent, thus
requiring them to find additional funding themselves to meet the
full cost.
The rules include:
• RCBF funding must not exceed 50% of the total cost.
• No match funding from any other public sources is
allowed.
• All procurement must be undertaken in accordance with
EU state aid rules.
• All expenditure must be incurred and evidence of
defrayment provided before a claim is accepted.
This presents a significant cash-flow challenge that initially CCC
offered to help with as a ‘cash-flow partner’ but subsequently
declined to implement, declaring the risks to be too great.
Furthermore, the organisation owning the resulting
infrastructure would either have to have de minimis status or
secure a state aid notice from the EU. Those pilot projects
which would not own the resulting infrastructure would
therefore have to be covered by a blanket notification obtained
by CCC (still awaited).
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Miles Mandelson – written evidence
Observation Commentary
g) The RCBF targets
communities that are
defined in such a way
that they cannot be
identified until the
county procurement is
concluded.
h) The RCBF criteria
are conservative and
limiting in the type of
technologies that will
be accepted.
i) RCBF applications
based on a BT
Openreach solution are
likely to fail due to BT’s
application of
commercial confidentiality
restrictions, and
an RCBF failure to deal
with this despite
entering into an
appropriate NDA.
Initially it was understood that RCBF would target rural
communities with no prospect of being served by the market.
After final applications were submitted by the pilots, Defra
revised that definition to include only those communities that
would be excluded from any county SFBB roll-out. This is
referred to as the ‘final 10%’.
Logically, it is not possible to identify those communities until
county contracts are let, detailed contract negotiations are
concluded, and roll-out boundaries are defined. So pilots are
wary of seeking exclusion from the roll-out in case their
application fails and they are then left with nothing more than
the 2Mbps universal service commitment (USC).
Only FttC and FttP appear to be acceptable technologies. Any
proposal to deliver SFBB by wireless means has been rejected
by the Defra/BDUK appraisers on the grounds that such
technologies are not accepted by the European Commission
(EC). Three of the pilot projects utilised wireless technology
(white space), either as a means of reaching outliers in a
community already served by fibre or as the primary technology
serving the whole area. In the latter case, the project has been
assured by Andreas Geiss, Deputy Head of Unit - Radio
Spectrum Policy, DG Information Society and Media, European
Commission that, as stated in Radio Spectrum Policy
Programme document, ...Member States shall also foster the
development of current and new technologies, for example, in
cognitive radio, including those using ‘white spaces’.
For reasons of commercial confidentiality, BT Openreach would
only declare the funding gap that had to be met in any pilot
projects for which it offered a solution. Therefore it was not
possible to show the detailed project costs in the RCBF
application nor was it possible to indicate the supplier’s total
contribution (or its financial equivalent) and demonstrate that it
amounted to at least 50% of the total cost of the project.
In the event, BT offered to provide further information under a
non-disclosure agreement with Defra. The necessary NDAs
were signed, and BT provided the information that it believed
Defra required. Only after an initial assessment did Defra claim
that it did not have all the financial information that it required,
but it is believed that Defra still did not fully specify the required
information, or ask BT for it. Instead, it required pilot projects
to provide better “full costings” information, which it still did
not specify in any detail. Despite requests by pilot projects to
achieve a resolution of this issue, neither Defra nor BT
Openreach has sought a way to do so.
17. Towards the end of May 2012 meetings were held by Defra, BDUK and CCC with
each of the five pilot projects to try and address the various outstanding issues that
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Miles Mandelson – written evidence
had been raised. The outcome in respect of Eden Valley Digital and Great Asby
Broadband is presented as a detailed illustrative case.
18. At the joint meeting with EVD and GAB (who had indicated that they would be
prepared to merge their applications into a single, potentially more cost-effective,
joint application to RCBF), Cumbria County Council:
a. indicated that at that point in time it was unable to confirm if either project area
fell within or outside the ‘final 10%’,
b. invited GAB (if it so wished) to exclude itself from the roll-out to allow its RCBF
application to proceed,
c. announced details of its own RCBF application that it planned to submit by the
end of June
and at a subsequent meeting:
d. repeated its assertion that the county-wide SFBB procurement will provide a
facility for communities to access appropriate backhaul and develop their own
solutions for a local access network.
19. The CCC RCBF application will focus on certain parts of the county where there is a
preponderance of exchange only lines (EOLs), i.e. where the premises connect directly
back to the exchange rather than being connected via an intermediate street cabinet.
The significance of EOLs is that the copper run to the exchange in rural areas is too
long for SFBB to work and it is more costly to implement an FttC solution as these
lines would have to be re-routed to a new local street cabinet. CCC presented a map
depicting the areas that would benefit if its application is successful from which it could
be seen that a substantial proportion of the premises targeted by the EVD project
would be served by this proposed solution but that premises in Great Asby would not.
20. The implication of CCC’s RCBF application is that CCC did not expect the targeted
areas to be included in the chosen supplier’s roll-out, or that they would consume a
disproportionate amount of the available funding, because of the preponderance of
EOLs. Additional funding from RCBF would mitigate this effect and increase the
probability of the targeted areas benefitting from SFBB and, where they included those
within the EVD remit, obviate the need for a separate pilot project. Accordingly EVD
is likely to withdraw its RCBF application subject to the provision by CCC of a
detailed account of how the area covered by EVD would be served.
21. For its part Great Asby Broadband (see Annex 2, paras Error! Reference source
not found. to Error! Reference source not found., and Annex 3) has concluded
that its RCBF application is very unlikely to succeed for the following reasons:
a. CCC cannot confirm whether or not Great Asby falls within the ‘final 10%’ that
will not get SFBB either through commercial development or via the county rollout;
it would be foolhardy for GAB to exclude itself from the county roll-out and
risk the application failing for other reasons.
b. Defra have failed to request or secure the required information from BT
Openreach as regards the detailed costs of the project and so cannot satisfy itself
that the grant applied for amounts to no more than 50% of the total cost of the
project.
c. If EVD does withdraw its application (as seems highly likely) GAB will not benefit
from the economies of scale it intended from a joint application/project with
EVD and would have to find an additional £18,000 to compensate for the
amount by which the cost per premise of a GAB-only project would exceed the
£300 per premise limit imposed by Defra.
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Miles Mandelson – written evidence
d. GAB cannot in all conscience approach the local community to seek to raise
£20,000 in short-term loans to meet cash-flow requirements, or a nonreturnable
£18,000 to meet the shortfall in RCBF funding, given the uncertain
position in which it has currently been placed.
22. Since the initiation of the Cumbria pilot projects, the Rural Community Broadband
Fund has been launched nationally and two rounds of expression of interest submission
and one round of full application submission are currently in progress. It would be
instructive for the Select Committee to examine how well the processes are
operating now and whether other organisations are enjoying a better experience and
meeting better success than the pilot groups. Most important to examine is whether
any of the fund has actually been spent on improving rural broadband services in
fulfilling its original purpose.
Conclusions
23. The need for improved broadband services in rural Cumbria is widespread and urgent.
The Government’s initiatives to provide targeted funding to meet that need are
welcome but the methods of deployment of funds and development of infrastructure
and services are suspect. Community broadband groups in Cumbria are well
organised and have engaged with the processes at county level from the outset with
the encouragement of BDUK, Defra and Cumbria County Council. Five such groups
have expended considerable effort and time in formulating pilot projects to bring
superfast broadband to their areas by the use of Defra’s Rural Community Broadband
Fund. However their experience has been that they are not so much piloting
solutions, as was originally intended, but piloting processes which for them have
proved onerous, time-consuming and frustrating with very little to show for their
efforts to date that will benefit their communities. After ten months, none can claim
even the prospects of a successful outcome.
24. Defra and BDUK have adopted an approach to administering RCBF that can be
characterised as arbitrary, inflexible, risk-averse and community-unfriendly – in terms
of both the financial and the technical aspects of broadband service development.
Relatively small, poorly resourced community broadband groups will struggle to
overcome the obstacles they will find in their path as they navigate their way through
the rigid RDPE framework and the technological conservatism within which RCBF
operates. The need for certain constraints and safeguards in administering large sums
of state aid is recognised but even government agencies must be prepared to take risks
and adopt a flexible approach if an initiative like this is going to help the communities
they claim to support. This is particularly so in relation to pilot projects which, by
their very nature, involve a significant element of risk and cannot be expected to
deliver guaranteed success.
6 June 2012
Cartoon courtesy of Martin Vidberg - L'Actu en Patates
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Miles Mandelson – written evidence
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Miles Mandelson – written evidence
Annex 1: East Cumbria Community Broadband Forum
The Forum was established in March 2011 with the following aims. To:
1. provide a forum for sharing information, experience and knowledge and undertaking
peer review in the development of community broadband services in East Cumbria
2. undertake representation of community broadband groups in East Cumbria in relation
to the Cumbria County Council/Broadband Delivery UK Connecting Cumbria broadband
project and other relevant bodies
3. facilitate procurement of broadband services shared between community broadband
groups in East Cumbria.
The officers of the Forum are:
Chairman: Jason Brownlee
Vice Chairman: Miles Mandelson
Secretary: Anne Fleck
The Forum is open to community broadband groups located in East Cumbria that are
endorsed by one or more of their local parish councils to campaign for improved
broadband services for those communities. Each member group can nominate two people
to represent it at the Forum and meetings are held regularly in various locations in East
Cumbria. Further details of the Forum's terms of reference and a registration form for
groups seeking membership are available from the Secretary.
The current membership of the Forum is shown below along with the parishes each group
is working with. 62 parishes are represented by 25 member groups. Also shown are the
representatives of the groups (hyperlinked to their email addresses) and their websites.
Three additional organisations have observer rather than member status.
Group Parishes Website
Alston Moor Parish
Council
Askham & Helton
Broadband Group
Dufton Broadband Dufton
East of Eden Fellside
Broadband Group
Eden Valley Digital
CIC
Alston Moor Alston Moor
Parish Council
Askham & Helton Askham & Helton
Ousby, Kirkoswald
Bolton, Cliburn, Crosby Ravensworth,
Maulds Meaburn, Kings Meaburn,
Morland, Newby, Sleagill
Eden Valley
Digital
fibreGarDen Garsdale, Dentdale fibreGarDen
Great Asby Broadband
CIC
Great Salkeld
Broadband Group
Heart of Eden
Community Plan
Asby Great Asby
Broadband CIC
Great Salkeld
Appleby, Bandleyside, Murton &
Hilton, Temple Sowerby, Kirkby
Thore, Long Marton, Milburn
424
Heart of Eden

Miles Mandelson – written evidence
Group Parishes Website
Broadband Kaber Kaber
Kirby Lonsdale
Community
Development
Partnership
Mallerstang Parish
Meeting
Matterdale &
Watermillock Parish
Council
Kirkby Lonsdale Kirkby Lonsdale
& the Lune Valley
Mallerstang Mallerstang Parish
Meeting
Matterdale, Watermillock Matterdale Parish
Council
425

Miles Mandelson and Rory Stewart MP – oral evidence (QQ 430-465)
Miles Mandelson and Rory Stewart MP – oral evidence (QQ 430-465)
Evidence Session No. 7. Heard in Public. Questions 430 – 549
TUESDAY 12 JUNE 2012
Members present
Lord Inglewood (Chairman)
Baroness Bakewell
Lord Bragg
Lord Clement-Jones
Baroness Deech
Lord Dubs
Baroness Fookes
Lord Gordon of Strathblane
Lord Razzall
Lord St John of Bletso
Earl of Selborne
Lord Skelmersdale
________________
Examination of Witnesses
Rory Stewart MP, and Mr Miles Mandelson, Chairman, Great Asby Broadband
Q430 The Chairman: It is 3.30pm exactly, so a warm welcome to my fellow Cumbrians,
Rory Stewart and Miles Mandelson. Thank you for coming and giving evidence to us. Just to
clarify, the meeting is going to be broadcast. So if you could, just as you start, tell us who
you are, and if you would like to make a brief opening statement, I hope that you will both
feel free to do so. Can I start with—I do not know, whichever—Rory?
Rory Stewart: I am Rory Stewart and Member of Parliament for Penrith and the Border,
and I have been involved in the broadband in Cumbria, partly because Cumbria was the
broadband pilot and partly because it was a Big Society vanguard project.
Miles Mandelson: I am Miles Mandelson. I am the Chairman of Great Asby Broadband CIC,
and Vice Chairman of the East Cumbria Community Broadband Forum. I have been involved
in community broadband for the last five years or so. I do not claim any great expertise but a
certain amount of experience of community broadband, which I hope will prove helpful to
you.
Q431 The Chairman: Thank you both for coming. I might just get the ball rolling with a
general question. The Government’s intention is that the United Kingdom should have the
best superfast broadband network in Europe by 2015. What do you think should be the
essential characteristics of such a network to justify that title?
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Miles Mandelson and Rory Stewart MP – oral evidence (QQ 430-465)
Miles Mandelson: I think I am going first here. I do not know that it has to be the best in
Europe. I think, more importantly, it has to be good enough for what we need now and, let
us say, for the next five years. I think broadband service development is just that, it is a
developmental process. You might set for yourself an ultimate target to be the best in
Europe, but I think that how you get there is more important. That means you need to
understand where you are starting from, and that is going to be different depending on
which part of the country you are looking at. In particular, rural communities start from a
very low base. So, a fairly modest improvement in broadband services in rural communities
will seem like a major transformation, whereas in other parts of the country you might need
a much greater step change in order for it to be significant. So I think that sort of
overarching target as the best in Europe really is not all that helpful, to be honest.
Q432 The Chairman: It is in the context of what is known as politicians’ puff. Do you
think that is a fair comment?
Miles Mandelson: I am sorry?
The Chairman: Politicians’ puff.
Miles Mandelson: Oh well, yes.
The Chairman: Rory?
Rory Stewart: I would say that the central objectives of the Government should be to attain
not simply speed but also consistency, quality in delivery and, above all, to aim for 100%
coverage. The reason for that is that the point of this kind of investment should be not
simply to help a few premises launch themselves into the world of entertainment or
business, but to provide an infrastructure that would allow people to deliver health or
educational services and other forms of public service down a broadband connection. It
should therefore be above all a universal provision, and a universal provision with a minimum
quality capable of allowing us to do the kind of live video-stream length that we would need
in order to allow my neighbour, for example, who has Parkinson’s and who currently has to
drive an hour and a half to Newcastle in order to talk to a neurologist—just simply to talk to
the neurologist—to be able to do that without leaving her home; and also to ensure that all
the kind of online potential that is out there in education becomes possible for any child in a
remote part of Britain to do from home. So that is what I hope the Government is aiming
for, and that is what I think the Government should be aiming for.
Q433 Lord Razzall: Rory, you have advocated—and I think we know what you mean—
the idea of digital parish pumps. In the light of what you have seen about the rollout of
broadband infrastructure at the moment, do you still think that should be the way to go, and
do you think the Government’s approach is likely to bring this about?
Rory Stewart: Just to go back to the beginning of that, I think the central discovery that we
have had in Cumbria is that there is enormous potential in a partnership between a
community, a Government agency and a business, and that if we get that right we can very,
very significantly improve service and reduce costs; reduce costs in a very startling way, so
that installations of superfast broadband to a community such as Miles’ or to a community in
Fell End, for example, near Mallerstang in Cumbria, can be dropped from something that I
would estimate in the hundreds of thousands of pounds category down to—in the case of
Fell End—about £17,000, provided you get a community to sign up enough people within
that community and do the civil engineering works.
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Miles Mandelson and Rory Stewart MP – oral evidence (QQ 430-465)
The second part of that, which is the business part, involves a huge transformation, which I
believe we have driven in Cumbria, that has involved pushing major suppliers, such as British
Telecom, to be much more imaginative in terms of what they will provide. That is not quite
the parish pump idea that we were talking about a year and a half ago, but it is very close to
it because what we have—as Miles will explain in more detail in relation to Great Asby—is a
situation in which British Telecom can create a fibre cabinet such that if an individual wished
to dig their own trench and wished to connect fibre to their home, BT would allow them to
do that, and do that at an affordable price. That was not true 18 months ago.
The final part, however, which is necessary to make any of this work, is real flexibility from
Government. We can drop the amount of money that it is going to cost the taxpayer from
hundreds of thousands down to £17,000, but in the end the civil service has to get that
£17,000 out of the door to reward the community for the work and energy they have put
in.
The final change, in terms of the parish pump model, to what we are producing in Cumbria
at the moment is that we have tended to move away from our more—I suspect—utopian
vision of a fully community-constructed, community-owned superfast loop, towards a system
that would be more likely to be owned and maintained by a major supplier, but where the
community’s contribution allowed them to achieve superfast broadband, which they would
not otherwise have done.
Q434 Lord Razzall: But do you still believe in the concept of a central cabinet that
people can link into or choose not to?
Rory Stewart: Yes. I think what I believe in is the ability of communities to get the fibre
deeper and further. In some cases that will involve getting a company like BT to provide a
cabinet to which a community can connect, in other cases it will involve the community
convincing BT, as in Fell End, to run fibre to every home; in other cases it might involve—as
might be the case in the centre of Great Asby—a telecoms company, like BT, running
copper from the cabinet to the home. But the key element of it is that the community
contribution allows them to get broadband that otherwise would be simply unimaginable and
unaffordable.
So if I go back two years ago, my neighbour in Dufton was being quoted £45,000 to get a
broadband connection in his home. The model of this parish pump approach has now
reached the situation where any community in Cumbria that wanted to ought to be able to
get it for a cost of £500 or £600 a home, and that should be something that the
Government ought to be able to meet.
Miles Mandelson: If I could add to that, in Great Asby at the moment we have operating
the equivalent of a digital parish pump. Five or six years ago our local primary school was
connected to the Cumbria and Lancashire Education Online network, which was part of the
then Government’s initiative to have every school, every educational establishment
connected to the Internet. We were particularly lucky in Great Asby that the method of
connection in our case was by fibre cable. We persuaded CLEO to allow us to take a branch
of that connection and to distribute our bit of bandwidth around the village, which we did. In
those days we were allowed to have 2 Mbps shared between all the subscribers to our
service. Since then we have persuaded them to give us 5 Mbps. Even that is not really
enough, as you can imagine. We went from less than 20 subscribers five years ago to about
75 subscribers now, and you can imagine 5 Mbps shared between 75 subscribers, many
households having multiple devices all connecting to the internet at the same time. It puts a
big load on the network, and so we are now looking at increasing the bandwidth and we are
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Miles Mandelson and Rory Stewart MP – oral evidence (QQ 430-465)
going to a commercial supplier in order to keep pace with the needs and demands of our
community.
Obviously getting the backhaul into a community is the first and most important part of the
jigsaw. But the second part is distributing it to individual premises, and that requires building
a local access network. Our local access network is wireless. It works very well, but it has its
limitations. It does travel in straight lines. It does not like it when it encounters a damp tree.
Our village sits in a bowl surrounded by hills, and anybody living on the other side of the
edge of that bowl is not easily connected. So it has its limitations, but it does the job for
most people at the present time.
It just about pays its way, and the only way it does that is because there is a small band of
dedicated volunteers—of which I am one—who are prepared to keep that network running
day in day out, week in week out, year in year out. While one is happy enough to do that,
you cannot carry on like that forever. It is not a sustainable solution, and that is why we
were so pleased when BT approached us and said, “Look, we have got an idea to bring fibre
into your village and basically to relieve you of this onerous responsibility and do it the
proper way”. So we were clearly very interested and very pleased to hear that.
Their first proposal was simply to run a fibre to the cabinet installation, and they explained
to us that anybody situated within about a kilometre of the cabinet would get pretty good
speeds, up to 20, possibly 40 and even 80 [Mbps] when they were able to ramp up the
technology. But for anybody living beyond that limit the speeds would drop off very rapidly
because, as I am sure you understand, the longer the run of copper, the worse it performs
and the slower the speeds, until you reach the point where you do not get anything at all.
So we pointed that out to them and they said, “Well, okay, we will go away and think about
it”. They came back and said, “Right, we have decided that we will offer you a fibre footway.
We are bringing fibre to the cabinet, we will allow you to tap into that fibre and if you want
to build trenches, lay cable to the outliers, then we will run that system for you and they will
get it as well”, which is great. Except it was then for us to find the money to pay for the civil
engineering works, and that is always the most expensive aspect of fibre laying. We also had
to organise the wayleaves for them, and at the end of the project we had to hand over an
entire infrastructure into their ownership so that they could then continue to maintain it and
rent it out on a wholesale basis to retail ISPs, which is the business model that BT employed.
We were entirely happy with that, because we thought most of our people will get
connected using copper telephone connection, and they will get decent speeds. The outliers,
if they are prepared to put their hands in their pockets, might raise sufficient money to get
themselves connected as well [using fibre to the premise].
We said to BT, “Look, we have an existing wireless network that reaches quite a bit further
than your copper, can we not still connect that to the backhaul?” “Oh not too sure about
that, it does not fit our commercial model.” “Could we not just take a subscription and then
distribute it?” “Well, not really because if you take a subscription only you should use it. You
should not resell it”. So we ran into some difficulties there, and I do not think we resolved
that particular issue at all. But I think the most important point in all of this is that once you
bring fibre into a community you have the potential to connect everybody. It may take some
time, and it may take some money, and some people might be keener than others to put
their hands in their pocket or put their shovels in the ground, but at least you have that
potential and that is something we do not have at the moment. There are many rural
communities in exactly the same position who, once they have fibre in their midst, would
then be in a position to capitalise on it.
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Miles Mandelson and Rory Stewart MP – oral evidence (QQ 430-465)
Q435 Lord Gordon of Strathblane: Just a supplementary: without casting a gloom on
the proceedings, we read recently that Cable & Wireless had said that they were going to
pull out of a similar sort of project in Cumbria. Have you anything to say about that?
Rory Stewart: Yes. This is a classic example of the problem with this sort of thing. So for
those of you who did not follow this, Cable & Wireless had been paid by the North West
Development Agency to light up the Duddon Valley. It turned out that they had managed to
get their hands on what appears to be £500,000 in order to connect 40 houses in the
Duddon Valley by a point-to-point microwave link that required something in the region of
£10,000 or £15,000 a year to sustain it. It is a classic example not of what Miles is talking
about, but the old system; in other words, a centrally procured attempt to provide a very
extensive solution to a remote rural community, which is simply unaffordable. It makes
absolutely no sense whatsoever.
The advantage of what Miles did—and Miles’ situation in Great Asby is exactly as remote as
the Duddon Valley; and the nearest fibre, apart from the CLEO network, is miles away from
Great Asby and is isolated by a limestone shelf—is that this community has dropped those
costs so dramatically through waiving wayleaves. 105 Miles has not perhaps taken enough
credit for what he has done. Essentially, when the commercial provider said, “It is not worth
our while coming there”, he was able to say, “Well, what number of subscribers do you
need before it is worth your while?” They said, “About 60%”. So Miles then went out doorto-door
with his team and signed up over 60% of the community to get this, until there was
a viable commercial model. Not only would it not cost £500,000 to get it in the ground; it
would cost something in the region of £60,000 maybe to do these houses. It also would not
cost £15,000 a year to run. So I would almost say that that Cable & Wireless example is an
exact example of the world that we are trying to move away from.
Q436 Lord Dubs: We have heard the view that ownership of infrastructure should be
completely separated from the provision of services that run over it. What do you think?
Miles Mandelson: I think it probably does make sense, primarily because infrastructure—
almost by definition and to make economic sense—is a monopolistic entity. You do not
really need two lots of infrastructure to feed one community. But having infrastructure in
place, it is a good thing for the community to then have choice as to the kind of services it
receives over that infrastructure. So yes, I think it probably is sensible for the service
providers to be separate to the infrastructure provider. It creates a dynamic between the
two camps that hopefully will be competitive and keep prices as low as they can be. We are
led to believe—and I have no reason to disbelieve it, even within BT where there is a
wholesale arm and a retail arm—that they do not conspire and connive. You know that the
one is the customer of the other and the one retail arm is competing with other service
providers to get the best price.
Q437 The Chairman: We have them giving evidence immediately after you, so no doubt
we shall hear how the story runs.
Miles Mandelson: One thing I would say, though, is that in Great Asby we do not have a
service provider, an ISP as such. We simply have a connection to the internet and you can
do anything you like without having the services of an ISP. You can do your email, courtesy
of Google. You can buy web space or use free web space, courtesy of Google or Microsoft.
You can bare your soul on Facebook. You can share your documents or back up your
105
The issue of wayleaves only arises when it comes to laying fibre which has yet to happen in Great Asby
[MM]
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Miles Mandelson and Rory Stewart MP – oral evidence (QQ 430-465)
computer on cloud computing sites. All of these things are accessible—very often free—and
it is only really down to your own ingenuity as to how you create an internet presence and
use that facility in any way that you wish. So, while I think it is good to have packages of
services so that the uninitiated or people who do not really want to get into the nuts and
bolts of it can just pay their monthly subscription and get all the television, telephony and
internet access they need, it is possible to do it without the help of ISPs.
Q438 Baroness Bakewell: In the long term? Is that a long-term solution?
Miles Mandelson: It depends on your own level of interest and ability I think, but people
are becoming increasingly computer savvy, internet savvy, and can find the things they need
without necessarily having to pay somebody else to provide them as a package, and
sometimes you get a better combination of services by looking for them yourself than you
might do by just going to one ISP and taking everything they have to offer.
Rory Stewart: Just to follow up on that, what we have tended to conclude in Cumbria is
that although it may make sense for individuals to run their own equivalent of an ISP—the
actual hard infrastructure in the ground, the backhaul and so on—we have tended over the
last five years to move away from a model where communities would want to completely
maintain it and own it. Miles himself is a classic example of this. Great Asby built that
wireless network, owns it, maintains it, but the result is that Miles, unpaid, and three or four
other people in Great Asby were spending their time shinning up and down the church roof
and readjusting this thing and having to pay for it all and carry the full risk of it. As you can
imagine, having gone through that incredible entrepreneurial start-up charitable activity, they
have reached the stage where they feel they would rather like somebody else to take over
that, just in case Miles wished to do something else with his life other than readjust things. In
which case, at that point, most of our communities have tended to come round to the idea
that they would like a big professional company that has the experience to maintain and run
that infrastructure. So I think his comment is more about the service provision, not about
the actual fibre in the ground.
Q439 Baroness Fookes: Mr Mandelson, you were kind enough to give us a very helpful
note in advance of your experiences in East Cumbria.
Miles Mandelson: Yes.
Baroness Fookes: I wonder if you could just recap for us the story to date of the East
Cumbria Community Broadband Forum, and its involvement with Broadband Delivery UK
and Defra, and any other acronym you care to throw at us.
Miles Mandelson: I will try not to find any more. Yes, this all came about towards the end
of 2011, but I think we have to go back another year, actually, to the time when Rory was
campaigning for broadband in Cumbria and getting a lot of people activated. He organised a
national-scale conference in Cumbria to look at the challenges of rural broadband. I think
that inspired a lot of communities to think about this—to think about their own needs and
requirements—and to start organising themselves into interest groups, campaigning groups
or whatever. There were probably a smaller number of those groups that were really getting
the bit between their teeth and soon after the Government announced its half a billion
pound broadband fund in 2010 we started to get approached by one of the BDUK
personnel, a fellow called Mike Kiely, who came up to Cumbria to have a look and started to
meet individual groups on an informal basis. Those groups started to meet together with
him, and it was my suggestion that they organise themselves into something more formal.
Because alongside all this there was also the Cumbria County Council procurement getting
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Miles Mandelson and Rory Stewart MP – oral evidence (QQ 430-465)
underway and we knew that we had to find a way to represent our interests, our
requirements and needs to that body as well. So it seemed sensible to bring all those groups
together, which we did. We wrote a set of terms of reference and basically we required
every member group to have the endorsement of at least one of their own local parish
councils.
So it starts at parish council level, and every single [member] group has that endorsement.
Great Asby has the endorsement of Asby Parish Council. Others are bigger, cover a larger
area and encompass quite a number of parish councils, so that they have a mandate, if you
like, to represent the community on matters to do with broadband.
We then continued our meetings with Mike Kiely and got into the process of formulating
something called a statement of requirements. This is a document that he asked us to write
to advise BDUK and potential suppliers of the particular requirements of rural communities.
We did this and he then organised an industry day, which brought those communities
together with the suppliers. Rory very kindly chaired it, and it was a very useful day because
it brought suppliers and communities together and started a process whereby suppliers
were talking to communities about what they could do for them. We knew then that there
was some money in the offing, in that the Rural Community Broadband Fund had been
announced earlier that year and was being formalised. We were then invited—five of us, five
groups—to formulate pilot projects, which we would then write up in detail, we would
submit an expression of interest to the Rural Community Broadband Fund, and if those
expressions of interest were accepted we would then be invited to submit full applications;
which we did, all five of us.
So throughout the second half of 2011 we were meeting regularly with Mike Kiely from
BDUK, Karen Spriggs from Defra, and also representatives from the county council, trying
to get this process moving and trying to understand what could be achieved within the RCBF
framework. At the end of January we all submitted our applications and we had to wait a
couple of months to get any sort of feedback, and back came a whole raft of issues and
problems we had to address if our applications were going to be taken further forward.
Some of these issues were not easy to address. They felt a bit like a catch-22 sometimes,
that we were being asked to do things that really small or medium-sized community groups
just cannot be expected to do.
To give you an example, three of us who were talking to BT and had proposals that were
built on the kind of proposal I was describing earlier found that BT—for reasons of
commercial confidentiality—were not prepared to share with us every detail of the project
cost so we did not actually know what the total costs of the project would be, whereas
Defra required us to demonstrate that the amount of money we were asking for did not
amount to more than 50% of the total project costs. So we were in a bit of an awkward
position in that respect. In the end, BT agreed to talk to Defra under a non-disclosure
agreement, and provide them with the information that they required. But that did not ever
seem to happen, and I still do not understand why or how it did not happen but Defra came
back to us and said, “Well, we need to know what this project is going to cost. We need
details of these costs”. Another—
Q440 Baroness Fookes: But you are piloting something, are you not, so how can you be
expected to know?
Miles Mandelson: Well, good point. That is a particularly good point. You mentioned the
word “pilot”—because piloting, as I understand it, means you are trying something out for
the first time. I would not go so far as to say you are making it up as you go along, but you
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Miles Mandelson and Rory Stewart MP – oral evidence (QQ 430-465)
are trying different ways of achieving a certain end, and you cannot expect it to work
correctly the first time around.
Another problem that we encountered was that Defra insisted that we demonstrate to them
that our community fell in what they call “the final 10%”. That is the 10% of the population in
Cumbria that they reckon would get superfast broadband neither through normal
commercial means nor through the county council’s own procurement. So we went to the
county council and said, “Can you guarantee or confirm to us that we are outside your
boundaries of the rollout?” “No, we cannot. We have not finished our procurement. We do
not know what the boundaries are going to be and the situation keeps changing. But, if you
like, you can exclude yourself from the county council rollout and we will not come
anywhere near you.” We said, “Well, we do not want to do that because if this project does
not actually get off the ground, if we do not get the money, if we cannot proceed, we will
end up with nothing at all”.
Q441 The Chairman: To stand above it all and look down, the role of county council,
BDUK and Defra, are they acting in an intelligently coherent way across the piece?
Miles Mandelson: I cannot put my hand on my heart and say a categorical “Yes” to that.
Q442 Baroness Fookes: It sounds more like an obstacle race, and you are not expected
to finish.
Miles Mandelson: That is a very good description of it. Thank you.
Q443 Lord Gordon of Strathblane: As a result of that has any money actually been
spent improving local broadband?
Miles Mandelson: Not from the Rural Community Broadband Fund, as far as I am aware.
Rory Stewart: Can I come in on this? The very sad thing here is that enormous progress has
been made. They have managed to get to a situation in Great Asby that was almost
unimaginable two years ago. For a relatively small sum of money—£60,000—hundreds of
people around Great Asby will be able to get superfast broadband. The same is true in Fell
End, where—in almost the most conceivably remote valley near Mallerstang—£17,000, a
very small sum, could get fibre to the home. That is something that really was unimaginable
and that is to do with all that work, and that involves a lot of imagination from officials, such
as Mike Kiely, other people like Anton Draper who came up from DCLG, and a lot of
imagination and energy from the communities who made this all work by signing people up,
waiving wayleaves, digging trenches. The problem in the end is just getting that tiny sum of
money out, and that is where this extraordinary obstacle course has come. It is not that this
proves that the whole process was a waste of time; what the process has proved is an
extraordinary model. But the tragedy is that you may end up in a world where people will
say, “No, no, it was not a waste of time”. The great thing is that, thanks to Miles’ wonderful
work, the communities of Shropshire and Cornwall are going to be able to get fibre to their
home but his own community will not. So I think if we are going to run pilots, if we are going
to run small community projects, we need to be much more flexible and imaginative and
rapid at rewarding them with what are in the end quite small sums of money in the great
scheme of things.
The Chairman: On a similar theme I think Lady Deech you want to come in.
Q444 Baroness Deech: Yes. You said, Mr Stewart, it is money but I read Mr
Mandelson’s account and I wrote in the margin at the time “shocking”. It was an appalling
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situation. I can imagine your thoughts on the level of co-ordination between BDUK, the
mobile infrastructure project and Defra’s Rural Community Broadband Fund, but what is the
solution? What would one do ideally to sort it all out?
Miles Mandelson: I think the first thing is to try not to embody the process in a set of rigid
rules, which is what seems to be the case at the moment—to apply some flexibility, to try to
look at each case on its merits, to try to bend the criteria a little to accommodate the
particular problems and situations that individual communities are trying to overcome.
RDPE, the Rural Development Programme for England, which is the framework within which
the Rural Community Broadband Fund operated, is a very rigid process. It is all about state
aid and making sure that state aid is not inappropriately used. But it has some unfortunate
knock-on effects, one of which is that before you can claim a penny you have to have spent
that penny. So before you can claim the £60,000, which is what it would have cost us to do
our project, we would have had to have spent £60,000. Where are we going to find £60,000,
even in the short term? It is not easy for small communities like ours to address these sorts
of hurdles. So I think it is about flexibility, not just from a financial point of view and trying to
observe the requirements of state aid and the European Union, but also from a technological
point of view. There is also a certain technical rigidity of approach here, I think. For example,
any solution involving wireless appears to be rejected on the grounds that the EU does not
support it. In fact, the EU does support it up to a point, and is still exploring the potential for
wireless technology. The advantage of wireless is that it is quick, relatively cheap and it
reaches over a wide area. The disadvantage is that it does happen to travel in straight lines
and anything that gets in its way will stop it from working.
One of our suggestions in our application was that, having got the fibre to the village, having
got most people connected using their existing copper wires, we would use the wireless
technology called ‘white space’ to get the outliers. But we knew that white space, at its
present level of development, cannot deliver more than, say, 12 or 16 Mbps. Now, 12 or 16
Mbps is perfectly adequate for most people, in most situations, certainly for the next five
years. But the EU says superfast broadband has to be 30 Mbps. If it is 29.5 Mbps, it is not
superfast. None of us in this room would be able to tell the difference between 29.5 and 30.
For practical purposes it does not matter if you have 10 or 15; you still would be able to do
the same things. Yet because you cannot deliver 30, your project is not acceptable. I think it
is about flexibility. I think it is about loosening the reins a little, loosening the criteria and
being prepared to look at each case on its merits.
Q445 Baroness Deech: Who can knock heads together and get you the money that you
need? Yours is the worst story I think we have heard.
Rory Stewart: Let me try to come in on this. I think the basic problem is that Government
is not good at working with communities in general. What Government has traditionally
done with broadband is what they did in Cornwall, which is a central county council
procurement done with a major supplier, in that case BT—£140 million was delivered, and it
is all rolled out. In order to work with the community you have to take risk. You have to
take risk that the community might fail, that you might be investing in a technology, such as
the white-space technology, that might not be proven and you have to put public money into
that. So you would have to get to a situation where the Government was prepared to lose
its money, and prepared to take financial risk and technical risk. The Government thinks that
it is acting as a traditional infrastructure engineer. They believe that this is a highly technical
subject, that communities have very little role to play, that communities do not understand
the technology, and that things are much safer—albeit much more expensive—if the
Government simply does it all. So the real story that we have here—and I suspect the
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reason why the pilots have not got off the ground—is that the civil servants are more
comfortable with the central county council procurement project, which is, say, for
argument’s sake, a £40 million project for Cumbria, than they are with giving £17,000 or
£60,000 to a community project.
Q446 The Chairman: Just to clarify that, what you are saying is in any times but
particularly in straitened times, if you want to try to get a bigger bang for your buck there is
going to be a slightly bigger risk and, therefore, you could have a centralised procurement
project but it would push the bill up through the roof, and if you either do not want or
cannot afford that, you have to try to look at it in the way you are looking at it in order to
deliver what people want? Because the thing that is unjust is that if you have a set of very
rigid criteria in a centralised procurement programme, where there is a finite amount of
money, you will find those rules will exclude quite large numbers of people on the periphery.
Rory Stewart: Yes, to put it in its very starkest terms, the assessments vary on how much it
would cost to do a centralised procurement of superfast broadband to all rural communities
in Britain. But it would be something between, let us say, £10 billion and the Australian figure
of somewhere up to £35 billion or £40 billion, right. Let us say it was even £8 billion, it
would cost an enormous amount of money to simply issue a national contract to try to
deliver fibre to every home in Britain. The Government has decided to try to spend £550
million, which is a fraction of the normal estimates of what it would cost to do a Cornwallstyle
process across Britain. To put it in the context of Cumbria, Cornwall has the same
population as Cumbria and half the land space, and they have spent about £140 million there.
So Cumbria would cost on that model, let us say, £280 million, in rough, back-of-theenvelope
terms, and we are trying to do it at £40 million. The only way you could possibly
do it is by getting communities to waive wayleaves; by getting communities to get
contractors of a high enough quality to dig those trenches, and by getting communities to
sign up enough members within their community for commercial providers to believe it is in
their interest to actually sign a contract in that area. But for that to work the Government is
going to have to come in, which is where I think my answer to Baroness Deech is.
If I were the ruler of the universe, I would have gone down a different approach, which is to
say I think the best way of doing this would be to make a soft loan to a community. The
amount of money that we are talking about, £60,000 to Great Asby, actually works out at
about £600 a home. It sounds like a lot of money, but if the Government were to make a
20-year loan to communities at a great interest rate, people would be paying back £25 a year
and the benefits they would get of getting superfast fibre to their home would be worth
almost all of our communities paying £25 or £30 a year. I have not met a householder who
could not see that because it increases your property value enormously, among other things.
If you were to make a soft loan, you could then push the risk over on to the community, and
the Government could get over its anxieties about state aid regulations and all that sort of
thing, or I believe there might be a possibility.
Q447 Baroness Bakewell: We are all very impressed by what you have done, what you
have achieved and a lot of credit personally goes to you. What knowledge do you have of
other—you keep using the word—communities? Do other communities have the personal
stamina and resources? Do you know of the extent to which other communities would be
able to copy your prototype or adapt or be flexible in using all the knowledge that you have?
Miles Mandelson: There are not many, I have to say. In Cumbria I only know of one other
community that has been going for a long time, and that is Alston Moor, which is a bit
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further north from us, who have been running a community broadband service for quite
some time, although they have the benefits of scale. It is a small town rather than a large
village in Alston, so they have the benefits of scale and they can afford to employ people to
do the day-to-day stuff. We are very, very small scale. You know we are talking 75
subscribers paying £20 a month. That just about pays for outgoings in terms of the backhaul
and a bit of technical support from a professional company.
Q448 Baroness Bakewell: Is this a replicable model?
Miles Mandelson: It is replicable in the short term. If you were in dire straits like we were,
because our village is peculiar—well, it is peculiar in a number of ways, but it is peculiar
particularly in this context because our telephone system is delivered by a system called
TPON, Telephony over Passive Optical Network, which was all the rage in the mid-1990s
before broadband was even thought about, but is totally incapable of delivering conventional
broadband services. So even though everybody has got a telephone, nobody can get
broadband by the usual means. So it was do this or nothing, so we did it and if we did not do
it we would end up still with nothing. But it is not sustainable. It is not just me—I mean,
there is a small team of us—but I suppose most of the load falls on me because I tend to do
most of the technical stuff, not that I know a great deal about it. But it is not sustainable. If I
were to meet the proverbial bus going out of this building this afternoon, well, that would be
it.
Rory Stewart: In a sense it does not need to be sustainable. This is why these communities
should be used to start it up and then hand it over to a commercial company to run it.
When he says it is not sustainable, what he means is that he does not want to spend the
next 20 years of his life running a broadband network, but what is perfectly sustainable is to
find communities who are prepared to put an intense effort in over a matter of months in
order to get the stuff to their community in the first place. In that regard, we do have some
interesting examples in Cumbria. Beyond Alston and Miles, we have the Upper Eden
community project and Libby Bateman in Fell End pushing to do a very similar kind of
project. We have the Northern Fells group at Caldbeck pushing to do a very similar exciting
project within the white space area. We have a community around the moorlands and the
Lyvennet Valley doing similar projects, and I believe if these projects had been rewarded
quickly we could have got 10 times as many of these projects going. As soon as people began
to see the success—and I find this all the time, Askham will come to me and say, “We would
like it”. Patterdale comes and says, “We would like it”, and what is involved people will do.
In Caldbeck thousands of hours were spent going around house-to-house surveying people,
signing up people to take up the service. Admittedly Cumbria has an advantage over other
areas in the country, as we have a very large number of extremely bright, energetic, young
retired people, but then that is true for many remote rural areas of the country and it is the
remote areas of the country that need this work in order to get broadband. So the fact that
these communities do not exist in an inner city may not matter because inner cities find it
much easier to get fibre optic cable.
Miles Mandelson: Could I just pursue Baroness Bakewell’s question a little further? There
is another model of community initiative, which is beginning to take off, and that is creating
an organisation and covering an area of a much larger scale than ours, and mounting a share
issue. Actually raising money from people who need the service that you are planning to
deliver, who are prepared to buy shares in your company—say, £1,000 or £1,500—on the
understanding that when the network is built they will get their connection for free. They
will not have to pay anything more. They will have to pay the ongoing running costs but they
do not have to pay to get the connection. If you have the right combination of technical and
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financial skills and experience, and sufficient scale, and if you have found a way to get
backhaul into your area in an affordable manner, and you have enough people willing to put
their hands in their pocket and buy shares in that enterprise, then you can do it. There is an
organisation called Broadband for the Rural North, which is operating in Lancashire, and it
might be worth your while taking a look at what they are doing. They are still in the early
stages but the potential is enormous, and they plan and undertake to deliver 1 Gbps to every
household. So potentially it can be done.
Q449 Earl of Selborne: I would just like to follow up the interesting examples you have
given of the opportunity that wireless has to provide a service. It will not be superfast
broadband to remote rural areas, and that is what the whole discussion is about. We are
about to have an auction for 4G services. So if you can achieve a decent backhaul, if you can
plug in your fibre optic to the mast, and if you recognise that hills and wet trees, as you said,
are a complication, nevertheless there is an opportunity to get some quite respectable
speeds. I think most people would think that 20 or 30 is perfectly adequate. Is this not the
main opportunity to avoid these vast costs that we are talking about to get to these rural
areas? Is it really necessary to achieve super broadband?
Rory Stewart: Okay, can I come in just quickly before Miles answers this? There are two
separate issues: one of them is the 4G rollout, which is really a cellular solution, which will
be delivered either over the 800 or 1,800 Mhz spectrum out of a mast by Everything
Everywhere or Vodafone, or any of these providers, and the kind of wireless solution that
Miles is talking about, which is essentially a wireless solution coming out of the end of a fibre
optic cabinet. One of them—the former, which is the 4G spectrum—would run from
devices like this [shows a mobile phone] or perhaps you could connect a laptop to it. The
other would be more of a kind of conventional broadband service that you would find in
your home. We had enormous success with an LTE [long term evolution] trial of 1,800 Mhz
at Threlkeld, where we are receiving speeds of between 35 and 40 Mbps, and we launched
that about four weeks ago.
There are a number of issues around that. There are contention issues—in other words
how many people in that cell who are using it can rapidly drive down the speed that you can
get—but the technology is improving all the time. There are costs and maintenance issues.
Again, it is quite difficult to persuade the companies that it is worth their while running a full
4G service off a mast in a very remote rural area of Cumbria. It is actually no cheaper for
them to do that than over fibre; in fact, it is considerably more expensive in terms of annual
running costs than having installed the fibre backhaul to do that. But there are solutions for
that too. One of them is to force the companies in the 4G spectrum auction to cover 98%
of rural areas as part of their contract in signing up for that auction. Ofcom looks like they
are now moving in that direction from 95% up to 98%. The second thing is the Chancellor
has put about £150 million from the Treasury into building the masts, which will also reduce
that cost. There are other things that we can do too. The white space spectrum is a
different sort of solution from the solution where you go off the masts. There is a little bit
that you could be doing with satellite. In the end we are going to have to have a range of
these different solutions coming in.
But I would be a little bit hesitant in saying that there is somewhere out there a silver bullet
in the form of 4G that can actually deliver the kind of consistent high-speed services that you
would need in order to deliver public services over the next five to 10 years. I think you will
have to continue doing a lot of the kind of things the masts have done.
Q450 Earl of Selborne: It is a contribution, surely?
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Rory Stewart: Yes, certainly, a big contribution.
Miles Mandelson: If I may, I would return to perhaps why this has to be seen as a
developmental process. The need for broadband in rural areas now is urgent and anything
that delivers just about enough tomorrow is welcome. But I think you have to take a longerterm
view as well. You have to have an eye to building infrastructure that will work for a
very long time and has very low maintenance costs, and you really cannot avoid fibre optics
for that kind of solution. It really is the only one that will do the job for that length of time
and with that degree of reliability. So I think we need to be looking at both short and
medium term solutions to get people connected and longer-term solutions to ensure the
future for generations to come, and I think it is a mistake to look at it one way or the other.
I think you have to look at it from both angles and try to develop a strategy whereby what
you achieve in the short term is a developmental step towards what you are aiming for in
the long term, even though you may not be able to achieve the long-term aim that quickly.
Q451 Earl of Selborne: Backhaul implies fibre optic into rural areas?
Miles Mandelson: It does, absolutely.
Q452 Earl of Selborne: So it is a help?
Miles Mandelson: Yes.
Rory Stewart: It is a help, and of course it needs to be used both for the mobile companies
and for the traditional broadband delivery. The other thing, just as a supplement on that,
where you are absolutely right, is that the range of technological solutions now available is
staggering. Just within Cumbria itself, in addition to what we are doing on fibre backhaul and
in addition to the 4G 1,800 Mhz trial which we have just done in Threlkeld, which is
Everything Everywhere, we have had Vodafone now launching a very exciting Femto trial
around Caldbeck, Wigton, and we have had 3 launching a very exciting trial based on their
dongles actually quite close to Miles, out at the very eastern end of Cumbria, in the parish of
Kaber. So we are now in a situation in which a lot of these major telecoms companies are
coming up with quite different forms of technological solutions. The white space trial, which
we are looking at running in Northern Fells, again, is an entirely separate trial coming in with
a completely different form of technology.
What we need to do, though, is have an environment, have Governments, councillors and
committees, that are really prepared to take these opportunities and, above all, hold these
companies to the fire, because the real thing that will make the difference in Cumbria—and I
am saying this aware that poor BT are sitting in the room listening to me—is that whoever
wins that contract, whether it is Fujitsu or BT who are the two people who are in the last
round of bidding, we have to be really tough with them and demand that, if we are having
huge amounts of public money, we squeeze every last bit that we can, and particularly get all
the benefit that these communities have put in—that all that work that Miles has put in or
Libby’s put in is rewarded; that they get that fibre deeper and further, and that BT and the
county council are forced to be as flexible as possible.
Q453 Lord Clement-Jones: Do you think we are getting to the position where these
technological solutions are available and the commercial providers come in and you do not
have to have a situation where communities have to get soft loans, or whatever the solution
might be, Rory? Are you saying that you can just see over the horizon a situation where
rural communities are going to be able to get these services without having to go through
the incredible kind of campaign and all the bureaucracy that has been there to date?
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Rory Stewart: I am afraid I am not confident of that yet. I still think that the commercial
proposition of serving remote rural communities is not very attractive, and shareholders and
major commercial companies will be extremely reluctant to endorse an aggressive expansion
into covering 98% of rural areas without some degree—
Q454 Lord Clement-Jones: There is going to have to be some pump priming?
Rory Stewart: There has to be pump priming, and that pump priming is going to have to be
public money, but because the public money will never be sufficient to cover that gap, it will
actually have to be the communities putting in their own labour, their own time and their
own money.
Q455 Lord Clement-Jones: But it may be less than has been forecast in terms of the
tipping point?
Rory Stewart: The price is dropping all the time. We are now delivering the stuff much
more cheaply than we would have thought was possible two years ago.
Q456 Lord St John of Bletso: Clearly getting backhaul into communities has been the
major priority and also communities need to be very innovative, but what impact has the
availability of dark fibre and existing ducts and poles had on the rollout of broadband
infrastructure in your area?
Miles Mandelson: Not as much as you might expect in deeply rural settings. There is not
actually a lot of dark fibre in the deeper rural parts of Cumbria. There is dark fibre obviously
and probably more than any of us are aware of. But there certainly is not that I am aware of
in every single small community in—
Q457 The Chairman: Is this dark fibre part of the core network, or is it part of backhaul?
Miles Mandelson: I would struggle to answer that question accurately. I suspect it probably
is both I think. When you are laying fibre you lay as much as you possibly can at the time
because you do not want to come back and lay it again. So there probably are large ducts
with a lot of unlit fibre in them ready and waiting. The railway system has a fair amount of
fibre running up and down it for its own purposes. But obviously there too is an opportunity
for fibre to be used for other purposes, other than just serving the railways. As for passive
infrastructure, the poles and the ducts, yes, it is good that they are there and it will be good
to be able to use it, but it costs money to do so. If it costs more money in rural settings than
it does in urban settings because your density of population is so much lower, you might
have to use, I do not know, half-a-dozen poles to reach a single property and the costs of
hiring that facility, not to mention the administrative hurdles you have to jump over to do
so, just would not be justified by serving one property; whereas, in an urban setting, you
might be able to use that sort of infrastructure very cost-effectively because you are serving
a large number of customers.
So I think the potential in rural settings for using dark fibre and passive infrastructure is
perhaps not as great as you might imagine, but where it is there and where there are
potential opportunities, they should be explored and the question should be asked. We
asked BT, “You are asking us to dig trenches and lay fibre, why can you not string that fibre
across the poles that you already have delivering our telephone services?” “Well, they are
not the right poles, and they do not really support this particular thing.” Apart from anything
else, poles are very unsightly, and we are very careful about the number of poles we have in
this country. If you go to other countries you find many more poles, and it is an awful mess.
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So if it is there then, yes, consider it, weigh it up and see if it presents itself as a costeffective
part of the solution, but do not make the assumption that it is everywhere and you
just need to unlock it.
Rory Stewart: It has been a huge learning experience for us because we started endlessly
obsessed with the idea that we had the Carlisle-Settle line fibre; we were obsessed with
fibre running up out of the gas lines; we were obsessed with tracking down all bits of Cable
& Wireless fibre; but in the end that game of second-guessing the major providers—secondguessing
BT or Fujitsu or Cable & Wireless—and telling them how to do their business and
saying, “Why can you not get the fibre from there? Why do you not use that bit of fibre?”
was of limited value. I think maybe in one case out of 100 we got an engineer at one of these
companies thinking, “Okay, maybe there is something we missed there or there is an
opportunity we missed there”, but the general economics of those businesses are opaque to
communities; so we imagine it makes enormous sense to use the Carlisle-Settle line, and we
even got so far as getting the railway to agree to commit that fibre to our projects but it
then went into a sort of comedy and chaos. We ended up in worlds in which our
communities were trying to dig their own trenches and almost cracking through the main
gas line in order to get to stuff. We have been through a process where I think the vision we
had two-and-a-half years ago, which is that there is this wonderful easy solution out there in
the form of this dark fibre and if we can only tap into it, we would solve all our problems,
has slightly evaporated.
Lord St John of Bletso: Yes, we have actually asked several of our witnesses about the
accuracy of their inventories, and we have not really had a decisive answer on that one.
Q458 Lord Gordon of Strathblane: Rory Stewart mentioned earlier that a degree of
public money is going to be essential in rural areas. Our understanding is that EU state-aid
rules say that if public funding is used, it must be open access, yet the Chairman of Northern
Fells, one of your group, has said that that is a great impediment to creating a viable
community network. I do not quite see why, to be honest, but do you agree with his
statement and how do we get round this problem?
Miles Mandelson: I think the answer is that it depends how you want to build your
network. It depends what the economics are of your particular proposal. I think in Northern
Fells their proposal would deliver an internet connection to the community perfectly well,
but it would not do it by a technology that is normally acceptable to retail ISPs, and to make
it acceptable—to make it ultra-reliable; for those ISPs to have confidence in it that they are
going to be able to deliver their services across it—would probably cost a lot more money.
It would require that certain standards could be met—not inappropriate standards but
standards all the same—and I think the problem is trying to deliver a project that is
affordable from the community’s point of view and yet delivers the same standard of
technical solution that the ISPs will be looking for. ISPs are only going to be interested in
infrastructure if it gives new access to very large numbers of new customers and does so in
such a way that keeps their costs as low as possible. Consequently, they are going to be
looking for a tried-and-tested means of doing that, and BT’s network is the tried-and-tested
means of doing it. Other newfangled types of networks are not necessarily tried and tested,
so it would be difficult to persuade ISPs, I think, to take them on as a means of reaching
customers.
Perhaps in a few years’ time, perhaps if standards were properly developed, adopted and
possibly even made mandatory, well then you could reach a point where whatever project a
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community wishes to promote or promulgate would meet those standards and automatically
the ISPs would come on board.
Q459 Lord Gordon of Strathblane: But surely minimum standards are desirable and
should be mandatory, otherwise we would just be wasting money?
Rory Stewart: I think this is a question about risk. Northern Fells is proposing a very novel
use of a white-space technology, which would make them almost the first community in
Britain to implement it. They are now saying, “We are prepared to take the risk that this
whole thing will collapse. We are prepared to take the risk that if this whole thing collapses,
we do not have any broadband, and all we are asking from Government is exactly the same
amount and even slightly less than the Government is currently putting in to subsidising
other people’s homes.” So essentially they are saying to the Government, “We are
grownups. We will come to you. Give us what you would otherwise spend on us.”
Q460 Lord Gordon of Strathblane: Not, “Give us a soft loan”?
Rory Stewart: Or a soft loan; but, “Give us a sum of money that would otherwise go,
perhaps in this case, into the overall cover of procurement, because if we do it ourselves we
will get much further. We do not believe that your system will cover all our outlying houses.
We can do a system that will cover the core and all the outlying houses for the same cost as
the Government would normally provide and we will take the risk that this technology will
not work and the whole thing will collapse”. The problem with the minimum standards is
that the civil servants turn round and say, “Well, hold on a second; we do not really believe
in this technology. This whole thing could collapse in three years’ time, and then you are
going to come running to us and say you do not have any broadband and the Government
has to provide it.” The community turns round and says, “No, we will not. We know we are
taking the risk and if it all collapses, that is our fault and our problem. Just give us that which
is owing to us, or perhaps slightly less than is owing to us, and we will give it a go”.
Q461 Baroness Bakewell: Can I just pick up on that? Do you think that Ofcom should
mandate standards that would enable communities and infrastructure providers to provide
standard access products that would be compatible with the ISPs?
Rory Stewart: I think there are pros and cons. The pros in that—which is terrific—are that
it means that the ISP’s normal complaint, “We cannot work with community projects
because they are not made to our standards”, would be overcome. The downside is that it
would make these projects considerably more expensive and therefore Northern Fells
would argue that there is no way, with the public money available, they would be able to
cover all the outlying houses and farms within their area on the basis of the kind of public
money available because they are not able to achieve the standards they have insisted on—
the deluxe, high standards—with the technology and the price that they are prepared to pay.
Q462 Baroness Bakewell: But you called for flexibility earlier this afternoon. Ofcom
might be open to that kind of approach.
Rory Stewart: I actually am more radical than that. I like the idea that, particularly if you
were doing this for a soft loan as opposed to the Government grant, you let the community
take the risk. I would almost like to look the civil servant in the eye and say, “This is the
whole point of this big society stuff; it is risk. These are grownups, they have done an
enormous amount of research and they have decided this is the technology they want to go
with. It is not costing the taxpayer much money at all. Let them give it a go and do not get
involved in micromanaging them or bossing them around”.
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Q463 The Chairman: Is there a potential problem in that context with your active
infrastructure not being compatible at essentially the point where the BT cable end joins the
outlying network, then you will find that people cannot send information into the outlying
network as well as not being able to get stuff out?
Rory Stewart: I think there is a whole series of problems. The first and most obvious
problem is that the whole system could completely collapse and fail to function, at which
point nobody has any broadband at all. The second problem is the one that Miles raised,
which is that you would create a network that the ISPs would be very reluctant to work
with so you could not get normal services. If you go to one of these cheap community
solutions you cannot get your films, you cannot get your Virgin package or your Sky package.
Miles Mandelson: But you can.
Rory Stewart: I am going to come back to Miles on that. I suppose the basic anxiety in all of
this is that a community-owned, cheaper, more imaginative project is simply not going to be
sustained, maintained, operate, be high quality, and you would end up with a sort of
nightmare scenario of a series of slightly second-rate, poorly maintained broadband projects
across the country that would not really get us where we want, which is the Government
being able to deliver universal health services to people’s homes.
Q464 Lord Bragg: Looking at the big picture, I have heard what has been said so far, but
what do you think is the effectiveness of the current policy and regulations? What are the
key factors you would like to unlock?
Miles Mandelson: I think it comes back to the points that I made earlier about flexibility
and preparedness to take a measure of risk. These are, to some extent, uncharted waters.
We were pilot projects and any project that the Rural Community Broadband Fund
supports is going to be a bit of a shot in the dark, so I think there is a need for a certain
amount of risk-taking and flexibility of approach; flexibility in terms of the financial demands
that you make on a community and the technological standards that you require for their
solution.
I still come back to the notion that if you look at it from the perspective of a deeply rural
community that has no worthwhile broadband at all, anything that improves that situation is
an enormous transformational step and it means an awful lot to the people living in that
community. If it keeps them going five years until technology improves and becomes cheaper
to implement, then you have done something enormously worthwhile and you should not
lose sight of that. Our friends in Defra and BDUK should not lose sight of that either. I think
if they could look at this through the eyes of the communities, then they would see
something a little different perhaps to what they are seeing at the moment.
Rory Stewart: To answer where I think Government needs to improve, the most worrying
conversation I had with an official recently was in reference to Fell End, where the funding
gap is £17,000. The official said, “It is proving very, very difficult for us in Government to
jump through all these hoops to give that money to the community because of state aid
problems. How about just asking BT to give a philanthropic gift of £17,000 and pay for it
themselves or find some other philanthropist to come up with the money?” I am very
worried by that sort of response because the point is this should be about community and
Government working together. The Government should be able to take credit for this; the
Government should put the money in; the Government should be able to prove that it can
get trivial sums of money or small sums of money like £17,000 out of the door in order to
get a project off the ground. It is very worrying if after months of work by officials—and we
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Miles Mandelson and Rory Stewart MP – oral evidence (QQ 430-465)
have had officials up for nearly two years in Cumbria, going through business plans, working,
working, working—we have got to a world in which it is so difficult to get £17,000 to one of
the most remote rural communities in Britain in order to get fibre to every home that
people are coming back to us saying, “Why not just get a private philanthropist to do it?”
The answer is you could get a private philanthropist to do it, but it would make a nonsense
of what the pilot was supposed to prove, which is that we can save the taxpayer money but
the taxpayer would still be contributing to the projects.
Q465 The Chairman: This is probably the right time—I am afraid that we have already
slightly overshot time, so apologies particularly to the BT witnesses—to say that I think we
probably ought to draw this session to a close. But before we do that, is there anything you
have not said that you think it is important we hear from either of you?
Miles Mandelson: No, I think I have said all I need to say and I am very grateful to the
Committee for this opportunity to say all I had to say, and thank you very much for listening.
Rory Stewart: Just in very quick summary I would say we have learnt an incredible amount
over two years. We have got a model, with Miles, with Libby, with Northern Fells, which is
very exciting, which would save the taxpayer a lot of money, which would get fibre much
more and much deeper. With the companies being far more imaginative, we are able to cut
deals that would have been unimaginable two years ago. All we need now is a real sense of
flexibility and energy, particularly from Government, to make these projects work, and if we
can just prove a few successes, I think we will have something that Shropshire,
Herefordshire and other parts of the country can look at and follow.
The Chairman: Thank you both very much indeed. Thank you. We are grateful.
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Dr Christopher T Marsden – written evidence
Dr Christopher T Marsden – written evidence
1. I am writing to provide evidence about throttling practices of Internet Service
Providers (ISPs), regulation thereof by Ofcom, and its responsibilities under the
Regulations implementing Directives 2009/136/EC and 2009/140/EC. A concise
summary of my evidence is presented on the final page of this evidence. It affects the
following questions regarding deployment of ‘superfast’ broadband that you pose to
respondees:
• What is being done to prevent a greater digital divide occurring between people
who can access superfast broadband and people in areas where the roll-out of
superfast broadband may not be commercially attractive?
• What speed of broadband do we need and what drives demand for superfast
broadband?
• Are there other indicators which should be used to monitor the health of the
digital economy? What communications infrastructure does the UK ultimately
need to remain competitive and meet consumer demand over the next 20 years?
• How will individuals and companies use cloud services for distributed storage and
computation? What network properties are required to enable efficient provision
and use of such services?
• To what extent will the advent of superfast broadband affect the ways in which
people view, listen to and use media content?
• Will the UK's infrastructure provide effective, affordable access to the 'internet of
things', and what new opportunities could this enable?
• How might superfast broadband change the relationship between providers and
consumers in other sectors such as content? What aspects of this relationship are
key to enabling future innovations that will benefit society?
• What role could or should the different methods of delivery play in ensuring the
superfast broadband network is fit for purpose and is as widely available as
possible? How does the expected demand for superfast broadband influence
investment to enhance the capacity of the broadband network?
• What impact will enhanced broadband provision have on the media and creative
industries in the UK, not least in light of the increased danger of online piracy?
What is the role of the Government in assuring internet security, and how should
intellectual property (IP) best be protected, taking into account the benefits of
openness and security?
2. I am submitting this evidence in my own behalf as an individual. I am a Senior Lecturer
at the School of Law of the University of Essex, Colchester, UK and a Fellow of both
Keio University and GLOCOM, International University of Japan. I have published on
network neutrality and other issues surrounding bottleneck gatekeepers in European
communications since 1997. I have also consulted for various Member State
governments (UK Ofcom, BIS, Cabinet Office included), the European Commission,
the OSCE and Council of Europe, as well as non-EU governments and private
corporations and thinktanks during that period. My work is cited by all the
organisations named above.
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Dr Christopher T Marsden – written evidence
3. I presented evidence in person to the European Parliament/European Commission
joint summit on net neutrality and the Open Internet in November 2010, and chaired
the EU Presidency conference 'Broadband for All' in March 2011. I am a prominent UK
academic expert on ISP traffic management practices and the infringement of the UK
law on network neutrality (transposition of the 2009 Better Regulation and Citizen's
Rights Directives into UK law was completed in 2011).
4. I have attached a summary of evidence on ISP congestion management and the law in
this regard. It will shortly be published as part of the concluding chapter in the leading
practitioner text on the subject, Telecommunications Law and Regulation (Oxford, 4th
ed. I. Walden, 2012).
5. I would be happy to present evidence or otherwise assist the inquiry if that would be
helpful.
Development of legal debate regarding traffic management
6. ‘Superfast broadband’, the evolution of ‘Cloud’ computing services, and universal
service for the digitally disadvantaged, all depend on the traffic management practices
of ISPs. Dividing net neutrality into its forward-looking positive and backwarddegrading
negative elements is the first step in unpacking the term, in comprehending
that there are two types of problem: charging more for more, and charging the same
for less. Abusive discrimination in access to networks is usually characterized in
telecoms as a monopoly problem, manifested where one or two ISPs have dominance,
typically in the last mile of access for end-users 106 . ISPs can discriminate against all
content or against the particular content that they compete with when they are
vertically integrated. Conventional US economic arguments have always been broadly
negative to the concept of net neutrality, preferring the introduction of tariff-based
congestion pricing 107 . Hahn and Wallsten explain that net neutrality 108 “usually means
that broadband service providers charge consumers only once for Internet access,
don’t favor one content provider over another, and don’t charge content providers for
sending information over broadband lines to end users.” This is the focus of the
problem: Network owners with vertical integration into content or alliances have
enhanced incentives to require content owners (who may also be consumers) to pay a
toll to use the higher speed networks that they offer to end-users. Note all major
consumer ISPs are vertically integrated to some extent, with proprietary video, voice,
portal and other services.
7. The US regulator FCC has acted on several network neutrality complaints (notably
those against Madison River in 2005 and Comcast in 2008 109 ) as well as introducing the
principle in part through several merger conditions placed on dominant ISPs, but
delayed its report and order on net neutrality until its eventual publication in the
Federal Register in September 2011, whereupon it was instantly challenged by various
interested parties and would be litigated in 2012. Development of European legal
106 I have argued elsewhere that the real problem lies in the ‘middle mile’ of interconnection, in Marsden, C. (2010)
Network Neutrality: Towards a Co-regulatory Solution, Bloomsbury Academic: London.
107 See David, Paul (2001) The Evolving Accidental Information Super-Highway, Oxford Review of Economic Policy,
17: 2 pp159-187
108 Hahn, Robert and Scott Wallsten (2006) The Economics of Net Neutrality, AEI Brookings Joint Center for
Regulatory Studies: Washington, D.C. at www.aei-brookings.org/publications/abstract.php?pid=1067
109 Comcast v. FCC (2010) No. 08-1291, delivered 6 April.
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Dr Christopher T Marsden – written evidence
implementation of the network neutrality principles has been slow, with the European
Commission referring much of the detailed work to the new Body of European
Regulators of Electronic Communications (BEREC), which was developing an extensive
work programme on net neutrality in 2012. At European Member State level,
statements of principle in favour of net neutrality have been made in for instance
France, but no legislation was enacted before the end of 2011 110 , though a Netherlands
law had been passed by its lower house and awaited ratification by the Netherlands
Senate in a debate of 6 March 2012.
Interoperability principles for the Internet
8. Network neutrality 111 is the latest phase of an eternal argument over control of
communications media. Net neutrality has been variously defined, most prominently by
regard to its forerunners ‘open access’ and common carriage. Common carriers who
claim on the one hand the benefits of rights of way and other privileges, yet on the
other claim traffic management for profit rather than network integrity, may be trying
to both have their cake and eat it 112 . Common carriage is defined by the duties
imposed on public networks in exchange for their right to use public property as a
right of way, and other privileges.
9. The Internet was held out by early legal and technical analysts to be special, due to its
decentred construction 113 , separating it from earlier ‘technologies of freedom’
including radio and the telegraph. It is important to recognise the end-to-end principle
governing Internet architecture 114 . The Internet had never been subject to regulation
beyond that needed for interoperability and competition, building on the Computer I
and II inquiries by the Federal Communications Commission (FCC) in the United
States, and the design principle of End-to-End (E2E). That principle itself was bypassed
by the need for greater trust and reliability in the emerging broadband network by the
late 1990s, particularly as spam email led to viruses, botnets and other risks. The lack
of trust on the Internet, combined with a lack of innovation in the Quality of Service
(QoS) offered in the core network over the entire commercial period of the Internet
since NSFNet was privatized in 1991-95 meant that development was focussed almost
entirely in the application layer, with Peer-to-Peer (P2P) programmes such as lowgrade
Voice over Internet protocol (VoIP) and file-sharing as well as the World Wide
Web (WWW) designed during this period. However, ‘carrier-grade’ voice, data and
video transmission was restricted to commercial Virtual Private Networks (VPNs) that
could guarantee trust, with premium content attempting to replicate the same using
Content Delivery Networks (CDNs) such as Akamai, or the ISPs’ own local loop
offerings deployed within the user’s own network.
110 For details of national implementation and the divergences therein, see Cave, M. (2011) DAF/COMP/WP2(2011)4
Directorate For Financial And Enterprise Affairs: Competition Committee Working Party No. 2 On Competition
And Regulation: Hearing On Network Neutrality Paper by Mr. Martin Cave
111 See Marsden, C. (2012) ‘Network Neutrality: A Research Guide’ in Brown, Ian ed. ‘Handbook Of Internet
Research’ Cheltenham: Edward Elgar.
112 See Frieden, Rob (2010) Invoking and Avoiding the First Amendment: How Internet Service Providers Leverage
Their Status as Both Content Creators and Neutral Conduits, 12 U. PA. J. CONST. L. p.1279; Werbach, Kevin
(2010) Off the Hook, 95 CORNELL L. REV. p.535.
113 The ‘Internet’ is a network of Autonomous Systems, of which about 40,000 are of a scale that is relevant. See
Haddadi, Hamed et al (2009) Analysis of the Internet’s structural evolution, Technical Report Number 756
Computer Laboratory UCAM-CL-TR-756 ISSN 1476-2986.
114 See J. H. Saltzer, D. P. Reed & D. D. Clark (1984, End-to-end arguments in system design, 2 ACM Transactions
On Computer Systems p.288
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Dr Christopher T Marsden – written evidence
10. As a result, E2E has gradually given way to trust-to-trust mechanisms, in which it is
receipt of the message by one party’s trusted agent which replaces the receipt by final
receiver. This agent is almost always the ISP, and it is regulation of this party which is
at stake in net neutrality. ISPs also can remove other potentially illegal materials on
behalf of governments and copyright holders, to name the two most active censors on
the Internet, as well as prioritising packets for their own benefit. As a result, the E2E
principle would be threatened were it not already moribund. Even in 2012, scholars
suggest freedom to innovate can be squared with design prohibitions, despite over a
decade of multi-billion dollar protocol development by the ISP community resulting in
the ability to control traffic coming onto their networks, and wholescale rationing of
end-user traffic. Network engineer Crowcroft makes three major points: the Internet
was never intended to be neutral; there has been virtually no innovation within the
network for thirty years; “network-neutrality has in fact stifled evolution in the
network layer.” 115 . Network congestion and lack of bandwidth at peak times is a
feature of the Internet. It has always existed. That is why video over the Internet was
until the late 1990s simply unfeasible. It is why Voice over the Internet has patchy
quality, and why engineers have been trying to create higher QoS. ‘End to end’ is a
two-edged sword, with advantages of openness and a dumb network, and
disadvantages of congestion, jitter and ultimately a slowing rate of progress for highend
applications such as High Definition video 116 . End-to-End may have its
disadvantages for those introducing zoning as compared with QoS, and in this it has
obvious parallels with ‘common carriage’ under the Telecommunications Act, and its
alter ego ‘information services’.
European Legislation and Regulation of Network Neutrality
11. In its initial explanation of its reasons to review the raft of 2002 Directives 117 , the
Commission noted the US debate but did no more than discuss the theoretical
problem 118 . Over 2007-8, the volume of regulatory reform proposals in the USA 119 ,
Japan, Canada and Norway had grown along with consumer outrage at ISP malpractice
and misleading advertising, notably over notorious fixed and mobile advertisements
which presented theoretical laboratory maximum speeds on a dedicated connection
with no-one else using it and subject to ‘reasonable terms of usage’ – which meant
capacity constraints on a monthly basis, some of these on mobile as low as 100MB
download totals 120 .
115 Crowcroft, Jon (2011) The Affordance of Asymmetry or a Rendezvous with the Random? Convergence and
Communications Review, at p.12.
116 David Clark, Network Neutrality: Words of Power and 800-Pound Gorillas, 1 INTERNATIONAL JOURNAL OF
COMMUNICATION 701-708 (2007); Jon M. Peha, The Benefits and Risks of Mandating Network Neutrality, and
the Quest for a Balanced Policy, 1 INT’L J. COMM. 644, 644-659 (2007)
117 See Directive 2002/21/EC (“Framework Directive”), Directive 2002/20/EC (“Authorisation Directive”), Directive
2002/19/EC (“Access Directive”), Directive 2002/22/EC (“Universal Service Directive”), Directive 2002/58 on
Privacy and Electronic Communications.
118 COM(2006) 334 final Review of the EU Regulatory Framework for electronic communications networks and
services, Brussels, 29 June 2006 at section 6.2-6.4.
119 See J. Scott Marcus, Network Neutrality: The Roots of the Debate in the United States, 43 INTERECONOMICS
30-37 (2008) Jasper P. Sluijs, Network Neutrality Between False Positives and False Negatives: Introducing a
European Approach to American Broadband Markets, 62 FEDERAL COMMUNICATIONS LAW JOURNAL 77-
117 (2010); M. Cave & P. Crocioni, Does Europe Need Network Neutrality Rules?, 1 INTERNATIONAL
JOURNAL OF COMMUNICATION 669–679 (2007); Peggy Valcke et al., Guardian Night or Hands off? The
European Response to Network Neutrality: Legal Considerations on the Electronic Communications Reform, 72
COMMUNICATIONS & STRATEGIES 89-112 (2008);
120 Leading to a significant emphasis on net neutrality in SEC(2007) 1472 Commission Staff Working Document:
Impact Assessment at 90-102 (2007)
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Dr Christopher T Marsden – written evidence
Net Neutrality Legal Amendments in 2009 Directives
12. Net neutrality became a significant issue, together, with graduated response, in the
voting on the First Reading of the 2009 telecoms package, in May 2009. The European
Parliament voted down the reforms at First Reading prior to imminent parliamentary
elections in June. Amendments on consumer transparency and network openness
were offered to the Parliament in the Conciliation process, collated in the European
Commission ‘Declaration on Net Neutrality’ 121 , appended to 2009/140/EC:
“The Commission attaches high importance to preserving the open and neutral
character of the Internet, taking full account of the will of the co-legislators
now to enshrine net neutrality as a policy objective and regulatory principle to
be promoted by [NRAs] (Article 8(4)(g) Framework Directive), alongside the
strengthening of related transparency requirements (Articles 20(1)(b) and
21(3)(c) and (d) Universal Service Directive) and the creation of safeguard
powers for [NRAs] to prevent the degradation of services and the hindering or
slowing down of traffic over public networks (Article 22(3) Universal Service
Directive).”
13. There in summary are the concerns about ISPs discriminating against content they
dislike, or in favour of affiliated content 122 . The new laws which became effective in
Member States in May 2011 123 states that Member States may take action to ensure
particular content is not discriminated against directly (by blocking or slowing it), or
indirectly (by speeding up services only for content affiliated with the ISP).
14. This Declaration, and the more legally relevant Directive clauses, will rely heavily on
the implementation at national level and proactive monitoring by the Commission
itself, together with national courts, and privacy regulators where content
discrimination contains traffic management practices which collate personal subscriber
data 124 . Nevertheless, it lays out the principle of openness and net neutrality. The
Commission itself adds that it will introduce “a particular focus on how the ‘net
freedoms’ of European citizens are being safeguarded in its annual Progress Report to
the European Parliament and the Council” 125 . Article 22(3) of the Universal Service
Directive, stipulates that regulatory authorities should be able to set minimum qualityof-service
standards: “In order to prevent the degradation of service and the hindering
or slowing down of traffic over networks, Member States shall ensure that [NRAs] are
able to set minimum quality of service requirements”.
121 European Commission (2009) Declaration on Net Neutrality, appended to Dir. 2009/140/EC, OJEU L337/37 at
p69, 18 December 2009 at http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:337:0037:0069:EN:PDF
122 See Jasper P. Sluijs, Florian Schuett & Bastian Henze, Transparency regulation in broadband markets: Lessons from
experimental research, 35 Telecommunications Policy 592-602 (2011) for an experimental analysis of
transparency regulation in broadband.
123 Directive 2009/136/EC (the “Citizens Rights Directive”) and Directive 2009/140/EC (the “Better Regulation
Directive”) both of 25 November 2009, which must be implemented within 18 months.
124 See Directive 95/46/EC of 24 October 1995, OJ L 281/31 (1995); Directive 2002/58/EC, OJ L 201/37 (2002);
Directive 2006/24/EC of 15 March 2006 on the retention of data generated or processed in connection with the
provision of publicly available electronic communications services or of public communications networks and
amending Directive 2002/58/EC OJ L105/54 (2006).
125 Ibid.
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Dr Christopher T Marsden – written evidence
15. As with all telecoms licensing conditions, net neutrality depends on the physical
capacity available, and it may be that de facto exclusivity results in some services for a
limited time period as capacity upgrades are developed 126 . Regulations passed in
licensing can affect network neutrality at a fundamental level. Interoperability
requirements can form a basis for action where an ISP blocks an application.
16. Note that as network neutrality extends to all consumer ISPs symmetrically, it may not
be subject to competition law assessments of dominance, as abuse of dominance is not
necessarily an accurate analysis of the network neutrality problem, at least in
Europe 127 . Dominance is neither a necessary nor sufficient condition for abuse of the
termination monopoly to take place, especially under conditions of misleading
advertising and consumer ignorance of abuses perpetrated by their ISP 128 .
Reasonable Network Management and Regulatory Consultation
17. 17. One of the several principles of network neutrality promulgated by both the FCC
and European Commission is that only ‘reasonable network management’ be
permitted, and that the end-user be informed of this reasonableness via clear
information. Both the FCC in the US and the European Commission have relied on
non-binding declarations to make clear their intention to regulate the ‘reasonableness’
of traffic management practices. In Canada, the CRTC has relied on inquiries to the
dissatisfaction of advocates, while in Norway and Japan non-binding self-regulatory
declarations have been thus far non-enforced. Little was done to define reasonableness
and transparency by the European Commission prior to the implementation deadline.
18. In the UK, Ofcom confined itself to measuring ISP broadband performance, and making
it easier for consumers to switch to rival providers. Ofcom has continually attempted
since 2008 to reach a self-regulatory solution, creating the unedifying spectacle of
appearing to drag unwilling ISPs to the table to agree on what is at least formally ‘selfregulation’
though with the strongest of regulator pressure applied. Ofcom's
consultation closed on 9 September 2010 129 . Ofcom tried to encourage industry selfregulation
via transparency Codes of Conduct, which were unconvincing as recalcitrant
industry players agreed to only minimal restrictions on their commercial freedom to
impose arbitrary limits on consumers’ behaviour. These obligations were to be
implemented by May 2011, and details remained to be worked out.
19. By 2011, with the timetable for implementation of 2009/140/EC growing near, the
government-funded Broadband Stakeholder Group (BSG) finally produced a Code of
Conduct. The UK Ofcom Draft Annual Plan 2012/13 130 had a small section on traffic
126 See GN Docket No. 09-191 Broadband Industry Practices WC Docket No. 07-52 ‘In the Matter of Further
Inquiry into Two Under-Developed Issues in the Open Internet Proceeding Preserving the Open Internet’, and
Andersen et al (2010) Joint Reply Comments Of Various Advocates For The Open Internet, November 4
Comments on Advancing Open Internet Policy Through Analysis Distinguishing Open Internet from Specialized
Network Services.
127 See Marsden (2010) Net Neutrality, at p.1
128 Some authors question the distinction between degrading and prioritizing altogether, as they find that the latter
naturally presupposes the former. See, e.g. Filomena Chirico, Ilse Van der Haar & Pierre Larouche, Network
Neutrality in the EU, TILEC Discussion Paper (2007), http://ssrn.com/abstract=1018326
129 http://stakeholders.ofcom.org.uk/consultations/net-neutrality/?showResponses=true
130 Ofcom (2012) Draft Annual Plan 2012/13, at
http://www.ofcom.org.uk/about/annual-reports-and-plans/
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Dr Christopher T Marsden – written evidence
management which is bland and uninformative 131 , but promised a ‘summer 2012’
update and the announcement that Ofcom would ‘undertake research on the provision
of 'best-efforts' internet access.’ Whether such an arrangement satisfies the European
Commission, which is legally obliged to monitor implementation, will to be seen in the
course of 2012/13. It is likely to first ask Member States for details of their detailed
implementations, before a further information request which would be a prelude to a
possible case for a preliminary ruling before the CJEU. Such a case would be unlikely to
be heard before 2014.
Revisions to Dispute Settlement
20. BEREC note that legal provisions in the Directives permit greater ‘symmetric’
regulation on all operators, not simply dominant actors, but ask for clarification on
these measures: “Access Directive, Art 5(1) now explicitly mentions that NRAs are
able to impose obligations ‘on undertakings that control access to end-users to make
their services interoperable’”. Furthermore, the new wider scope for solving
interoperability disputes may be used in future:
“revised Article 20 of the Framework Directive now provides for the
resolution of disputes between undertakings providing electronic
communications networks or services and also between such undertakings and
others that benefit from obligations of access and/or interconnection (with the
definition of “access” also modified in Article 2 Access Directive as previously
stated). Dispute resolutions cannot be considered as straightforward tools for
developing a regulatory policy, but they do provide the option to address some
specific (maybe urgent) situations. The potential outcome of disputes based on
the transparency obligations can provide a “credible threat” for undertakings to
behave in line with those obligations, since violation may trigger the imposition
of minimum quality requirements on an undertaking, in line with Article 22(3)
Universal Service Directive.”
This repairs a lacuna in the law, in that the 2002 framework did not permit formal
complaints to be made by content providers regarding their treatment by ISPs.
Network Neutrality Legal Interpretation by European Commission
21. The European Commission closed its consultation on network neutrality
implementation on 30 September 2010 132 and tried to create a consensus where none
existed in the press release accompanying the publication of responses just prior to
the November 2010 joint European Parliament and Commission Summit on net
neutrality.
22. BEREC issued their response to the EC consultation in September 2010 133 . They
concluded that mobile should be subject to the net neutrality provisions, listing some
breaches of neutrality: “blocking of VoIP in mobile networks occurred in Austria,
Croatia, Germany, Italy, the Netherlands, Portugal, Romania and Switzerland” 134 .
131 Ofcom (2012) at paragraphs 5.40-5.42.
132 http://ec.europa.eu/information_society/policy/ecomm/library/public_consult/net_neutrality/index_en.htm
133 BoR (10) 42 BEREC Response to the European Commission’s consultation on the open Internet and net
neutrality in Europe, at http://www.erg.eu.int/doc/berec/bor_10_42.pdf
134 BoR (10) 42 at p.3.
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Dr Christopher T Marsden – written evidence
BEREC explained: “mobile network access may need the ability to limit the overall
capacity consumption per user in certain circumstances (more than fixed network
access with high bandwidth resources) and as this does not involve selective treatment
of content it does not, in principle, raise network neutrality concerns.” 135 They explain
that though mobile will always need greater traffic management than fixed (“traffic
management for mobile accesses is more challenging” 136 ), symmetrical regulation must
be maintained to ensure technological neutrality: “there are not enough arguments to
support having a different approach on network neutrality in the fixed and mobile
networks. And especially future-oriented approach for network neutrality should not
include differentiation between different types of the networks.”
Network Neutrality Legal Interpretation by BEREC
23. BEREC in December 2011 published its guidelines on transparency and QoS 137 , with
much more promised for 2012. This is the type of detailed guidance that the subject
called out for, including for instance Network Performance (i.e. what ISPs can actually
be monitored for 138 ). NRAs have to implement net neutrality in 2012/13 with such
detailed guidance. However, on transparency, “BEREC states that probably no single
method will be sufficient” 139 and points out the limited role of NRAs. Governments'
consumer and information commission bodies are likely to also play a key role.
Together with the rest of the E-Communications package, the promulgated
Netherlands network neutrality regulation was to be voted on by its Senate on 6
March 2012 140 , which would make it the first European nation to formally introduce
mandated network neutrality.
Network Neutrality Legal Interpretation by Other European Institutions
24. Telecommunications regulators are aware that net neutrality is a more important issue
than they are equipped to explore, as the technologies at stake are technologies of
censorship. 141 The European Data Protection Supervisor has recently expressed its
concerns in this area 142 . Internet censorship, consistent with Article 10(2) ECHR, must
in limited circumstances be acceptable. The questions about the proportionality of
Internet censorship which is permissible by law in a democratic society is the right
test. Note that the introduction of network neutrality rules into European law was
under the rubric of consumer information safeguards and privacy regulation, not
competition policy.
Privacy Law, Interception and Deep Packet Inspection (DPI)
135 BoR (10) 42 at p.11.
136 Ibid.
137 Documents BoR 53(11) Quality of Service and BoR 67(11) Transparency, at
erg.eu.int/documents/berec_docs/index_en.htm
138 See p3, BoR53[11].
139 See p5, BoR67[11].
140 Netherlands: Senate will debate net neutrality law 6 March (2012)
http://www.eerstekamer.nl/wetsvoorstel/32549_implementatie_van_herziene
141 BoR (10) 42 at p.20.
142 European Data Protection Supervisor (2011) Opinion on net neutrality, traffic management and the protection of
privacy and personal data, at
http://www.edps.europa.eu/EDPSWEB/webdav/site/mySite/shared/Documents/Consultation/Opinions/2011/11-10-
07_Net_neutrality_EN.pdf
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Dr Christopher T Marsden – written evidence
25. The EU E-Privacy Directive requires NRAs to ensure confidentiality of
communications and related traffic data by prohibiting unlawful interception and
surveillance unless users concerned freely consent 143 , and the Data Protection
Directive (DPD) specifies that user consent must be ‘freely given specific and
informed’ 144 . Article 24 DPD requires Member States to establish appropriate
sanctions in case of infringements. The European Commission launched legal action
against the UK in April 2009 145 and subsequently confirmed its request to the UK
authorities to amend their rules to comply with EU law. UK law did not correctly
implement confidentiality of electronic communications, and powers to fine in
sanctions for breaches by the UK Information Commissioner’s Office (the UK personal
data protection authority) were inadequate under Article 28 DPD. ECD Article 15
also prevents Member States from imposing undue restrictions on ISPs. European laws
meant to protect citizens’ privacy and liberty also include Framework Directive which
lays down the tasks of NRAs, which include cooperating with each other and the
Commission in a transparent manner to ensure the development of consistent
regulatory practice, contributing to a high level of protection of personal data and
privacy and ensuring that the integrity and security of public communications networks
are maintained. 146 The Electronic Privacy Directive has been supplemented by the 2004
Communication on unsolicited commercial communications (‘spam’). 147 The critical
test in both E-Privacy Directive and DPD is that subscribers have to opt for
arrangements that may otherwise infringe their personal privacy, and that sensitive
data must not be passed to third parties unless authorized and anonymized.
26. Experiments conducted by the behavioural advertising company Phorm with the UK’s
largest ISP, BT (and discussions with the next two largest, TalkTalk and Virgin
Media 148 ), and Korea’s largest ISP, Korea Telecom 149 were conducted in 2006-7.
Phorm (formerly 121 Media) is a user-tracking system by which British Telecom and
other ISPs intended to target users more effectively than Google. A variant of this
technology was first deployed widely in the US on wireless ISPs. 150 Phorm operated a
behavioural advertising system intending to offer its ISP and website clients a more
accurate tracking of customers’ Internet use, in order to more closely target
advertising and other marketing via that data. If that process were to be successfully
implemented, ISPs in particular could offer websites a more precise method of
advertising than Google and other search engines. UK Communications Minister Lord
Carter told Parliament on 11 March 2009 that Phorm was an interesting new business
model and that both it and QoS could help develop faster broadband. 151
27. Phorm used DPI to take a copy of ISP subscribers’ Web browsing, in order to insert
targeted advertising, as Clayton explains: ‘This enables their systems to inspect what
requests were made to the website and to determine what content came back from
that website. An understanding of the types of websites visited is used to target
143 Article 5(1) of Directive 2002/58/EC
144 Article 2(h) of Directive 95/46/EC
145 See Press Release IP/09/570
146 Directive 2002/21/EC
147 COM (2004)0028.
148 http://www.theregister.co.uk/2009/04/22/virgin_media_phorm_nma/
149 http://www.theregister.co.uk/2009/06/03/phorm_webwise_discover/ announcing a new product for websites,
Webwise Discover.
150 http://energycommerce.house.gov/cmte_mtgs/110-ti-hrg.071708.DeepPacket.shtml
151 http://www.guardian.co.uk/media/pda/2009/mar/11/phorm-timbernerslee
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Dr Christopher T Marsden – written evidence
adverts at particular users.’ What this does in advertising terms is provide much more
highly targeted adverts based on user’s particular browsing histories. This is a highly
attractive proposition to advertisers and could make a great deal of money for Phorm
and its partner ISPs, if users were notified and agreed in advance to such tracking of
their browser histories - its much more granular than Google’s AdWords, for instance,
and Google made $21 billion in advertising revenues in 2008. 152
28. Unfortunately the original system trials by BT in 2006 and 2007 did not inform users
or ask for their permission. 153 The government department responsible for
interception of electronic communications was aware of, and tried to provide helpful
regulatory guidance on, the trials and the behavioural advertising system, when
contacted by Phorm in August 2007. 154 It appears that the consultations between the
department and Phorm were extensive and amounted to forming a collaborative view
of the law, with comments such as ‘My personal view accords with yours, that even if
it is “interception”, which I am doubtful of, it is lawfully authorized under section 3 by
virtue of the user's consent obtained in signing up to the ISP’s terms and conditions.’
29. As a result of the legal controversy that followed when the trials were made public in
early 2008, the ISPs and Phorm itself agreed to insert both notification and consent
into any future trial or deployment of the technology, and BT did so for its third trial in
December 2008. In legal terms, the system is not just contrary to permissions required
in European privacy law under the 1995 and 2002 Directives, but also unlawful
interception under the exclusively UK RIPA. 155 Clayton presented a report on the
system, to which Phorm responded to ensure technical accuracy. 156 Clayton stated:
‘Website data is being intercepted. The law of the land forbids this.’ The Information
Commissioner’s Office (ICO) has acknowledged that there was ‘considerable public
concern’ about the user profiling system, but its statement appeared to give the goahead
for trials of the system by BT. 157 According to FIPR’s legal analysis, BT could only
legalize their activity by getting express permission not just from their customers, but
also from the Web hosts whose pages they intercept, and from the third parties who
communicate with their customers through Web-based email, forums or socialnetworking
sites. 158 Phorm also infringed the database right for some website owners
and almost all website owners' copyright, and none of the statutory exceptions in the
Copyright Designs and Patents Act 1988 are applicable.
30. The European Commission closed the infringement case on 26 January 2012 in
recognition that UK national legislation was amended to properly implement EU law
on the confidentiality of communications such as email or Internet browsing 159 .
152 See Google (2009) http://investor.google.com/fin_data.html
153 Dubious value is given to such permission in BT internal documents, see
http://wikileaks.org/wiki/British_Telecom_Phorm_PageSense_External_Validation_report
154 BBC (2009) Home Office ‘colluded with Phorm’, 28 April at http://news.bbc.co.uk/2/hi/technology/8021661.stm
155 In March 2008, the NGO Foundation for Information Policy Research (FIPR) wrote to the Information
Commissioner arguing that Phorm's system involved illegal interception contrary to RIPA. See FIPR (2008)
Continuing concerns about Phorm, 6 April at http://www.fipr.org/press/080406phorm.html
156 Clayton (2008) The Phorm\Webwise System, at http://www.cl.cam.ac.uk/~rnc1/080404phorm.pdf and later
version http://www.cl.cam.ac.uk/~rnc1/080518-phorm.pdf
157 See Marsden (2010) pp.84-90 for details of the controversy.
158 Bohm, Nicholas (2008) The Phorm “Webwise” System - a Legal Analysis, at
http://www.fipr.org/080423phormlegal.pdf
159 See Press Release IP/12/60: “Digital Agenda: Commission closes infringement case after UK correctly implements
EU rules on privacy in electronic communications”
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Dr Christopher T Marsden – written evidence
Following the Commission’s 2010 decision to refer the case to the Court of Justice of
the European Union (CJEU) 160 , the UK amended the Regulation of Investigatory
Powers Act 2000 (RIPA), removing references to implied consent. It also established a
new sanction against unlawful interception in (section 1A and Schedule A1 of RIPA 161 ,
administered by the Interception of Communications Commissioner (ICC), who has
published guidance with practical information on how it will exercise these new
functions 162 . The maximum monetary penalty that can be imposed by a monetary
penalty notice is £50,000 under the amended legislation, and its application noted by
the ICC guidance notes at Paragraph 2.15.
Summary: From Mere Conduit to Interceptors of Content
31. The European legal basis for regulatory intervention is an enabling framework to
prevent competition abuses and prevent discrimination, under which national
regulators need the skills and evidence base to investigate unjustified interference with
ISPs’ traditional mere conduit status and non-discrimination. Regulators’ proactive
approach to monitoring and researching non-neutral behaviours will make ISPs much
more cognisant of their duties and obligations. The pace of change in the relation
between architecture and content on the Internet requires continuous improvement in
the regulator’s research and technological training. This is in part a reflection of the
complexity of the issue set, including security and Internet peering issues, as well as
more traditional telecoms and content issues. Regulators can monitor both
commercial transactions and traffic shaping by ISPs to detect potentially abusive
discrimination. No matter what theoretical powers may exist, their usage in practice
and the issue of forensic gathering of evidence may ultimately be more important. The
need for greater research towards understanding the nature of congestion problems
on the Internet and their effect on content and innovation is clear.
32. The issue of uncontrolled Internet flows versus engineered solutions is central to the
question of a ‘free’ versus regulated Internet 163 . What is at risk is the future of Internet
development for innovators. This raising of barriers is neatly summarized by AT&T’s
Jack Osterman reacting to Paul Baran’s original concept of the Internet: “‘First,’ he said,
‘it can’t possibly work, and if it did, damned if we are going to allow the creation of a
competitor to ourselves.’” 164 A consumer- and citizen-orientated intervention depends
on passing regulations to prevent unregulated non-transparent controls exerted over
traffic via DPI equipment, whether imposed by ISPs for financial advantage or by
governments eager to use this new technology to filter, censor and enforce copyright
and other laws against Internet users. Unravelling the previous ISP limited liability
regime risks removing the efficiency of that approach in permitting the free flow of
information for economic and social advantage.
160 See Press Release IP/10/1215
161 Regulation of Investigatory Powers (Monetary Penalty Notices and Consents for Interceptions) Regulations 2011
(SI 2011 No.1340)
162 Interception of Communications Commissioner (2011) Investigation of Unintentional Electronic Interception:
Monetary Penalty Notice, Exercise Of Powers Under Section 1a And Schedule A1 Of The Regulation Of
Investigatory Powers Act 2000, at
http://www.intelligencecommissioners.com/docs/Interception_Commissioner_Guidance_RIPA.pdf
163 Kahn Robert E. and Vinton G. Cerf (1999) What Is The Internet (And What Makes It Work) Internet Policy
Institute, Washington D.C. at http://www.internetpolicy.org/briefing/12_99.html
164 Hafner, Katie and Matthew Lyon (1996) Where Wizards Stay Up Late, Free Press: Washington D.C. pp.52-66
describes the AT&T response to Baran’s revolutionary concept.
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Dr Christopher T Marsden – written evidence
33. Regulation may guard against behaviours both by ISPs violating network neutrality or
acting precipitously to remove illegal content, and by copyright holders acting to force
ISPs to act as third party policemen of their property rights. The reform of the E-
Commerce Directive (2000/31/EC) and the rational and considered implementation of
appropriate levels of network neutrality, will be vital to the continued health of the
Internet access market.
12 March 2012
455

Microsoft – written evidence
Microsoft – written evidence
Introduction
Microsoft welcomes the opportunity to respond to the Lords Select Committee on
Communications’ timely call for evidence into ‘superfast broadband’.
The UK has one of the world’s leading ICT sectors, responsible for employing over 1.3
million people. As a global business with over 90,000 dedicated employees in this sector
worldwide, we are able to draw on considerable experience about how the right set of
policies can help to further develop a dynamic digital communications sector that will
support economic growth in the UK.
In the coming decade we see the traditional boundaries dissolving still further, with a full
range of information, applications and services being distributed and accessed on a growing
universe of smart, connected devices. This will yield significant gains for consumers in terms
of convenience, choice and value, as well as for the economy and society more widely.
The evolving nature of consumer demand for digital products and the desire to enjoy the
benefits of increasingly content-rich digital applications point to the need for a progressive
broadband strategy for the UK.
Questions
1. What is being done to prevent a greater digital divide occurring between
people who can access superfast broadband and people in areas where the
roll-out of superfast broadband may not be commercially attractive? How does
the UK communications market vary regionally and what is the best way to
connect the areas that the market alone cannot reach? Is a universal service
obligation necessary to avoid widening the digital divide?
Beyond the mere focus on the supply-side, making the UK a leading broadband nation
requires bringing together the two key strands of demand and supply, i.e. the dual
perspective of broadband availability (including unrestricted Internet access) AND adoption.
If we want to ensure that broadband connectivity is extended to all in the UK, we equally
need to ensure adoption of the technology in all regions, or a de facto digital divide will be
reinforced, between those who are in or out of the ‘digital society’. We discuss the
promotion of Internet based services – which will encourage wider adoption - and the
necessity to restore and preserve the open Internet in the UK in response to Question 4.
As for availability, Microsoft welcomes the authorities’ focus on complementing and
replacing the aged copper infrastructure with optical fibre. However, we recognise that it is
not economic or practical to provide direct fibre access everywhere for the foreseeable
future. Wireless networking technologies can contribute to delivering Internet services in
the more rural and remote areas. The UK authorities should therefore look to create
flexibility to use spectrum capacity more efficiently, notably through the promotion of
unlicensed and shared uses of spectrum. We detail our recommendations on the matter in
response to Question 4.
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Microsoft – written evidence
We believe that governments should primarily rely on market forces to achieve coverage
targets, and targeted public funding should be utilised in instances of market failure only.
Where there is market failure, Microsoft considers that well targeted State intervention in
the broadband field can contribute to reducing the digital divide that sets apart areas or
regions within a country where affordable and competitive broadband services are on offer,
and areas where such services are not. The granting of State support to undertakings should
be subject to a set of conditions, including a requirement to demonstrate an ‘unfair burden’
prior to receiving public funds. Moreover, support amounts should be determined through
an open tender process.
Network operators with access to government funding or government participation in the
funding should be required explicitly to accept certain principles at the wholesale level and at
the retail level. At the wholesale level, this should include access to civil infrastructure,
passive access to the transmission media, and active access in the form of transmission
capacity, in such a manner that competitor network operators and service providers can
create rival retail services. At the retail level, this should include measures to ensure
effective take-up of affordable and adequate services, including in particular unrestricted
open access and distribution capability of the global public Internet (i.e. access /distribution
of any lawful content, applications and services through all their networks), to satisfy the
needs of users and to promote the UK’s societal and economic interests.
When it comes to funding, we support a model of targeted public funding paid for through
general taxation where there is market failure to provide broadband services. Experience
with the existing universal service regime has shown that the sectoral funding systems
adopted in several other EU member states can distort competition in the
telecommunications sector, and that the required financial contributions can inhibit market
entry and negatively affect the ability of competitors to compete effectively.
As an alternative to public funding, Microsoft supports public-private partnerships (PPPs)
aimed at increasing digital inclusion and improving broadband adoption. Our own ‘Shape the
Future’ program promotes access to technology and digital inclusion, including broadband
adoption, through various programs with other industry, non-profit and public sector
stakeholders, customised for each country. PPPs such as these can be particularly helpful in
promoting technology adoption by under-represented groups, such as the elderly and lowerincome
consumers.
2. The Government have committed £530 million to help stimulate private
investment – is this enough and is it being effectively applied to develop
maximum social and economic benefit?
The Internet’s positive long term impact to the economy cannot be overstated. In 2009,
Internet contributed an estimated £100 billion, or 7.2% to the UK GDP 165 . The benefits of
cloud computing are likely to be significant as well, estimated to be reducing ICT costs by
between 20-50% 166 and creating up to 240,000 jobs in the short term and 35,000 new SMEs
165 Source: Boston Consulting Group: Connected Kingdom, 2010; http://www.connectedkingdom.co.uk/.
166 ‘The Cloud Dividend: Part One – The economic benefits of cloud computing to business and the wider EMEA
economy,’ the Centre for Economics and business research (CEBR), Dec 2010 at:
http://uk.emc.com/collateral/microsites/2010/cloud-dividend/cloud-dividend-report.pdf
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Microsoft – written evidence
over the medium term in the UK 167 . These figures are based on the UK being a leading early
adopter of cloud computing.
Next to such economic analysis, the importance of sufficient investment in the capacity and
penetration of broadband Internet seems self-explanatory. Microsoft supports governmental
policies that help promote continued investment in broadband infrastructure, to ensure that
the Internet’s impact on productivity, efficiency and economic growth are fully realised in all
sectors and across the regions in the UK.
3. Will the Government’s targets be met and are they ambitious enough?
What speed of broadband do we need and what drives demand for
superfast broadband?
Growing consumer demand for digital products and Internet access is a reality. Video
streaming and video on-demand are some of the key drivers of the increasing demand during
the recent years. The move to HD and 3D content and increasing demand in online gaming,
virtual private networks, e-health, e-learning and cloud computing , as well as the burgeoning
Internet of Things - machine-to-machine technologies, smart cities, intelligent transportation
systems, intelligent energy systems, and so on – further evidence the exponentially growing
demand for bandwidth, and in particular to Internet access.
The Government’s targets are modest compared to the objectives in the Digital Agenda for
Europe (by 2020, speeds above 30Mbits available for everyone and speeds above 100 Mbits
effectively taken up by at least 50%). Microsoft suggests that the Government add three
goals: (a) a goal for the majority of households to be subscribing to broadband connections
with actual download speeds of at least 100 Mbps and actual upload speeds of 50 Mbps by
2020, (b) these connections delivering (among others) unrestricted Internet access at very
high speed, and (c) ‘future proofing’ of the infrastructure (in particular any infrastructure
receiving financial support), to ensure that Gigabit and higher speeds can and will be
delivered as and when demanded, in a genuinely competitive manner at both wholesale and
retail level. These elements are necessary notably to support the development of cloud
services, as detailed in our response to Question 5.
Beyond mere definitions of ‘superfast’ and associated upload and download speeds, it needs
to be recognised that low latency will become even more important, not least due the future
extensive usage of voice and video. Moreover, baseline broadband for anchor institutions,
such as primary and secondary schools, higher education institutions, libraries, hospitals, and
other community hubs, need a truly superfast broadband, delivering at least 1 Gigabit per
second, preferably symmetrical, broadband service – adjusted for the size of the institution.
4. In fact, are there other targets the Government should set; are there
other indicators which should be used to monitor the health of the digital
economy? What communications infrastructure does the UK ultimately
need to remain competitive and meet consumer demand over the next 20
years?
167 The Economic Consequences of the Diffusion of cloud computing – World Economic Forum 2010
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Microsoft – written evidence
Many other factors contribute to the development of digital economy, including increased
access to and innovative uses of spectrum, the openness of the Internet and uptake of
Internet-based services.
Making better use of spectrum
When it comes to managing spectrum, we encourage the Government to adopt a
convergent service neutral approach which recognizes the importance of flexible access to
spectrum as a core component of the high performance broadband access that the UK
needs. Government and regulators can assist flexibility and efficiency of use by encouraging
more intensive sharing on a non-exclusive basis. This should become the default mode of
accessing spectrum, facilitated by the use of geolocation databases. Sharing is of critical
importance in frequencies below 1 GHz – which have the greatest potential to ensure
ubiquity of access to broadband. Whilst policy makers worldwide have recognised the need
to clear part of this spectrum for broadband, the rate of making spectrum available
drastically lags the increase in demand and what little has been released has only been
available on a licensed basis. We agree that it is important for licensed services to have
increased capacity in this band, to offer better coverage and increased performance to their
subscribers. However this is only half of the story. We believe that even greater broadband
gains can be made by provisioning capacity for use on a licence-exempt basis. Since the TV
white spaces present such an opportunity, with global harmonisation potential, we are
pleased to see that Ofcom is working hard to put the regulations in place as quickly as
possible and encouraging the UK’s European partners to do the same. By lowering the
barriers to spectrum access in this way, regulators can stimulate innovation and competition.
This would also facilitate individuals and community network providers to invest in meeting
their own broadband needs – complementing the commercially driven, urban-centric,
network roll-out of the major operators.
Future-proofing and enabling competition at all layers in the value-chain
Microsoft considers that enabling and promoting competition is vital at all layers in the valuechain.
This is particularly important as consolidation continues apace in the
telecommunication industry: renewed attention should be paid by policymakers to ensuring
that barriers to entry in that market are not created or reinforced, or innovation stifled.
As mentioned above, certain conditions should be considered, in particular: at wholesale
level, access to civil infrastructure, passive access to the transmission media, and active
access in the form of transmission capacity, in such a manner that competitor network
operators and service providers can create rival retail services; at the retail level, measures
to ensure availability, competitive delivery and effective take-up of affordable and adequate
services, including unrestricted open access and distribution capability of the global public
Internet.
Complementary policy approaches would also include the allocation of more license-exempt
spectrum below 1GHz, as detailed earlier in this response.
Ensuring unrestricted access and use of the Internet
It is not the mere availability of NGA infrastructure/connections as such, or the presence of
multiple infrastructures/multiple fibres as such, but rather the availability of very high speed
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Microsoft – written evidence
unrestricted access to Internet content, applications and services, which is necessary to elicit
broadband Internet adoption and to deliver key socioeconomic benefits going forward.
End users should have access to all lawful content, services and applications of their choice,
over the public Internet. Unfortunately, restrictions apply to the use of a number of Internet
content, services, and applications in the UK, as noted for instance by Ofcom in its 24
November 2011 statement on Net Neutrality 168 and highlighted in the preliminary findings of
EU regulators (BEREC) on traffic management practices in Europe, which stated that
blocking of VoIP and P2P traffic is “common, other practices vary widely” 169 . Such
restrictions result in fewer applications being developed for fear of restrictions; in turn, this
impacts on consumer willingness to pay (more) for broadband as there is little innovation
driving demand; preclude certain parts of the population from enjoying freely all that the
Internet has to offer, thus reinforcing the digital divide; and reduce dramatically the potential
growth of the UK’s Digital Economy.
In conclusion, the UK can only be judged as having a healthy digital economy as a measure of
how available and how ‘open’ its Internet access is: if its citizens and its businesses anywhere
in the UK can benefit from all that the Internet has to offer - rather than the often much
limited array of content, services and applications that UK consumers currently face due to
arbitrary restrictions - UK Plc. will thrive.
Ensuring superfast broadband adoption: widespread uptake of Internet based services
The stimulus for broadband investment has always been the availability of a critical mass of
Internet-based applications and content. The more end-users are attracted to compelling
online content and applications – and therefore adopt the Internet over superfast broadband
– the more value is being generated for broadband access network and service providers,
and the stronger is the incentive for investment in enhanced networks. The Government
therefore needs to develop an approach which supports and incentivizes consumer uptake
of Internet-based services, while protecting the open nature of the Internet. More generally,
public authorities can help in a number of ways:
• Coordinating and facilitating the exchange of best practice between fragmented
community groups, through initiatives such as the Knowledge Transfer Networks.
• Commissioning content and enabling an efficient and fair means of obtaining content
rights to support distribution online and via diverse devices and networks.
• Encourage broadcasters to provide attractive content and cross-promotion
opportunities to drive wider take-up and appreciation of broadband.
• Funding the creation of basic infrastructure, such as fibre links to schools and hospitals,
which could also provide inexpensive backhaul for local services, building on the
Government’s proposal to establish community hubs, with publicly subsidised, high
capacity backhaul.
• Stimulating the uptake of cloud based services through Government procurement and
advocacy of the cloud based services with sound security practices.
168 ‘Ofcom’s approach on net neutrality’, http://stakeholders.ofcom.org.uk/consultations/net-neutrality/statement/.
169 BEREC press release, http://erg.ec.europa.eu/doc/2012/TMI_press_release.pdf
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Microsoft – written evidence
5. How will individuals and companies use cloud services for distributed storage
and computation? What network properties are required to enable efficient
provision and use of such services?
Cloud computing has the potential to secure major benefits for the UK economy. Small
businesses can rent storage space and IT management services from cloud providers, instead
of running their own servers. Enterprise customers can increase their IT capabilities during
busiest times of the year when demand for services is high. Consumers are already using
cloud computing services such as Hotmail or Flickr, and various other applications that
enable them to store and access content such as address books, documents, music, games,
videos and digital books, in the cloud, via mobile and non-mobile devices. Government
departments will use a cloud to e.g. share accounting and human resources applications
instead of each hosting their own. Departments can use a ‘pay-as-you-go’ system so they are
only paying to use the information they need at any one time. Public and private hospitals
and clinics can improve their efficiency and quality of medical care through the use of cheap
portable medical devices connected to cloud services, which can upload data to the cloud
and enable patients to continue with outpatient care following discharge from hospital.
Ultimately cloud computing can only deliver its full benefits to business and the public if
there is ubiquitous and affordable access to high speed broadband Internet. Ofcom’s market
research indicates that although average broadband speeds are growing, upstream speeds
are still just a fraction of the downstream. In a cloud computing world, high quality
broadband speeds for both downstream and upstream becomes critical. Definitions of
broadband speeds should evolve to cover both the actual downstream speed and actual
upstream speed.
6. To what extent will the advent of superfast broadband affect the ways in
which people view, listen to and use media content? Will the broadband
networks have the capacity to meet demand for new media services such
as interactive TV, HD TV and 3D content? How will superfast broadband
change e-commerce and the provision of Government services?
Demand for bandwidth will increase and demand for quality for some of the Internet-based
services will increase, with movies, games and video calling evolving from HD to 3D,
developments in e-health allowing patients to be monitored in their own homes,
developments in e-learning allowing students take exams from foreign universities in their
home countries, and private enterprises and public sector increasingly relying on cloud based
IT infrastructure and services. For broadband targets please see our response to question 3.
7. How might superfast broadband change the relationship between
providers and consumers in other sectors such as content? What aspects
of this relationship are key to enabling future innovations that will benefit
society?
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Microsoft – written evidence
Please see answers to questions above, notably in response to question 4 in relation to
stimulating content creation. The virtuous cycle underpinned by the open and neutral
character of the Internet should be preserved.
8. What role could or should the different methods of delivery play in
ensuring the superfast broadband network is fit for purpose and is as
widely available as possible? How does the expected demand for superfast
broadband influence investment to enhance the capacity of the broadband
network?
As mentioned above, a combination of methods of delivery can be employed to maximize
the capacity and penetration of the broadband Internet in the country, with examples of
mixed approaches in places like Australia and Singapore providing some early case studies
for UK decision-makers.
As for the link between demand and investment, it is worth noting that the business case for
move from dial up access to broadband and from 2G to 3G was made possible by continued
end-user demand for Internet-based content and applications. Likewise, rich applications and
content on the Internet will help support the business case for investment in new generation
networks. Revenue will accrue both from incremental payment for higher speed service and
higher mobile data tiers. In addition, “growth in adoption of mobile broadband and growth in
data use can also be expected to lower the average cost to network operators per gigabyte (GB) of
traffic carried […]-3. 170 An implication of this is that mobile data traffic growth may be expected,
through economies of scale, to lower costs to network providers which should result in lower retail
tariff.” 171
13 March 2012
170 Nokia Siemens Networks. May 2010. “Mobile broadband with HSPA and LTE – capacity and cost aspects”.
White Paper.
http://www.nokiasiemensnetworks.com/sites/default/files/document/Mobile_broadband_A4_26041.pdf
171 Plum Consulting: ‘The Open Internet: a Platform for growth; London, October 2011;
http://www.plumconsulting.co.uk/pdfs/Plum_Oct11_The_open_internet_-_a_platform_for_growth.pdf; p. 7.
462

Microsoft – oral evidence (QQ 623-649)
Microsoft – oral evidence (QQ 623-649)
Evidence Session No. 8. Heard in Public. Questions 550-649
WEDNESDAY 13 JUNE 2012
Members present
Lord Inglewood (Chairman)
Baroness Bakewell
Lord Bragg
Lord Clement-Jones
Baroness Deech
Lord Dubs
Baroness Fookes
Lord Gordon of Strathblane
Earl of Selborne
Lord Skelmersdale
________________
Examination of Witnesses
Mr Jean-Jacques Sahel, Director, Government and Regulatory Affairs, Microsoft
The Chairman: I apologise for keeping you waiting a bit, but welcome to you. You are—
let me get this absolutely right—the Director for Government and Regulatory Affairs at
Microsoft, EMEA.
Jean-Jacques Sahel: That is right. That is one of my few titles, so do not feel bad about it.
Q623 The Chairman: You also do various other things. You advise Ofcom and the
OECD. Anyway, Jean-Jacques Sahel, a very big welcome to you. Thanks for coming along.
The session is being recorded and broadcast. We now know who you are, so I think that is
done, but would you like to make a short opening statement?
Jean-Jacques Sahel: I think I would like to just say a quick introductory word. The last
presentation by Richard and colleagues gave me food for thought. In a way, I would love to
restart the whole government thinking about superfast broadband, and instead I might call
it—and this is a heavy title—“the best broadband-enabled economy” or “the best
broadband-enabled society in the world”. Then we might get into details and semantics
about what “best” means, but that is key. The use that we make of the content, the
applications and the services that the internet brings us is what is key in all of this discussion.
We should not forget that. Availability is important, but it should be availability of everything
that will make our society and our economy stronger and more prosperous. That is a point
that unfortunately we do not seem to see and hear often enough. I think I will stop there for
the beginning.
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Q624 The Chairman: That is a very helpful way to start, because I was going to follow
up your opening statement with a question to which you have already given me the answer,
more or less. The key thing that seems to emerge from that is that it is the use to which this
technology is put that matters. The configurations of whatever way the technology is laid out
should meet the requirements of the people who want to use it.
Jean-Jacques Sahel: I think that is right. We have heard about technological neutrality,
which is a good point. That is an important point, and the UK has usually been good on
technological neutrality. The idea is that, as a consumer, citizen or business, I do not really
care if I have an antenna on my roof, or a cable arriving at my house or my premises. What I
care about is having access to the vast array of information, content, services or applications
that make my life more enjoyable, that connect me to other parts of the world or the UK
and that make my business more prosperous. That is the key.
When we turn to the question of superfast broadband and of availability, it is quite clear
that, if we want the UK to succeed generally in the 21st century—and it is a 21st century
that is an information century—we need good availability of these online content and
services, and access to all that as fast as possible. We have heard before that 90% of the UK
population should be able to get something like fibre, which should be a fairly sustainable
future-proof infrastructure where we could get very good speeds. That leaves 10% of the
UK in another situation. What is good to know is that technological innovation can help us
to bridge that gap and possibly reach 100% of the UK and its people.
On speed itself, we do not have a really strong commitment yet; it is a modest commitment.
In the Department for Culture paper of 2010 on superfast broadband they talked about
2 Mbps. I was at an OECD meeting just yesterday, where they were talking about redefining
broadband. One of the considerations was to redefine it as being a minimum of 2 Mbps. If
our commitment is only to 2 Mbps, then it is clearly not the best in the world, again
depending on the semantics. In Europe, the European Commission targets are of 30 Mbps
and up to 100 Mbps by 2020. They might be overly ambitious in parts, but at least they are
ambitious. The UK in particular should and can be ambitious. We would like to see a
stronger commitment to those sorts of speeds, around 30 to 50 Mbps, and up to 100 Mbps
by 2020. We think it is feasible, and it is important not just for downloading and receiving
information but also for the ability to send that information. You heard Rory Stewart
illustrating that very well yesterday, explaining how in Cumbria his neighbour, instead of
driving three hours to see his GP in Newcastle, would be able to just use video-conferencing
on the internet to do that. Those sorts of upload speeds, as we call them, are important for
that. To have a stronger and more ambitious commitment would be welcome for both
download and upload speeds.
Q625 The Chairman: We heard from Richard Hooper the very passionate plea that one
should be technology neutral. I entirely understand the point he is making but, everything
else being equal, is it the case that, where you can, it is probably wisest to have fibre?
Jean-Jacques Sahel: It is quite well accepted that fibre could be the backbone for an
infrastructure that could work over the next few decades. As technology improves, that
infrastructure could deliver speeds that will continue to grow. We had copper in the early
20th century, and as that has come with us for the following 100 years, that was a backbone
technology. Even with technological improvements, it looks like copper is now not reaching
its limits perhaps but certainly could be well complemented by fibre. Fibre has the potential
to deliver more for the next 40 to 50 years.
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For the long term, fibre seems right, but we should not absolutely discard all other forms.
There are many forms of wireless technology, from satellite to things like white spaces, or
indeed 3G or 4G technologies, which have a lot of potential, be it only in the medium term.
We just heard again how important it would be to think about the future, rather than the
short term. In the short to medium term, it is going to take some time for fibre to reach
enough parts of the UK, and we have some really promising technologies that could bridge
that gap. In the next 10 to 20-odd years, we might see better technologies, but fibre
certainly should be one of the more sustainable elements.
Q626 Lord Gordon of Strathblane: Right at the start of your answer to question 1,
you mention the “necessity to restore and preserve the open internet in the UK”. Restoring
implies it was once there. Was it?
Jean-Jacques Sahel: Yes. If you will allow me, I will just mention what I understand by
“open internet”, because there are quite a few definitions. You might have heard the
expression “network neutrality”. The basic architectural principle of the internet is that it is
a network of networks. One user at the end of the network can connect to any other user
at the other end of the network. This very simple basic principle has enabled all the
exchanges and transactions that we have known for the past 20-odd years. Now what we
have seen traditionally is that broadly this principle has been applied. We find it also in
European legislation even. For instance, this principle exists in the citizens’ rights directive,
which was passed in 2009 and talks about the fact that end-users should be able to access
and distribute information and concepts of their choice. The only limitation is that it should
be without prejudice to the need to preserve the integrity or security of the network, for
instance to manage congestion or avoid network security problems. That is a broad principle
that anyone can understand and is used to.
However, the reason I would say “restore” is that a worrying trend we have seen develop
over the past few years, which is prevalent in particular with regard to mobile access to the
internet, is that a number of users of the internet are routinely discriminated against. This
takes the form of either forbidding certain uses or overcharging them.
Q627 The Chairman: Could you elaborate on each and give us some examples?
Jean-Jacques Sahel: Of course. Without reading them, I will do it from memory. Probably
the best source of official information about this is actually a statement that Ofcom released
on 24 November last year on neutrality. It summarised the practice of the main mobile
operators in the UK. Two of those mobile operators simply forbade the use of internet
calling, also called voice over internet, any use of peer-to-peer technology and also any use
of streamed content, unless it was the streamed content of those two providers. In practice,
if these contractual restrictions were enforced, it would mean that, for instance, I would not
be able to watch myself on Parliament TV. Audio and video are simply forbidden unless they
happen to be provided by those two operators.
Then you have another provider that also forbids the use of voice over the internet, which
would include video conferencing. It also forbids peer-to-peer and a few other uses unless
you buy a £15-a-month add-on, which of course makes it much more expensive for these
uses. If you do not buy that add-on, at least one of the clauses says that you will be charged
£2 per megabyte. Compared with the other packages that they provide, that would
correspond to being something like 350 times more expensive for no good reason. There is
another operator that does not restrict VoIP, but it heavily manages, as they call it,
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peer-to-peer traffic, which is very often the basic technology used by a lot of VoIP
companies.
There is one final operator that does not have any restrictions. It happens to be that this
one operator, which does not have any restrictions, Three, also stated that it handles 50% of
all mobile traffic in the UK. We are lucky in that sense, but it is the only one that does not
impose any restrictions and yet is able to handle all this traffic, so there are a few questions
there. To us, there is a definite systemic problem.
Q628 Lord Gordon of Strathblane: I understand that, and you were very persuasive
on abuses of restrictions of net neutrality. Equally, there is some need to ration use due to
scarcity. You would accept that presumably.
Jean-Jacques Sahel: Absolutely. If there are moments of congestion at peak times—
Q629 Lord Gordon of Strathblane: If I am watching a 3D video and nobody else can
send out a basic e-mail in my area, that is kind of selfish.
Jean-Jacques Sahel: Yes, I guess you could say that. Basically you can understand that traffic
management can be applied as long as it is for genuine technical needs, such as those you
mention, legal reasons or security reasons. That is completely accepted. Unfortunately, we
have not yet had enough guidance in the UK about this. We would be very much in favour of
a stronger signal or a standard of good behaviour. We would love Ofcom or indeed the
ministry to do that.
Q630 Lord Gordon of Strathblane: One of the problems about very high speeds is
that, where they are available, at the moment there does not seem to be very rapid take-up
of them.
Jean-Jacques Sahel: It depends on where we are talking about. In the UK, in terms of fibre
roll-out, it has started to accelerate but only recently—only in the last year or two. In other
parts of Europe, it started earlier and we are starting to see much better take-up. Take-up
or adoption is key, and the key to ensuring consumer take-up remains fairly obvious to me, I
suppose. It is usage. We need to continue to have innovation in content, applications and
services to drive consumers to take up superfast broadband.
Q631 Lord Gordon of Strathblane: What do you think will be the main driver for
increased take-up?
Jean-Jacques Sahel: I think it is the ability to do those more bandwidth-intensive
applications and real-time communications, such as video-conferencing. If you want good
quality video-conferencing, for instance, you will want better speeds. All this potential is
there. Actually, a number of studies have proven there is strong willingness to take up
superfast broadband and to pay more for it.
Q632 Lord Gordon of Strathblane: BT was suggesting at the close of their evidence
yesterday that access to the paid television market might be a major driver. Do you think
that is true? Do you think things like YouView, which is about to launch in this country, will
be one of the drivers?
Jean-Jacques Sahel: I certainly think it can be a contributor. There are a number of uses.
We can think about advanced e-health applications, telemedicine if you will, and even
education. You have heard about cloud computing, which we have mentioned in our
response, which is a major business enabler that requires good broadband connectivity. All
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those, from both the business and the end-consumer ends, are sure drivers for take-up. As I
said, people will be ready to pay to have better, faster and more reliable broadband. That
seems to be demonstrated in some of the European countries where superfast broadband
has been launched.
Q633 The Chairman: Can I just go briefly to what you were saying earlier about the
intervention, if I can say that, into the marketplace where voice over internet is given the
thumbs down? I use that term deliberately. Are we talking here about activities that are in
breach of the contract with the internet service provider, so there may be some legal
restriction or penalty, or are we talking about physical interventions in the system to
physically stop it from happening? There is all the difference in the world between the one
and the other.
Jean-Jacques Sahel: This is absolutely a key point. We are sure that these contractual
restrictions are in place; however, their application in practice is much more difficult to
measure, partly because there can be congestion and there can be genuine traffic
management happening. You cannot always categorically confirm when there might be foul
play. Unfortunately, we have had reports from other providers, which have technology that
is easier to detect, that they have been unhappy with the treatment of their traffic by
operators in the UK and elsewhere in Europe. We think it happens but we do not know at
this stage the extent to which it happens.
The European group of regulators has just conducted a questionnaire of 400 ISPs about their
traffic management methods to try to get a good picture of what is happening.
Unfortunately, their report has not provided us with a lot of detail on exactly what is
happening. We would be very interested in, for instance, Ofcom doing tests. The French
regulator is in the process of carrying out its own tests. They are installing pieces of
equipment on the premises of, I think, hundreds if not thousands of consumers to try to
actually test what is happening.
One of the main problems from our side, as application providers, is that a consumer, a user
of the internet, will not easily notice the difference between the quality of the network
connection and the quality of the content or the applications that they are using. If for
instance you are making a Skype call, if the quality is bad, you might think it is Skype’s fault.
Therefore, you will switch and use someone else. It is usually very easy to switch on the
internet; it takes you a click or two. That is not something you can do with a broadband
contract. We actually did a study three or four years ago, together with Yahoo! and Google,
that indicated that 25% or so of consumers, in either the UK, Germany or France, if they
experience a problem like that, straight away think it is the website or the application’s fault.
It is an obvious detriment to us. It is an issue that needs more formal research, possibly by
Ofcom or another independent third party. It needs a stronger commitment to actually
changing practice.
We have heard again the example of Cumbria. This would apply to many other places in the
UK. If you enable online communications, this will completely unlock entire regions, and it is
not just about contacting another part of the UK: it is about doing business with other parts
of the world; it is about talking to your relatives in Canada or Australia. These sorts of
practices are effectively routinely forbidden or made far too expensive for no good reason,
at the moment. We have had some decent guidance. For instance, the Minister, Ed Vaizey,
has given good guiding principles, saying there should be no discrimination on the basis of
commercial rivalry. Ofcom made the statement I quoted earlier, which is also pretty helpful.
The Minister made his statement in March last year. It has been a long time. In the internet
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world, a year is a very long time, and a start-up cannot really wait a year for its products to
be made available or not, as the case may be. It is an area that needs more and direct
attention, if not action. This goes back to the sorts of points that you have heard about, in
terms of the separation of services and networks, and the fact that, if you operate a
network, it does not seem to be the right thing to unduly use that part of the business to
beef up your interest in other services you offer.
Q634 The Chairman: Another thing you said, but this time in the statement that you
have got from us, was talking about the possible role for shared uses and unlicensed uses of
the spectrum. Now the Treasury, as we know, is always eager to sell this off to grasp as
much gold as it can. How do you think the potential revenue from spectrum auctions ought
to be assessed against possible benefits from the use of unlicensed spectrum?
Jean-Jacques Sahel: There are two points. One is what the actual uses of unlicensed
spectrum are. Do they invalidate the gains or the commercial potential of 4G auctions? The
other is that spectrum is a common good and we should think about the overall value it
brings to the UK economy. On both points, we have cause to be happy, in the sense that
unlicensed use of the spectrum, in particular the white spaces technology that we have
described in our response, is not automatically a challenger to 4G technology. Quite the
contrary, it could actually help 4G, because you could deal with congestion issues by taking
some of the extra traffic that goes through 4G and rerouting it through those other wireless
unlicensed technologies. That has already been tested. We have done some wi-fi offload, as
it is known, in Cambridge, where an extensive trial was run successfully, which just ended in
April last year. We can actually take all this extra traffic and support 4G.
Then there are other uses that 4G technology may not be ideal for, for instance smart
metering, which is about getting real-time information about your gas or electricity meters.
You do not need to encumber the 4G networks with that sort of data; you can actually deal
with it through those sorts of wireless technologies that can send small bursts of data, just
once a day, and can also be set up in a way that needs very low power and is much cheaper
than [3G/4G] mobile broadband. In short, I do not think it is conflicting at all. The
commercial potential of 4G for those operators is there and will continue to be there. The
advent of unlicensed spectrum uses can be a complement and can also be useful for other
users, including—and this is possibly one of the most important points as part of your
inquiry—to help with that 10% or so of the UK that will be very difficult to reach, including
with 4G. That remains a key element.
Q635 Baroness Fookes: I rather think, Lord Chairman, that the points that I was going
to ask about have probably already been dealt with, but could I, with your indulgence,
approach something differently? You have spoken about the need for open access without
difficulties being put in its way. What about the problem that we are seeing increasingly with
some of the social networks of personal abuse that would be regarded as slanderous or
libellous in any other system, and indeed is? How are we supposed to deal with that?
Jean-Jacques Sahel: This is a very important public policy question. I did my classes in the
UK Civil Service, so to speak, and there was a basic principle I was taught, which I still agree
with: what is a good socially accepted norm in the offline world, in the real world, should be
replicated as much as possible in the online world. If something is seen as slanderous in the
offline world, it should be the same in the online world. Of course, we are talking about a
technology that needs to be taken into account, and also rapidly changing ways in which, for
instance, messages are broadcast. If you are posting a message on a popular social network,
especially if it is to the whole of the public, then you might be seen as broadcasting your
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opinions. That goes to data protection and privacy issues as well, in the sense of exposing
information.
Habits are changing. The generation younger than I am—15 to 35—are the digital natives;
they are using those things very differently. They have a very different attitude to trust and
to publishing information. We need to take that into account. We have to be careful when
legislating or coming up with policies to realise that not all segments of the population feel
the same. We need to balance that. In the internet world, it is a particular concern.
Generally, as we are reviewing things like data protection laws, we need to take that into
account. This goes back to the technology-neutral point. As much as possible, we should not
make things different just because they happen to be online. There is a debate to have in
society. It might just be awareness raising. It might be that those people who broadcast their
thoughts on, say, Twitter for instance, might need to realise that they are broadcasting
something publicly that could be used, misused or read in certain ways. I certainly think we
should be extremely careful in not rushing into any long-term policy or legislation in this
area. This is a matter for more debate. We have decent, good legislation; it is really an
implementation issue in many cases. I hope that answers your question, but it is not an easy
one.
Baroness Fookes: That is why I asked it.
Jean-Jacques Sahel: I would be more than happy to give it some more thought and have
more debate on it. I am sure we will have some more.
Q636 Baroness Fookes: But while we are debating, some people are suffering
considerably.
Jean-Jacques Sahel: I totally agree. I think there are some difficult cases. Again, I do think
that most of the law dealing with the issue is already in a good place. It is a question of how
to apply it in a reasonable way. Part of the question might be to work with the judiciary. I
have not prepared for this particular question, so please allow me to think aloud. There may
need to be more thought in legal circles about how to deal with that. When such questions
come to a judge, for instance, it would be important that the judge is as informed about the
internet society, if you will, as possible. I think it happens in many ways, but I certainly have
been involved in raising the awareness of judges in other places, actually in the United States,
where it has been tremendously helpful, and in other countries as well, when I think about it.
That is probably something that could continue.
Q637 Baroness Fookes: Technologically, is it possible to deal with it? Let us assume that
we need to discuss further its application. Technologically, can it be dealt with if it is thought
necessary to stop something or to bring somebody to account?
Jean-Jacques Sahel: I guess it depends on which situation you are talking about. Certainly
when it comes to Skype, where I spent the last few years, when we had complaints about
inappropriate messages being posted on people’s profiles, for instance, we were able to take
action. If there is any harassment or that sort of thing, as soon as that comes to our
attention, we can take action. This is in the terms and conditions of service. I cannot speak
for other social networks but I would expect that, broadly speaking, you would find similar
behaviour. If there is a problem, it will and should be investigated by the service. In our case,
we try to be as good as we can. We have no interest in bad behaviour happening—quite the
contrary.
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Q638 Baroness Fookes: Would it be possible for you to prepare a little written note,
since you have had this sprung on you, as to what you do as an organisation?
Jean-Jacques Sahel: Absolutely, I can. I am sure that some of my colleagues already have
plenty of material to share and more thinking. This is not an area of work that I focus on,
but we could certainly come back to you on that.
Q639 Earl of Selborne: You might have heard Antony Walker, the previous witness,
compare superfast broadband to Concorde. He said Concorde was ultra-fast for the
ultra-rich, but it did not prove the right solution. The jumbo was the answer. Would you
think that was a fair parallel?
Jean-Jacques Sahel: As you can probably hear from my accent, I am a champion of the
entente cordiale and British/French projects.
Earl of Selborne: So you spell “concord” with an “e”.
Jean-Jacques Sahel: Feats of innovation always amaze me, but you have things like payback
periods to think about. There was a big risk taken, but I think it was probably not just
economic thinking but also political thinking that was happening at the time.
Q640 Earl of Selborne: The issue is really whether superfast broadband is going to
unlock the digital divide. Is it going to ensure that we deliver the sorts of benefits that the
jumbo has delivered to transport?
Jean-Jacques Sahel: There are semantics here that I am uncomfortable with, because
“superfast” is not something that I think describes what is happening well. Certainly the
delivery of content, services and applications that the internet brings, with more reliability
and even more speed, is something that will unlock economic and social benefits. If we can
get decent coverage at decent speeds, we can of course bridge the digital divide. There are
solutions out there that can help us do that. It is a combination of solutions that we need to
think about, as I have mentioned before. It is about fibre, wireless and other technologies
that all combine. Some of them will be faster and longer term than others, but we would be
hard pressed to find anyone who would say that it would not be a major enabler. It is
something that we need for the 21st century, without a doubt.
Q641 Earl of Selborne: You have listed in your written evidence, very helpfully, a
number of examples where broadband might prove very important: “machine-to-machine
technologies, smart cities, intelligent transportation systems, intelligent energy systems”. You
talk about secondary schools, hospitals and e-health. All these, I can see, are specific
examples of where you would certainly need fibre cable. For the average SME, the probable
use, as far as we can see at the moment—and of course it will change, without a doubt—will
be tele-conferencing and transferring a lot of digital data perhaps. It is not the same as the
sorts of uses you are listing there. The question then is: is this rush to get superfast to the
majority of the country going to be to the detriment of those people who will remain
outside the digital divide? In other words, there will be some areas that will never get
anything because we have gone too fast on superfast.
Jean-Jacques Sahel: I certainly think we have to aim for 100% coverage at very good
speeds, as much as we can. Again, the projections are that, for the foreseeable future, only
about 90% of the UK is going to be able to benefit from what some term “superfast
broadband”, say 100 Mbps, within a reasonable period of time. For the remaining 10%, the
technologies such as white spaces, which I have mentioned in my response, are already
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potentially able to provide 8-megabit-per-second broadband. That would certainly help a lot
with the digital divide. You could do e-health, at least with very decent quality. You could do
tele-conferencing. If you think about SMEs for instance, you could do things like cloud
computing, which can really enable you to keep your IT spend to a minimum while also
making sure you can access the world and potentially distribute your products and services.
That is an acceptable starting speed.
As the technology improves, we are already envisaging going to 20 Mbps with that sort of
technology. It would be a good enabler. Who knows what will be here in, say, 15 years or
so? In the mean time, we have a chance to bridge the digital divide in quite a significant
manner and enable all sorts of things, for both citizens and businesses, beyond those few
examples that I have mentioned. I hope that answers your question.
Q642 Lord Dubs: You have partly referred to the question I am going to put to you, and
the previous witnesses spent some time on it. The question is really about the ownership of
infrastructure and whether it should be completely separate from the provision of services.
In other words, should it be separated by a Chinese wall or should it have totally separate
ownership? What do you think?
Jean-Jacques Sahel: I remember when I joined the DTI division that was in charge of
telecoms and internet policy back in 2003. It was about three months or so before BT
announced that it would separate, and there was a big sigh of relief from many of the officials
around me, because it is a big undertaking and we should not consider it lightly. With that
said, most people who know this sector would agree that separation of networks and
services, in one way or another, is the right thing to do. Certainly in the internet world,
there has always been that separation between networks and services, and that is partly
what has enabled such growth, innovation and competition. The UK started early with its
separation compared with many other places. There might be some issues. I think you have
heard other witnesses explain that.
The conclusion on separation from international policymaking discussions is that it should be
the last resort, but it is good to have in your arsenal and certainly sends a signal that, if
things do not improve, the regulator will use it if need be. I think it is important that this
open access and separation between networks and services does not just happen at the
wholesale layer; we need to think about open access at the retail layer. That is about
unrestricted access to the internet again. I am sorry to come back to that point, but I think it
is quite important. I am not advocating for further separation between Openreach and the
retail arm of BT. There is already some separation; perhaps it can be improved. I am not
sure about mandating it, certainly not at this stage, but I do not think it is a bad regulatory
tool for Ofcom to have in its back pocket. To a large extent, they have it and, if the
problems that you have heard from other people giving evidence justify it, then maybe
Ofcom should send stronger signals about its willingness to use those powers.
Q643 The Chairman: Do you think the forms of active infrastructure that are in place
on the majority of the UK network are appropriate for general open access to the system,
for ISPs and other users generally?
Jean-Jacques Sahel: Do you mean is the current level of competition—
Q644 The Chairman: It is more going back to when we were talking about—I think you
were in the room—the problems that South Yorkshire has faced. Do we have a system
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where the active bits of the infrastructure are appropriately configured to enable general
free access into that network?
Jean-Jacques Sahel: I must admit that I am not sure I know enough to answer this question
properly.
Q645 The Chairman: That is fine, but you can see the point I am interested in. We have
a system that operates to certain technical standards, which is ostensibly open. In practice,
certain of those technical standards can actually act as a barrier to people using it.
Jean-Jacques Sahel: Certainly if one were to put oneself in the regulator’s shoes, it should
make sure that the incumbent operator deploys technology that allows sharing easily and
allows flexibility in products that can be bought at a wholesale level. There are some
countries, even in the EU, that have let certain technologies go through that do not enable
easy sharing at wholesale level. We should certainly avoid that if we can in the UK.
Q646 The Chairman: From your experience, do you think there are any significant
problems of this nature in the UK at present, or do you not feel qualified to answer?
Jean-Jacques Sahel: No, I do not think it is appropriate for me to comment on this one.
Q647 The Chairman: That is fine; I am not asking you to talk about things that you do
not want to. I would like to ask you another question, which you may say you think would
not be appropriate to respond to. You talked about the time when you were in the
department, and then BT came forward with a proposal to create a distance. Was there
much political pressure on BT to do that?
Jean-Jacques Sahel: I do not know. I would not know whether there were actual
discussions between the Ministers and BT about this particular option, if you will, but
certainly there was pressure on BT to do the right thing, because it was under threat of
actual functional separation by regulation or legislation. Certainly there was; there were
many discussions, I am sure. I do not think that is in the public domain.
Q648 The Chairman: Before we finally conclude, I might just ask you to do a bit of
futurology for us. Would you be able to give us an idea of what a picture of what you have
described as a superfast broadband enabled economy or society would look like somewhere
between 20 and 50 or 100 years on, looking ahead quite a long way?
Earl of Selborne: Let us try five to 10 years on.
Q649 The Chairman: I think we ought to just look a bit further than that, because it is a
continuum. What do you imagine people are actually going to be able and want to do with
the speeds that will be available, and how do you see those being deployed economically and
socially?
Jean-Jacques Sahel: I enjoy these sorts of questions. I feel like Jules Verne all over again. I
am sorry for quoting another French example; I cannot stop myself. For one, the UK is in a
great place in terms of the internet economy, if you will. Our second-largest sector has
traditionally been the creative industries—content and digital content nowadays. We are
really strong in it. That is partly why Skype chose London as one of our business bases and
why so many internet companies actually have a base here, rather than anywhere else in
Europe. We have got that; we can maximise that.
472

Microsoft – oral evidence (QQ 623-649)
I realised now I used the word “London”. That is actually important. If I think 50 years
ahead, and even 10-odd years ahead, if not less, I would love it if we could have these people
working from Cornwall and able to interact with London and other parts of the world.
Actually, because we are Skype, a lot of our people do not work in our offices but travel to
them only when they really need to. For instance, one of our business strategists who
worked out of New Zealand was supposed to be based in London—or supposed to work
from New Zealand. That is one of the things we can easily predict. In a way, we could think
about a rural regeneration.
In terms of everyday life, this connected society should be second nature. We should not
even think about it. We should be able to access great TV shows wherever we want. We
should, for instance, not have bill shocks if we are on holiday in Spain and we want to
download EastEnders, as has happened in the past. That is the sort of thing we should have.
Generally, I think we should be able to communicate more easily from wherever we are.
We should be able to do business from wherever we are in the UK or the world. We can
do this in a sustainable manner. It will use far less power than it does now. That is one of the
great challenges we have today. Things like cloud computing can enable us to be far more
efficient, not just from a financial or IT procurement perspective but in terms of
environmental sustainability, as things develop. It will be the same with smartphones, which
can consume a lot of power.
We are looking at a world where we can do a lot of things. We can be enabled to live our
lives and to prosper in business far more, and from anywhere potentially. That is a beautiful
future, and I think the UK is in a fantastic place, because of its creative background and
strengths, to benefit from that and be one of the leaders in the internet economy globally,
but we do need that real strategy to do that. In that sense, I would agree with Richard
Hooper in the previous session, who talked about thinking about a long-term plan for the
UK as a 21st century knowledge economy. We need that strategy and we need to make it
happen, and it can deliver growth. If we think about the short to medium term, with growth
possibly being our number one challenge, your inquiry and its follow-up can really help in
pushing in the right direction.
The Chairman: That seems a very nice way to end, if I may say so. Thank you very much.
We much appreciate your coming and we are very grateful to you.
473

Microspec – written evidence
Microspec – written evidence
Background:
1. As Managing Director of a 30 year old company involved in the Information
Technology sector, I am acutely aware of the increasing dependence on high speed
broadband connections for the success of our clients businesses and that of our own.
Our Broadband Experience:
2. We are fortunate in that our office is serviced with a stable, 20Mb/sec cable
broadband connection. This allows us to have a self-managed web site, an effective
email communications system and, more recently, move some software applications
off-site and into “the cloud”. Increasing our use of cloud-based services means we
have access to vital company and client information wherever we have a reasonable
speed (i.e. above 3-4Mb/sec) broadband connection. Access can be from laptop,
tablet, smartphone or iPad devices. This level of access can reduce the number of
times staff need to commute to the office and contributes to company profitability.
3. We make extensive use of remote connection facilities whereby we can take control
of clients PCs for the purpose of providing software support, software updates and
training. This increases efficiency, cuts down on wasteful travel time and provides
better service.
4. Using the Internet and our broadband connection allows us to have virtual meetings
(video and/or audio conferences with clients and prospective clients) and to conduct
sales presentations and software demonstrations minimising the need for travel to
client sites. Again, this cuts down on wasteful use of vehicles and fuel, increases our
efficiency and makes our sales efforts more cost-effective.
Limits and Implications:
5. We promote these broadband dependent services to our clients so they, in turn, can
enjoy the same benefits to their businesses but, in many cases, we are unable to do
so because of limitations in the speed and reliability of connection available at their
premises.
6. A case in point is that of a long-term client whose business exports a large
percentage of the product they manufacture in Scotland. Their premises are served
with an ADSL broadband connection which is unreliable and slow. The principals of
the business travel extensively promoting the company and its products. They need
access to their office and factory based IT systems from locations around the world.
More often than not, the limitation on what they can achieve remotely is due to the
poor broadband service here. BT recently quoted (verbally) around £17,000 per
annum for a 4Mb dedicated connection to improve matters. This is not viable and so
their business efficiency continues to suffer. This is tragic when we have a successful
Scottish company trying to win business in an increasingly competitive international
market. They are being disadvantaged because of the appalling lack of effective
investment in the UK’s broadband infrastructure.
474

Microspec – written evidence
7. My own home connection in Larbert, Stirlingshire runs at a maximum of 2.5Mb/sec,
the stability is poor and I have been unable to determine if and when any
improvement will take place. This severely limits what I can achieve when working
from home.
8. Given how far we lag behind our competitors, I fail to see how we can achieve “the
best broadband in Europe by 2015” as promised by the current government without
urgent, massive investment – with the caveat that the money needs to be well-spent
and not squandered. I read recently that Government funds to improve rural
broadband speeds in some areas has been used to replace old IT hardware and
increase the speed of connections between council offices - not for the benefit of
businesses and the general public as intended.
Conclusions
9. If British businesses are to compete effectively in a global market, it is vital that their
efforts are not hampered by a slow, out-dated and inadequate broadband
infrastructure. We need to be at least up to (and ideally, better) than the standard
enjoyed by our competitors. We must measure our performance against the best
and not just be content with improvement.
10. Inter-office communications, cloud based services and remote working are all
adversely affected by poor broadband. This severely impacts on the efficiency and
effectiveness of domestic businesses too.
11. A major concern is the increasing divide between premises in urban areas served by
high-speed (up to 100Mb/sec) cable or fibre connections and their counterparts in
smaller towns, villages, semi-rural and rural locations who often suffer 3Mb/sec or
less.
12. Whilst there may be considerations about the commercial viability of improving
connection speeds in these less densely populated areas, this is a very narrow view.
There is a much bigger picture when we take into account the sustainability of
businesses and employment in these areas and the desirability for new commercial
development to take place. The true cost of population congestion in urban areas at
the expense of employment in other parts of the country is enormous. Improving
broadband speed in those badly affected areas will play a major part in reversing this
trend in today’s ever-increasingly technology dependent business environment.
Please feel free to contact me if you have questions about my comments or if I can be of
further assistance.
16 February 2012
475

Dr Catherine A. Middleton – written evidence
Dr Catherine A. Middleton – written evidence
1. The House of Lords Select Committee on Communications is seeking evidence on
the question of whether superfast broadband will meet the needs of a “bandwidth
hungry” United Kingdom. This submission addresses the need to understand what a
“bandwidth hungry” United Kingdom actually requires in terms of broadband
connectivity, and notes the importance of developing a clear understanding of
broadband as infrastructure.
2. The UK Government’s broadband strategy “Britain’s Superfast Broadband Future” 172
does not offer a clear definition of broadband, it simply notes a target download
speed for broadband services in the UK. The same is true of the Call for Evidence.
The first point of business for an inquiry into the government’s broadband strategy
must be to develop a full understanding of the characteristics of next generation 173
broadband connectivity, and to develop a specific definition of the type(s) of
broadband connectivity needed to achieve the government’s strategic objectives in
encouraging the rollout and take-up of broadband across the UK. Consideration of
network attributes in addition to download speed is essential.
3. In developing an understanding of the characteristics of broadband networks, the
difference between today’s commercial Internet services and broadband networks
developed as communications infrastructure must be understood. This point is
explained below.
4. Consumers understand broadband networks as Internet connections. They acquire
fixed or wireless broadband access through Internet service providers (ISPs), and the
services they use operate “on top of” the commercial Internet. To use the Internet,
consumers must have an access device and a connection to an Internet service. The
most common access devices are computers, tablets, or smartphones but newer
model television sets and game consoles can also function as Internet access devices.
Consumers do not generally have access to broadband services delivered outside the
current ISP business model. 174
172 Department for Business Innovation & Skills, & Department for Culture Media and Sport (2010). Britain’s Superfast
Broadband Future. London: Department for Business, Innovation and Skills.
http://www.culture.gov.uk/publications/7829.aspx. Referred to throughout this submission as the broadband
strategy.
173 Although the term ‘superfast’ may resonate with citizens and policy makers to describe broadband networks, it
has no generally agreed upon meaning. The term ‘next generation’ broadband is used in this submission to refer
to the networks that will provide broadband connectivity in the future. Next generation networks are replacing
the copper and hybrid-fibre coax (HFC) cable networks that were first used in the late 1990s to deliver
broadband services. Detailed discussion of next generation broadband networks is provided in OECD (2011).
Next Generation Access Networks and Market Structures. Paris: OECD Directorate for Science, Technology and
Industry.
174 Internet protocol television (IPTV) or voice over IP telephony are exceptions to this statement, if IPTV and/or
VoIP services are delivered over a managed broadband network independent of an Internet service. However,
such services are not considered broadband services in the same way as Internet services, and a household that
only had a VoIP telephone or only used IPTV would not be counted as a household that had a broadband
connection (nor would it likely consider itself to have a broadband connection). As such the common definition
and understanding of what a broadband service is is tightly bound to the delivery of Internet access. Broadband
can be used in other ways, but this is not well understood by the general public, nor is it a common practice as
yet.
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Dr Catherine A. Middleton – written evidence
5. It is possible to deliver services over broadband networks outside the current ISP
business model. In simple terms, what this means is that rather than using the
commercial Internet, services can be provided over what are often called “managed
networks.” Managed networks are designed to offer a higher, more reliable quality of
service than the commercial Internet which operates on a “best effort” basis. 175
6. Broadband networks can be designed to allow for the delivery of best-effort
commercial Internet services as well as offering managed services with different
quality characteristics. For instance, Australia’s National Broadband Network (NBN)
is designed to offer multiple classes of service, each with different performance
characteristics, supporting voice, video streaming, premium data, gaming and business
services, and internet access. 176 The Alberta SuperNet is another example of a next
generation broadband network that supports delivery of managed services, in this
instance enabling telemedicine, video conferencing, and delivery of other government
services within the Canadian province of Alberta. 177
7. Australia’s NBN is designed to be “a significant piece of Australian critical
infrastructure that will underpin the provision of a range of essential services to the
Australian community.” 178 Likewise, the Alberta SuperNet is public communications
infrastructure. These next generation broadband networks were designed to offer
much more than commercial Internet access, and offer much potential to enable the
delivery of a wide range of services over broadband networks.
8. Both the Alberta SuperNet and the Australian NBN operate on an “open access”
basis, meaning that any qualified service provider can use the network (for a fee) to
provide a service to any user connected to the network. 179 These networks offer
uniform service quality across the network, 180 meaning that a service provide can
develop a service with the confidence that it will work for all network users.
175 This distinction is explained in Middleton, C. A. (2010). Delivering Services over Next Generation Broadband
Networks: Exploring Devices, Applications and Networks. Telecommunications Journal of Australia, 60(4), 59.01 -
59.13.
176 Voice and internet access services are currently available, with plans to roll out the other service classes in the
next 2 years. See NBN Co Limited (2011). NBN Co Fibre Access Service Traffic Class Performance Discussion
Paper. http://www.nbnco.com.au/assets/documents/traffic-performance-whitepaper-dec-2011.pdf, and NBN Co
Limited (2010). Corporate Plan 2011 – 2013. http://www.nbnco.com.au/assets/documents/nbn-co-3-year-gbecorporate-plan-final-17-dec-10.pdf.
177 http://www.servicealberta.gov.ab.ca/AlbertaSuperNet.cfm. An overview of the Alberta SuperNet is provided in
Middleton, C. A., & Given, J. (2010). Open Access Broadband Networks in Australia, Canada, New Zealand and
Singapore. Telecommunications Policy Research Conference. Arlington, VA.
178 Wong, P., & Conroy, S. (2010). Statement of Expectations. Canberra: Government of Australia.
http://www.dbcde.gov.au/__data/assets/pdf_file/0003/132069/ Statement_of_Expectations.pdf.
179 The Next Generation Nationwide Broadband Network in Singapore operates along similar lines.
http://www.ida.gov.sg/Infrastructure/20090731125844.aspx
180 93% of Australian premises will be served with a fibre connection, the remaining 7% will be connected by satellite
or fixed wireless service. A minimum speed configuration of 12 Mbps download, and 1 Mbps upload will be
available to all premises in the country, with those in the fibre footprint having access to the much higher speeds
that fibre can offer (a 100 Mbps download/40 Mbps upload service is currently available). The differentiated
classes of service will be available across all connection types. Information on the NBN’s offerings is available at
http://www.nbnco.com.au/getting-connected/service-providers/product-components/product-and-pricingoverview.html.
477

Dr Catherine A. Middleton – written evidence
9. The underlying business models for next generation broadband infrastructure 181 like
the Alberta SuperNet and Australia’s National Broadband Network are
fundamentally different than the one for commercial Internet service provision.
Broadband designed as infrastructure and operated on an open access basis offers
more options for the delivery of high quality broadband services than broadband
networks developed by commercial Internet service providers.
10. The use of managed broadband networks for service delivery rather than the
commercial Internet has the potential to make services more widely available and
easier to use, especially for those who are not very digitally literate. Services can be
delivered to a variety of devices (e.g. television set, custom designed health
equipment) and do not require the service recipient to have computer skills or be
“on the Internet” as we understand it today. An individual must be connected to a
broadband connection to receive a broadband service, but many services can be
delivered without the recipient having an Internet service. 182
11. The call for evidence claims that “Superfast broadband enables high-bandwidth
content to be delivered quickly across the network, enabling users to access a range
of services such as telemedicine, improved video conferencing and the streaming of
HD or 3D video content.” It is accurate that broadband networks can be used to
provide telemedicine, video conferencing and video streaming services, but in order
to enable high speed broadband networks to deliver these services in an effective
way, the network must be designed to support such services. The managed service
approach to network design adopted in Australia and Alberta offers examples of how
broadband networks can be used to deliver services outside the existing commercial
ISP model.
12. Commercial Internet services can be provided over any broadband network, but to
date, there is not a clear model that would allow independent service providers to
deliver managed services (e.g. telemedicine, video conferencing) on a commercial
ISP’s broadband network. The experience of using a commercial Internet service
provider’s network may be quite different than that of using a managed network,
even if the networks operate at similar speeds. For instance, any customer accessing
a 12 Mbps download/1 Mbps upload service on Australia’s National Broadband
Network is guaranteed these speeds. A customer accessing a digital subscriber line
(DSL) service from a commercial ISP might be offered download speeds of “up to”
24 Mbps, but the network is not designed to guarantee these speeds to all
customers.
13. An assessment of the government’s broadband strategy must recognise and take into
account the differences between commercial Internet service provision and the
development of next generation broadband networks as infrastructure available for
use by all interested service providers. It is not the intent of this submission to make
a recommendation as to the characteristics of broadband connectivity to be made
181 For further discussion of broadband as infrastructure, see Middleton, C. A. (2008). Information and Communication
Technology (ICT) Infrastructure as Public Infrastructure: Final Report of the Community Wireless Infrastructure Research
Project. Toronto: Ryerson University. http://www.cwirp.ca/files/CWIRP_Final_report.pdf.
182 For an excellent description of how managed services can offer accessibility to a wider range of service recipients,
see Internet Society of Australia, & Australian Communications Consumer Action Network (2011). National
Broadband Network: A Guide for Consumers. Sydney: ISOC (AU) and ACCAN.
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Dr Catherine A. Middleton – written evidence
available to the citizens of the UK, but to establish that there is an important
difference between commercial Internet service provision and the development of
next generation broadband as infrastructure. The inquiry should recognise this
difference and address it in its consideration of the type of communications
infrastructure required in the UK over the next 20 years.
14. The call for evidence asks “Will the Government’s targets be met and are they
ambitious enough? What speed of broadband do we need and what drives demand
for superfast broadband?” The discussion above explains why simply setting a target
speed for broadband is not sufficient to ensure that broadband networks can deliver
a wide range of high quality services. The government needs to develop a clear
understanding of what broadband capacity is needed to meet the needs of UK
citizens and the businesses, NGOs, and government agencies that provide services to
them. The targets should address more than network speed, also considering the
need for quality of service options, and for network access for qualified service
providers. 183
15. The broadband strategy states that “Superfast broadband will provide the
foundations from which the UK economy will grow and recover from the recession.
It will change the way we do business, how we interact with people and how we
access entertainment. It will offer better and more efficient channels for delivering
public services, making them more accessible. It will reduce costs for consumers and
enhance the capability of businesses to communicate and exchange information with
their customers and suppliers. This is fundamental to our future prosperity” (p. 7). In
order to realise these benefits, it is necessary to develop a clear understanding of the
specific mechanisms by which access to broadband connectivity will enable these
goals. For instance, what are the models for service delivery? What services could be
delivered over the commercial Internet? What services are better suited for delivery
using managed networks? What assumptions are in place regarding service delivery
location? Is it assumed that to receive the benefits of next generation broadband,
individuals will access broadband services in their homes? What equipment is needed
for individuals to receive services? Are there services that should be available free of
charge, or on a subsidised basis? What services are considered essential and what are
the minimum network specifications required to deliver these essential services?
These are just some of the questions that must be considered when determining
whether the broadband strategy will be effective in enabling UK citizens to benefit
from access to next generation broadband connectivity.
16. The call for evidence asks “What communications infrastructure does the UK
ultimately need to remain competitive and meet consumer demand over the next 20
years?” Reiterating the comments above, a clear vision of the purpose of this
communications infrastructure is required. Questions to be considered should
include: What does this infrastructure need to enable? Should it be a uniform,
ubiquitous infrastructure that is open to all potential service providers? Answers to
these questions will help determine whether the current strategy, which focuses on
encouraging the private sector to build faster Internet services, will deliver the
communications infrastructure the UK needs.
183 See Middleton, C. A. (forthcoming). Beyond Broadband Access: What Do We Need to Measure, and How Do
We Measure It? In P. Napoli (Ed.), Beyond Broadband: Developing Data-Based Information Policy Strategies.
Bronx, NY: Fordham University Press.
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Dr Catherine A. Middleton – written evidence
17. The question of location of use of next generation broadband networks is a critical
one in developing broadband infrastructure that will serve the needs of citizens and
service providers. Policy makers have taken a technologically neutral stance in
encouraging the development of next generation broadband networks, suggesting
that connectivity provided by fixed or mobile technologies can meet users’ needs.
Although speeds may be the same, the functionality and usefulness of a fixed next
generation connection (providing service in a single location, e.g. at home) is very
different from a mobile broadband connection (providing service anywhere a
subscriber chooses). If services are to be delivered over next generation broadband
networks, should such services be available in any location? Should a government
broadband strategy ensure that whatever broadband characteristics are deemed
important are available on a mobile basis as well as to fixed locations? 184
18. To summarise, this submission makes the case that the design of next generation
broadband infrastructure matters. In developing the UK’s broadband strategy, policy
makers must articulate a clear vision of how broadband connectivity can provide
benefits to citizens, and then ensure that the strategy delivers the broadband
infrastructure that allows such benefits to be realized.
13 March 2012
184 These points are addressed in Middleton, C. A., & Bryne, A. (2011). An Exploration of User-Generated Wireless
Broadband Infrastructures in Digital Cities. Telematics & Infomatics, 28(3), 163-175, and Middleton, C., & Given, J.
(2011). The Next Broadband Challenge: Wireless. Journal of Information Policy, 1(1), 36-56.
480

Middleton Tyas Parish Council – written evidence
Middleton Tyas Parish Council – written evidence
I am writing on behalf of Middleton Tyas Parish Council to provide information for the
House of Lords Communications Committee in support of their new enquiry: The
Bandwidth Hungry Nation – Superfast Broadband.
Middleton Tyas is a village in North Yorkshire, adjacent to the A1 at Scotch Corner and with
access to good road, rail and air links. The village has some 500 adult members and 90
children of school age. It is a thriving village with a school, a community shop, a very good
pub/restaurant and an active Church. There are a number of home businesses as well as
several large farms and some light industry at Scotch Corner.
There is, however, concern that the village’s very good physical communications are not
being matched by its electronic infrastructure and that this will affect our village’s future
desirability and sustainability. The average broadband speed in the village is between 1 and
1.5Mbs and a recent survey indicated that this is hampering local businesses and social
networking activity.
The Government’s 2010 scheme to have “the best superfast broadband network in Europe
by 2015” has become North Yorkshire County Council’s (NYCC) goal to deliver “high
quality broadband by 2017” and there are millions of pounds from Europe and the UK
government to achieve this. NYCC’s detailed implementation plans have yet to be revealed
but we have been given some information about their intentions:
1. They intend to focus on the market towns. These are the centres of population
where the private sector might perhaps be expected to invest without subsidy in order to
grow their business.
2. Areas more than 3 or 4 miles from an exchange are significantly less likely to receive
direct improvements from either private sector investment or the Council’s major
procurement.
3. High quality broadband can mean 2Mbs. For some isolated hamlets that could be a
big step forward but demand for broadband is increasing quickly and 2Mbs does not allow
the rapid transfer of significant amounts of data for business, children’s homework or social
interaction.
From Middleton Tyas’ perspective, we are concerned that on current plans we could be left
with an inadequate broadband service in a village which in all other respects is well placed to
thrive in the modern world. In developing countries it is not uncommon to experience
broadband speeds of 100Mbs. 2Mbs is not credible and at present most of us do not even
enjoy that. We already know of residents who would like to work from home but cannot
because of the poor broadband service. Effective action is needed before people decide that
they cannot live in areas where the broadband service does not support a modern lifestyle.
8 March 2012
481

Milton Keynes Council – written evidence
Milton Keynes Council – written evidence
This document is a written submission by Milton Keynes Council in response to the House
of Lords Select Committee on Government’s superfast broadband strategy.
1. Superfast broadband, or Next Generation Access (NGA), is an important objective for
Milton Keynes Council. It is an important component of the Economic Development
Strategy, emerging Core Strategy, Local Investment Plan and Corporate priorities for the
council. In early 2010 a Digital Infrastructure Strategy (DIS) for MK was developed with
the aim of making Milton Keynes a national digital leader and to support the local growth
agenda. The strategic vision included ubiquitous availability; a competitive market; future
proof infrastructure; and high take-up of digital services. The analysis in the DIS found
that Milton Keynes does not compare favourably with other UK cities for broadband
coverage as over 30% of the premises could not receive a minimum 2Mbps broadband
service.
2. There are various ongoing broadband initiatives in Milton Keynes involving the council.
The main projects are the BT Fibre to the Premises (FttP) trial; submission and
implementation of the (Joint) Local Broadband Plan to Broadband Delivery UK (BDUK);
implementing the strategic objectives in the DIS; and engaging with the community via
the recently formed MK Broadband Stakeholder Group. An emerging area of concern is
mobile broadband availability and how it can be used as a source of superfast broadband
instead of fixed-line technology
3. The telecommunications legacy in Milton Keynes brings out three issues that impact on
the provision of superfast broadband today. Firstly, the planned nature of urban MK and
its grid pattern meant that deploying copper-lines was considered too expensive in the
1960s/70s. Aluminium was cheaper and was adequate for transmitted telephony (voice)
services and was therefore used extensively. However, with the advent of the internet
aluminium wiring is no longer adequate and hence many premises in MK presently suffer
with slow speeds.
4. The second legacy is that MK is home to one of the countries largest telephone
exchanges, the Bradwell Abbey exchange, which serves over 30,000 widespread
premises. This has caused considerable demand on the carrying capacity of the exchange
in providing adequate internet speeds to premises especially those in the periphery of
the Bradwell Abbey exchange area.
5. The third is the Milton Keynes cable network which was one of the first analogue cable
TV networks in the country. The coverage is c. 65,000 premises which make up more
than half of the borough’s premises. The council’s understanding is that the infrastructure
is owned and maintained by BT and operated by Virgin Media. Upgrade of this
infrastructure to provide superfast broadband and next generation TV would provide
tremendous benefits to MK leading to more choice under a competitive wholesale fibre
market.
6. Upgrade to the cable network remains an issue for MK. As part of the strategic actions
in the DIS the council is trying to broker an arrangement between BT and Virgin Media
482

Milton Keynes Council – written evidence
to resolve any commercial issues to allow the infrastructure to be upgraded. The council
has met with both parties on more than one occasion to prompt discussions on the issue
with a view to quick resolution. During this time the council was provided with differing
stories around the commercial arrangements and alleged restrictions to upgrade the
cable network. To-date there is no apparent solution on this impasse. The matter was
aired on a BBC Look East news item. See You Tube link below:
http://www.youtube.com/watch?v=wPQyTi6Rmn0
7. In October 2009 BT selected MK as a location to trial FttP technology to deliver
superfast broadband services and the council has facilitated the trial by helping with
communication with council planning and highways representative, as well as supporting
community relations. The project raised public expectations resulting in increased
inquiries to the council on timing and availability of the service.
8. During the trial, which is still ongoing to an extent, the service was wholesaled to a
number of Internet Service Providers (ISPs) to provide superfast broadband. However,
some ISPs providing a broadband service in MK were not part of the trial, for reasons
unknown, and hence consumers who wanted to upgrade to superfast broadband were
forced to switch ISP. The Council had reservations on how this worked and its
implications on consumers
9. Several inquiries made by ward councillors; council officers; public and other
stakeholders to BT in obtaining information on roll-out plans were not readily provided.
This led to members of the public demonstrating concerns on the council’s role in the
project. The council understands that some information is commercially sensitive and
hence would not be available to the public. However, there is a growing mistrust by the
public on how the council engages with providers in facilitating broadband infrastructure
and therefore the council would seek a clearer understanding of the regulatory issues
that can support the council in communicating with the public on broadband availability.
10. In addition to information on ‘roll-out’ plans the council will need data from suppliers on
what has been built-already regarding location, access of infrastructure and take-up
(connectivity) of service. The data is important in developing and updating local
broadband plans as well as setting targets and identifying ‘not spot’ areas that require
intervention. What is being observed are discrepancies to the real situation, in that
streets may be "wired up" but customers cannot obtain connectivity. According to a
ward councillor ‘many residents live in streets where this applies - they can’t buy a fibre
broadband service but the supplier includes them in its statistics of "enabled areas".
Further to this, Ofcom released a report in mid 2011 185 which identifies MK as having
90% superfast broadband availability which does not correspond with the findings in the
DIS and Joint Local Broadband Plan for MK
11. Broadband funding via Broadband Delivery UK (BDUK) in late 2010 was welcomed as a
potential source of funding that could provide NGA to rural and hard to reach areas as
well as resolve fears of a digital divide in MK. In late 2010 and into 2011 there were
considerable public and political interests in the council developing and submitting a Local
Broadband Plan to BDUK.
185 http://maps.ofcom.org.uk/broadband/
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Milton Keynes Council – written evidence
12. The preliminary development of the Local Broadband Plan, to act as a business case for
funding from BDUK, proved challenging in the procurement, technical specifications and
cost modelling areas amongst other areas. Then in Oct 2011 BDUK allocated £140K of
funding to MK which was based on a BDUK analysis in which 9,669 premises were
eligible for state funding in MK. This figure did not match with MKC's own internal
analysis which indicated c. 30K premises requiring funding and hence led to an
expectation of higher funding from BDUK.
13. In July 2011 the BDUK procurement framework was proposed and developed (pending
implementation in Apr 2012) to facilitate delivery of broadband projects across the
country and act as an umbrella package to support local procurement schemes. During
the development of the framework it was suggested that local broadband contracts
should have more than 100,000 premises. This resulted in MK being encouraged to join
up with neighbouring authorities to develop a Joint Local Broadband Plan. Alternative
options for procuring a broadband solution were not feasible at the time.
14. One of the strategic actions in the MK DIS is engagement with network providers. There
is some uncertainty on how the Council should engage with other providers and other
broadband initiatives that are not linked to the BDUK project. There is the risk of
missing out on a workable solution that is cheaper and more effective, and will bring
competition at the fibre wholesale level, while the BDUK project is being implemented.
15. Mobile broadband and its availability is a growing concern to local residents and
businesses. More people are using smart phones and tablets to carryout everyday
activities such as online banking, e-mails, travel updates, social networking, and more.
There are also more applications (Apps) available on smart devices that can facilitate
council related services which will have cost savings to the council
16. ‘People living in Milton Keynes get the slowest 3G mobile broadband speed in the UK,
according to new research’ This was the opening line of a BBC News story on 6 April
2011 entitled UK’s slowest mobile towns mapped 186 . Mobile broadband in MK is an issue
that requires attention.
17. The challenges facing Milton Keynes Council include: resolving the BT/Virgin Media cable
network impasse; understanding the implications of the BDUK project and how MK can
attract more funding; issues relating to mobile broadband; and, obtaining timely and valid
information from network providers.
13 March 2012
186 http://www.bbc.co.uk/news/technology-12977878
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Tom Morris – written evidence
Tom Morris – written evidence
I enclose below my submission for the superfast broadband consultation.
1. My name is Tom Morris. I am a freelance web technologist and a Ph.D student in
philosophy at Heythrop College, University of London. In my spare time, I am
involved heavily in Wikimedia projects as a volunteer: I am an administrator on the
English Wikipedia and Wikinews, and have a few other positions of responsibility. I
am also a dues-paying member of Wikimedia UK, a UK charity. I was quite heavily
involved behind-the-scenes in the recent anti-SOPA Wikipedia blackout.
2. My interest in this topic derives from both being an Internet user since 1995, my
professional connection with the web and my support for the Wikimedia projects.
3. Broadly, I am supportive of investment from both public and private sources to
increase the availability and speed of broadband, but with a number of constraints.
Internet users, and those who have not yet got on the Internet, must be the primary
beneficiaries of broadband investment. This must not be a blank cheque handed over
to BT, Virgin Media, TalkTalk and the mobile networks. Broadband investment must
serve the public interest not the private interest of ISPs and telcos.
There are a number of issues which neither the government nor industry have
adequately handled with Internet policy so far. These issues broadly are synchronous
speed, usage caps, traffic shaping, lack of data retention, properly competitive access,
intellectual property and IPv6.
4. While it is welcome to increase broadband speeds and ensure the availability of
widespread and preferably universal high-speed broadband, the continued use of
usage caps would make this futile.
Currently, where I live, we do not have access to faster level broadband (24Mb), so
use an ADSL 'Max' 8Mb connection. Speedwise, this is actually perfectly adequate for
most of my needs. It is slightly too slow for reliable streaming of some HD movies,
but I don't consider this a major issue. Meanwhile, in order to not be stuck with a
very low usage cap, I am paying significantly higher than most people pay for
broadband. Increasing the availability of high speed broadband without increasing
usage caps is fruitless. With higher speed broadband, people will want to use it more,
but if the amount they are allowed to use it each month doesn't rise in proportion to
the speed, the benefits of increasing broadband speed will be fruitless.
5. Currently, broadband in Britain is delivered in the form of ADSL or asynchronous
digital subscriber lines. ADSL compresses the voice bandwidth of an ordinary
telephone line and uses the space saved to deliver Internet data. The 'asynchronous'
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Tom Morris – written evidence
component of ADSL is concerning: this means that it is far slower to upload than
download data, presumably because most people want to download more than they
upload. With the continued rise of services which allow individuals to participate in
media creation (sometimes called "social media" or "social software"), and Internetbased
data storage and services (commonly and slightly confusingly referred to as
"cloud computing"), individuals upload more than ever. But unless broadband upload
speeds rapidly improve as well, the benefits, both personal, commercial and social of
online sharing and collaboration will be slower and less available to individuals in the
UK.
6. Wikipedia is increasingly looking for and using more video and animation, and
considering a future where the free transmission of 3D models and 3D animation
becomes a reality. We envision a world where Wikipedia articles will have highquality,
high definition video attached to our educational articles: you look up
London, and see high-quality, high-definition video of the changing of the guards, Big
Ben chiming, Tube trains, black cabs and maybe (if Parliamentary copyright and other
issues are resolved) the Prime Minister answering questions in the Commons. To
upload those videos, individuals need fast, syncronous broadband speeds. They need
the same broadband speeds as broadcasters, newspapers and other media outlets,
because they are part-time volunteer media outlets too and not just consumers of
commercially or professionally produced content.
7. ISPs in the future need to provide service in a fair, reasonable and non-discriminatory
fashion. Currently, the widespread use of traffic shaping is discriminatory. Individuals
pay for a particular speed of service, and they should be able to expect that speed
and availability, without the use of traffic shaping, often using deep packet inspection,
to prioritize certain types of traffic. Imagine:
You send 50 postcards, and the Post Office reads them to decide whether or not to
send them first class or second class, discriminating on the content of those
postcards. Fair? Perhaps. But if you've paid for first-class stamps for all of them, they
should all be treated equally. This is basically the situation with traffic shaping. ISPs
make unfair assumptions about usage and fail to treat all customer data the same.
BitTorrent traffic gets given lower priority on the assumption that all BitTorrent
traffic is copyright infringement. This puts people who work on and develop free and
open software (FOSS) projects at a disadvantage, as they often use BitTorrent to
legally transfer large files to users. Traffic discrimination of this sort means that
software developers cannot make judgments of which protocols and methods to use
on the basis of their technical merit but based on having to guess what the idiotic
political or social prejudices those running the traffic shaping do.
8. When you go to the library, you don't expect that borrowing a copy of the Qu'ran
would tag you a political extremist. Wanting to read Mein Kampf doesn't make you a
Nazi; wanting to read Pierre-Joseph Proudhon doesn't make you an anarchist. We
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Tom Morris – written evidence
rightly give people latitude to read and think and consider ideas in the privacy of their
own head, and we don't infer from consideration of ideas support for those ideas.
The government should not require ISPs to hold data on what websites people visit,
and to ensure that the police cannot use what people read on the Internet as some
kind of proxy for their beliefs or attitudes. If there were another 7/7 type attack, just
rounding up people who've read particular websites is a lazy and ignorant law
enforcement technique, because, as I have said, people read things they don't agree
with. People need to be able to use the Internet as a library of thoughts, ideas, some
radical, some dangerous, without surveillance or the building up of massive data
backlogs which can then be used by those in power to conduct fishing expeditions at
the cost of privacy.
9. The market for DSL has been uncompetitive for many years. ISPs have offered
broadly the same product under a variety of different brand names, but without any
actual significant differences. Over time, the market has been getting less and less
competitive, and it has been harder to find small, no-nonsense DSL providers. This
has been due to the stranglehold at the exchange level. We must ensure that a
thriving market for small and medium-sized ISPs continues to exist, to provide
services and high-quality support not currently offered by the larger conglomerates.
10. The broadband market has spectacularly failed to adapt to the provision of IPv6. For
background, the Internet works by assigning every computer an IP address. These are
almost like telephone numbers and consist of a set of four digits between 0 and 255.
When you type in a web address, like wikipedia.org, it translates it into an IPv4
address, like 208.80.152.201. There are 4.3 billion assignable IPv4 addresses which
are assigned by to a number of regional bodies, who then assign them to companies
and organisations who apply for them.
There's a small problem: we've run out. The last block was given to the regional
assigning bodies in 2011. Considering I read articles back in the mid 1990s calling for
the Internet industry to collectively work out a transition plan to IPv6, the fact that
we still don't have one in 2012 is extremely concerning. If the government are
investing a large amount of money in improving broadband networks, requiring all of
the infrastructure to be IPv6 ready would be an enormously good thing. IPv6 will
ensure clear addressability for all devices. Instead of 4.3 billion addresses, IPv6 gives
us 340,282,366,920,938,463,463,374,607,431,768,211,456. That works out as 67
billion billion addresses for every square centimeter on the planet. With IPv6, we can
quite happily give everyone a few billion IPs to use and have enough left over for
when we start needing to browse the web on our iPhones on the moon.
11. Copyright laws are utterly unfit for the digital age. They do not reflect anything like
the current practices or reality of the contemporary world. Currently, copyright law
in Britain is far, far too long, and is stifling the development of a vibrant public
domain.
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Tom Morris – written evidence
I traced the copyright on a photograph taken by my great-grandfather who died in
approximately 1970. The photograph was taken before World War I, but the
copyright on the photograph is not due to expire until 2040 (given life of the author
plus seventy years). Why exactly does a photograph taken on an Edwardian era
building site need copyright protection for 130 years? It doesn't. Copyright terms are
too long, patents are granted for increasingly absurd and obvious things:
Business ideas, peanut butter sandwiches, ordinary business practices but 'on the
Internet', algorithms and data structures that have been taught in undergraduate
computer science classes and textbooks since the 1950s. The overextension and
exploitation of the intellectual property regime has brought the whole damn thing
into disrepute with sensible people everywhere. Rather than pre-emptively adapt and
innovate, music, movie, TV and newspaper industries have sat on their thumbs for
years. Come about 1996 or 1997, any forwardthinking person in the news business
would have realised that online was coming. Come Napster, the music industry
should have perhaps gotten the message and got their own business in order. But no,
they sat back and whined about pirates, and took a few grandmothers to court. Then
they bought laws in countries including the UK, like the clueless Digital Economy Act,
the preliminary drafts presumably written by Lord Mandleson while on David
Geffen's yacht, and rushed through without due debate or consideration during the
"wash-up". In order to have a copyright system that is fit for the digital age, it needs
to actually balance the rights of consumers and the public interest of society as a
whole against the rights of content creators. That means that works actually need to
enter the public domain a lot, lot sooner. That means we need to forbid DRM and
other anti-piracy measures. They punish the legitimate customers and are are
absolutely no hindrance at all to the infringers. That means we need to encourage
significantly more material to be released under free and open licenses. That means
we need to extend and increase what is covered by fair dealing exceptions to
guarantee that criticism, commentary, non-commercial educational use, parody and
so on are protected in an age where everyone can be a media producer as well as a
consumer. We should allow maximum amounts of private non-commercial
modification of work that has already been purchased: format-shifting, time-shifting,
location-shifting. Rather than humbly bowing before the content industries and
passing ridiculous laws for them, we should tell them to work out some of their own
solutions: tell them to work with streaming services like Spotify, Lovefilm and Netflix
rather than undermine them.
12. Music, movie and TV industries need to understand that the alternative to people
pirating their stuff isn't them legally purchasing it, it's them not caring about it at all.
They can adapt to the Internet on the Internet's terms, or a whole generation of
Internet users will just ignore them.
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Tom Morris – written evidence
13. However big the film or music industry is, the Internet will always be bigger, better,
cleverer, fresher, faster, funnier, more innovative, more technically sophisticated and
we will always have more cats.
20 February 2012
489

Motion Picture Association – written evidence
Motion Picture Association – written evidence
1. Introduction
1.1. The Motion Picture Association (MPA) welcomes the chance to respond to the
Committee’s call for evidence on the Government’s broadband strategy, particularly
regarding the ongoing issue of tackling online copyright infringement.
1.2. By way of introduction, the MPA is an international trade association that serves the
interests of major companies that invest in, produce, distribute and market audiovisual
content. Our members are active across European markets as well as the US
and contribute towards the one and a half million jobs that exist in the UK creative
industries which are being put at risk by continued online piracy.
1.3. A 2010 Oxford Economics Report assessing the economic impact of the UK film
industry identified inward investment amounting to £928.9 million in 2010 (an
increase of 15% over 2009), much of this from major studios. Beyond its direct and
indirect contributions to GDP, the film industry plays a key role in exporting British
talent and crews worldwide and secures the country’s position as a global creative
hub. This is in addition to generating remittances and taxes which accrue to the
overall benefit of the UK economy.
1.4. We welcome the roll out of superfast broadband, as it provides huge opportunities
for the audio visual industry to better serve our consumers and to boost the
ongoing development of the thriving legitimate digital market for our content.
1.5. However, the full potential benefit of superfast broadband to content producers,
consumers and society cannot be realised without decisive action to tackle online
copyright infringement.
1.6. Below we have responded to some of the questions raised in the Committee’s call
for evidence of relevance to our interests.
2. How might superfast broadband change the relationship between providers and
consumers in other sectors such as content? What aspects of this relationship are
key to enabling future innovations that will benefit society?
2.1. The internet enables the audio visual industry to reach new audiences and promote
innovation. The roll out of superfast broadband presents a further exciting
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Motion Picture Association – written evidence
opportunity for the MPA’s members to build on their work providing consumers
with high quality audio-visual content via innovative digital services on a range of
formats. Faster broadband connections means higher quality content can be
delivered in less time by those services.
2.2. There are already numerous legal online digital services through which consumers
can access our content including Lovefilm, iTunes, Blinkbox, YouTube, Playstation
Network, Xbox Live online and Netflix. In addition to this the development of
UltraViolet (www.uvvu.com), a service which harnesses the power of the cloud,
enables consumers to watch the content they have acquired on a large range of
digital devices whenever and wherever they want.
2.3. We make films and television shows people want to watch and have much to gain
from an expanding market, as do our consumers. But like all content providers, it is
not sustainable for us to compete with illegal sites stealing our content and
distributing it. We need an appropriate and balanced regulatory framework and
technological tools to continue to prosper and support the wider creative economy.
2.4. The ability of producers to earn a fair return on their financial and creative
investment is key to enabling innovation to the benefit of society. Without this
return there is no incentive for content producers to invest in content or in
innovative new services.
3. What impact will enhanced broadband provision have on the media and creative
industries in the UK, not least in light of the increased danger of online piracy?
What is the role of the Government in assuring internet security, and how should
intellectual property (IP) best be protected, taking into account the benefits of
openness and security?
3.1. It is critical that alongside the roll out of superfast broadband, the Government
continues to pursue appropriate measure to tackle online copyright infringement.
3.2. Copyright infringement is no playground game. It is harmful and has direct negative
economic consequences on the audiovisual industry and other content sectors. It is
not just the studios that are affected by piracy, but the whole economic value chain,
from technicians, script writers and 3-D designers to cinemas and indeed the
legitimate new and innovative online distribution platforms, many of which identify
content theft as their single biggest competitive barrier. Piracy is responsible for job
losses, wasted creative potential and missed opportunities, as well as lost tax
revenues. Ultimately, illegal activities on the internet hamper artists’ ability to create,
generate new ideas and innovate.
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Motion Picture Association – written evidence
3.3. The Government is currently playing a crucial role in tackling online copyright
infringement by hosting roundtable discussions with all the relevant industry
stakeholders. The MPA hopes that satisfactory industry led solutions can be found
to tackle this issue some of which could include the following, currently being
discussed with Government:
3.3.1. An expedited system for blocking access to websites primarily dedicated to
promoting illegal content, based on judicial oversight. This would build on the
recent successful court case the MPA brought against a number of ISPs
requiring them to block access to Newzbin2, a site dedicated to making illegal
content available. This case was brought under section 97a of the Copyright,
Designs and Patents Act.
3.3.2. A code to ensure search engines do not overwhelmingly direct consumers to
illegal sites ahead of legal services, as is currently the case. Consumers rely on
search engines to find and access entertainment content and they play a vital
role in the UK digital economy. No-one would tolerate newspapers directing
readers to or accepting advertising for shops selling stolen goods. The same
rules should apply online and consumers should not be directed to illegal sites
via search engines. We believe such a code can be incorporated into search
engines’ normal business operations.
3.3.3. Action to ensure that internet advertisers do not advertise on illegal sites, a
practice which generates significant revenue for them. Adverts incorporating
recognised brands in particular give the appearance of legitimacy to what are
essentially criminal enterprises. Some progress is being made on this issue with
the Internet Advertising Bureau and we hope this will lead to a satisfactory
industry led solution.
3.3.4. A process for ensuring that payment processors do not provide their services
to illegal sites, thereby cutting off the stream of income generated by the illegal
activities of those sites.
3.4. Culture Secretary Jeremy Hunt has put on record his commitment to seeking
industry led solutions to these issues but has also made clear he is willing to step in
should industry fail to respond voluntarily. Should it prove impossible to agree
satisfactory industry led solutions, it is critical that the Government follows through
on its commitment to legislate via the Communications Bill. The ultimate aim should
be to successfully achieve a reduction in online copyright infringement and all agreed
measures whether industry led or legislative should be kept under review and
measured against this overall objective.
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Motion Picture Association – written evidence
4. Will the Government’s targets be met and are they ambitious enough? What speed
of broadband do we need and what drives demand for superfast broadband?
4.1. Audio visual content is crucial to driving demand for broadband services currently
and will be increasingly important in stimulating consumer demand as superfast
broadband services become available. A report by ATKearney predicted that by
2014 video applications will account for 74 per cent of all internet traffic. However,
significant amounts of this traffic stems from illegal sources, taking up valuable
bandwidth, potentially compromising the quality of legitimate digital services
services.
4.2. The demand for high quality audio visual content via the internet highlights the huge
potential that a sustainable and legitimate digital market can offer, but this potential
will never be fully realised unless online copyright infringement is properly
addressed. Recent media reports that BT and TalkTalk customer advisers
encouraged consumers to take-up unlimited broadband packages as the best way to
access illegal content are extremely worrying if true. This practice indicates that
some ISPs are allowing commercial self interest to come before their responsibility
to ensure a responsible online environment.
4.3. We need balanced rules to promote a sustainable internet environment and ensure
a thriving creative sector.
13 March 2012
493

The National Education Network – written evidence
The National Education Network – written evidence
The National Education Network
Over ten million pupils learn through fast, responsive and safe broadband services provided
by the National Education Network (NEN), which comprises the Regional Broadband
Consortia (RBCs) in England and the Scottish, Welsh and Northern Ireland broadband
agencies. Other public sector agencies including local authorities increasingly use these
regional networks, benefiting from their reach into rural areas, capacity and reliability. The
NEN agencies provide a complete broadband service based on schools’ requirements, which
include effective learning practice, safeguarding, procurement and supplier management
based on demanding technical specifications.
The NEN agencies have designed and implemented long-term, sustainable strategies for
broadband for schools and the wider public sector, minimising the cost to the public purse
through aggregation. The benefits of this regional approach are many.
NEN broadband service delivery for schools includes:
• Providing broadband services that deliver educational policy.
• Developing and sustaining long-term ICT strategies for education.
• Delivering an entitlement to good broadband services.
• Reducing the cost to the public purse through public sector collaboration.
• Minimising the Total Cost of Ownership to schools.
• Sharing of expertise UK-wide through the National Education Network.
• Ensuring that pupils are safe on-line through policy, education and infrastructure.
The NEN community is pleased to respond to this House of Lords Select Committee on
Communications Inquiry.
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The National Education Network – written evidence
EDUCATION: AT THE HEART OF UK BROADBAND POLICY?
1. Executive Summary
• School and wider public sector demand is not being taken in to account in current policy
and strategy. This demand is of sufficient scale to help consolidate the business case for
investment in broadband, particularly in sparsely populated rural areas, where it can
provide a guaranteed revenue stream for suppliers.
• The education sector has a very significant role to play in the UK’s superfast broadband
future.
• The sector’s potential contribution has not been given proper consideration in the
development of UK broadband policy and strategy to date.
• Schools and other public sector institutions require speeds, performance and services
that cannot be delivered by individually procured consumer or small business-oriented
retail broadband services.
• Effective broadband infrastructure for education is key to the UK’s economic recovery
and growth, preparing the workforce of tomorrow to compete in the global
marketplace.
• Demand for and usage by schools and other public sector institutions of broadband
services is significant and growing.
• This growth has been evident for more than 10 years, with schools’ broadband usage
increasing annually.
• Teachers and educators in schools, colleges and other educational institutions can benefit
hugely from superfast broadband access and the new applications and services it
supports.
• These benefits will not be realised if the current aggregated approach to broadband
provision for schools fragments.
• Access to online education and training services is also a key driver for take-up of
superfast broadband in the home.
• Education broadband infrastructure could potentially be re-used in rural areas of market
failure to provide middle-mile and backhaul connectivity.
2. Introduction
1. All schools now have broadband connections but speeds vary significantly across
the country: many (mainly secondary) schools have 100Mbps connections but
many (especially rural primary) schools have 2Mbps connections. Regional
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The National Education Network – written evidence
broadband consortia (RBCs) and local authorities have been delivering superfast
(defined as delivering speeds above 24Mbps) broadband services for many
schools for some time now. However, ensuring equitable delivery of superfast
broadband so that every school can benefit from superfast speeds remains
challenging, particularly in sparsely populated rural areas.
2. Current UK broadband policy defines superfast broadband as delivering speeds
above 24Mbps. This derives from Ofcom's context and summary for its 2010
consultations on the wholesale local access and wholesale broadband access
markets 187 : "Super-fast broadband (i.e. broadband with speeds greater than
24Mbps) will provide consumers and businesses with higher speed and more
capable services, which are likely to enable the use of a wide range of new and
innovative applications.” The EU has specified targets for the universal availability
of 30Mbps services and 50% take-up of 100Mbps services by 2020.
3. School and wider public sector broadband demand
3. The Government’s broadband strategy is focussed on the development of new
wholesale infrastructure to support the delivery of retail broadband services.
BDUK’s demand registration and stimulation recommendations focus primarily
on homes and businesses, rather than existing and likely future public sector
broadband usage and demand. In the case of schools, usage is increasing year on
year by around 50% on average.
4. This is an opportunity missed in terms of building the business case for
investment in broadband infrastructure in rural areas. Embedding public sector
infrastructure refresh and development within wider broadband policy and
funding would support the wider roll-out of superfast broadband by providing a
guaranteed revenue stream for suppliers. It would also help to address the risk
of the current aggregated approach to broadband provision for schools
fragmenting as schools opt out of RBC and local authority provision in favour of
inferior alternatives.
5. This would reinforce the sustainability case for the roll-out of superfast
broadband, leveraging the significant demand from the public sector. This
aggregated demand is sufficient to cement the business case for the provision of
superfast broadband in areas that would otherwise appear uneconomic. Where
there is sufficient domestic and business demand to stimulate roll-out, the public
sector will be able to take advantage of new services which reduce costs and
increase throughput as demand grows. The Government’s strategy should
recognise this two-pronged approach:
187 http://stakeholders.ofcom.org.uk/binaries/consultations/wla/annexes/context.pdf
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The National Education Network – written evidence
• The public sector’s significant contribution to the business case for superfast
rural broadband roll-out and the cost reductions this will bring to existing and
future provision.
• The sharing of public sector infrastructure in rural areas of market failure to
enable third party provision of public services.
6. The nature of Broadband Delivery UK (BDUK) funding and the allocation
process have contributed significantly to this missed aggregation opportunity and
duplication of effort. BDUK funds will in most cases be used to procure new
wholesale broadband infrastructure that will be implemented separately from
existing public sector broadband networks. The public sector demand that these
existing networks represent is not being taken into account in the business case
for the roll-out of superfast broadband, nor are the savings that will accrue from
the use of new superfast broadband services across the broader public sector
being properly considered.
4. Schools’ increasing broadband demand
7. The concept of a universal service obligation for schools’ broadband has
previously been put forward in the April 2011 Review of Education Capital by
Sebastian James (the James Review) 188 . This proposed minimum speeds of
10Mbps for primary and 100Mbps for secondary schools respectively. However
it is already clear that 10Mbps connections will not provide a future proof
solution for primary schools. A recent trial in the east midlands of on-network
FTTC connectivity (providing speeds of up to 40Mbp) for a number of primary
schools with 2Mbps connectivity saw schools utilising significant additional
bandwidth. Comparatively small schools were drawing peak download traffic of
around 15Mbps.
188 http://media.education.gov.uk/assets/files/pdf/c/capital%20review%20final%20report%20april%202011.pdf
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The National Education Network – written evidence
Kent Public Service Network: Internet Transit (Excluding FE & HE)
8. The graph above shows Internet transit for the Kent Public Service Network
(KPSN). Schools only traffic to 2007 when District Councils joined, County
Council traffic included from 2009 and Fire & Rescue Service traffic from 2011.
Traffic growth averages 63% over ten years, although growth is partly due to
increased numbers of connected sites. In the calendar year 2009, growth was
67% and for 2010 47%. However as schools’ traffic dominates, it is reasonable to
say that Kent schools’ Internet bandwidth growth is substantial and is between
40% and 50% pa. This is typical of the growth in schools’ broadband usage
across the UK.
9. The number of sites requiring connectivity in a typical local authority is
significant. Kent County Council encompasses around 600 schools, 400 local
government sites including libraries, plus at least 600 health sites. Lincolnshire
County Council comprises 356 schools, 249 public sector sites, or more than
600 sites not including the health sector. The total number of sites in
Lincolnshire is likely to approach 1,000 if health sites were included too.
10. The inherent economies of scale in serving such a large number of institutions
drive up the quality of provision and drive down costs on both the supply and
demand sides, making high quality broadband infrastructure available and
affordable for both customers and suppliers. This is an efficient way of
presenting demand to the marketplace, as opposed to inefficient individual
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The National Education Network – written evidence
purchases at institutional level, which the market cannot respond to with the
same degree of certainty and innovation.
5. Schools’ broadband requirements
11. The public sector generally and schools in particular have high expectations of
broadband performance and recognise the value and importance of quality of
service. Schools and other public sector institutions require speeds,
performance and services that cannot be delivered by consumer or small
business-oriented retail broadband services. Such institutions depend on high
value services to meet their requirements for bandwidth, performance and
availability. These high value services deliver much higher revenues per
connection than consumer-grade services. This type of provision, typically
procured for lengthy several year contract period, reduces risk for investors and
creates a virtuous circle where institutions benefit from demand side innovation,
and suppliers continually deploy new higher capacity services to meet ever
increasing demand.
12. Educational institutions have enterprise rather than consumer broadband
requirements: they need very high quality, scalable connections in order to
maximise the potential of broadband for teaching, learning, administration and
management. They require significant upload as well as download bandwidth,
low latency and the capacity to accommodate significant peaks in demand.
Schools purchasing connectivity individually will not meet educational
requirements.
13. Just as in homes, the key demand driver for superfast broadband in schools is the
need to support simultaneous access to multiple applications from multiple
devices. More and more devices are now sharing a home’s broadband
connection, including not only desktop and laptop computers but wi-fi enabled
smartphones and tablets, Internet-ready smart TVs and other smart devices such
as blu-ray players, games consoles and hard disk TV recorders. Recent research
commissioned by BSkyB 189 revealed the average UK home now has six screens,
all of which may be competing for space on the home broadband connection. In
homes with teenage children this figure is likely to be much higher. The same
driver applies in schools, exemplified by the continued increases in schools’
broadband usage.
14. Leading schools in ICT now have one device (laptop, tablet etc) per pupil which
means over 2,000 devices online at any one time in a large secondary school. A
school’s administration and building control services depend on reliable
connectivity with a rapid increase in remote ‘cloud’ services. Such a school
requires at least a 100Mbps connection and some are already connected at
189http://corporate.sky.com/skyviews/ed54c83ceaf64f6a85c5ad1623e9f038/zeebox_partnership_brings_social_tv_to_a_new
_level_for_sky_customers
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The National Education Network – written evidence
1Gbps. It is essential that pupils can also connect reliably from home, which is
not the case in some rural areas. Primary schools are also moving towards one
device per pupil, but at a slightly slower rate. A small leading ICT primary school
now requires over 10Mbps and we need to ensure a strategic approach to
provide an upgrade path to 100 Mbps. Sufficient upload as well as download
bandwidth is also very important for schools, to enable services such as remote
backup and to support collaborative tools such as videoconferencing.
15. More information on schools’ broadband requirements is provided in NEN
Information Sheet 1, included as an appendix to this submission.
6. The importance of aggregated delivery
16 Local intelligence is key to the delivery of effective aggregated solutions which
can also justify investment in otherwise unprofitable areas. Government
broadband policy should therefore be supporting the aggregation activity
undertaken by local authorities, RBCs and public sector networks (which include
health and blue light services), particularly in the light of the revenue security
such aggregation delivers to infrastructure providers, typically over lengthy
contract periods. Rates of churn – where consumers switch broadband provider
– are consequently very low in the public sector by comparison, providing
additional security for return on investment.
17. The aggregation undertaken by local authorities and RBCs provides a justification
for increasing the number of points of presence (PoPs) on regional networks
through which the private sector can deliver services to a range of end-users,
not just schools and the public sector. The aggregation expertise and capabilities
which reside in the public sector should be encouraged. Where multiple publicsector
networks exist across a region, there is a clear case for savings to the
public purse, while at the same time providing greater capacity and a wider range
of broadband services.
18. The role of RBCs and local authorities as intelligent commissioners and brokers
of services is exemplified by the recent FTTC trial mentioned previously. The
objectives of the trial were to assess the use of FTTC in delivering on-network
connections and to compare its delivery against other technologies but
specifically against copper connections. The pilot was to assess the bandwidth
and quality of connectivity and any impact FTTC connectivity might have on
services and service support. These include a range of network services –
remote network fault monitoring and network management, usage monitoring,
Internet protocol service level agreement (IP SLA) reporting to validate network
performance, cluster working, as well as a full range of ISP and security services
including centrally provisioned Internet filtering with Portal Control enabling
both local control and individual pupil level filtering to be specified.
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The National Education Network – written evidence
19. The trial found that where FTTC is available it can provide a very cost effective
delivery mechanism particularly for smaller schools. All schools received the
same on-network services and support. There were no service delivery issues
or changes resulting from the change of connectivity. The RBC for the region,
embc, undertook detailed investigation and testing to ensure that the technology
was able to deliver both an uplift in bandwidth and the full range of network
services needed by schools. Individual institutions would not be able to assess
whether a connectivity option could deliver schools’ requirements so
thoroughly, underlining the importance of best value rather than lowest cost
purchasing decisions. Understanding the roadmap, likely lifecycle and applicability
(or not) of different connectivity options is complex and requires strategic insight
into the underlying technology and the marketplace, as well as schools’ current
and future broadband requirements.
7. The importance of broadband to education
20. Superfast broadband is a hugely powerful tool for teachers and educators both in
home and in schools, providing access to high quality resources to support
teaching and learning as well as a means to streamline administrative tasks.
Teachers’ increasing use of broadband in the home is illustrated effectively by the
unexpectedly high demand for online delivery of Teachers TV, as opposed to the
broadcast version of the channel: between February and May 2010, Teachers TV
videos were streamed over 1.6 million times.
21. New applications are emerging which continue to demonstrate the value and
potential of superfast broadband in empowering teachers. An excellent example
is the British Universities Film and Video Council’s (BUFVC) Box of Broadcasts
(BoB) service. BoB is an off-air recording and media archiving service. Users can
record TV and radio programmes that are scheduled to be broadcast over the
next seven days, as well as retrieving programmes from the last seven days from
a selected list of recorded channels. BoB stores recorded TV and Radio
programmes in an archive indefinitely for all users to access – a distinct
advantage over other TV catch-up services, the archives of which are time
limited. The BoB archive currently offers thousands of TV and radio
programmes covering all genres.
22. The benefit of such a service being readily available to all teaching staff both
within the institution and at home is clearly apparent. However, an institution’s
broadband connection must be able to support multiple, concurrent use of the
service if access is to be reliable and effective. Ensuring that all teaching staff in a
typical school can use such a service reliably whenever they need to requires
bandwidth significantly in excess of the Government’s definition of the minimum
superfast broadband speed (>24Mbps), as part of a carefully monitored and
managed service with alerts being dealt with 24x7, particularly if multiple
simultaneous accesses to the service are to be supported.
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The National Education Network – written evidence
23. BoB and other tools also illustrate the continuing upward trend in broadband
requirements by signposting the likely characteristics and capabilities of future
applications. For example, the mapping tool Google Earth can readily scale to
take advantage of additional bandwidth as it becomes available, providing
additional layers of information and granularity to offer new functionality as a
result. The introduction of 3D imagery to the service is a good example of such
progression. Video on demand services such as YouTube and the BBC’s iPlayer
also provide a similar roadmap, as they introduce HD and in future 3D services:
at first these will complement their standard offerings before, in time, replacing
them to become the standard.
24. The key challenge here is to ensure that a capability gap does not emerge
between what is achievable over educational institutions’ broadband connections
and their domestic counterparts. This underlines the importance of maintaining
a bespoke broadband infrastructure for education, to support large numbers of
simultaneous users and to ensure that education provision keeps ahead of the
requirements and expectations of both learners and staff.
8. The role of education in stimulating demand for superfast broadband in the
home
25. Education is a key driver for stimulating demand for broadband services in the
home. Access to learning materials and resources and the opportunities for
increased parental engagement in children’s education are widely acknowledged
as important benefits of broadband access. The effective implementation of
broadband technology both in school and in the home provides a means for
parents to engage in their children’s education by, for example, being able to
access real time reports on their child’s progress, as well as being able to engage
directly with their child’s use of online learning services.
26. Current generation broadband will not remain sufficient for educational use in
the home for very much longer. In areas of poor broadband provision the
connectivity available is already unfit for this purpose. Educational usage
therefore provides a strong incentive for further take-up of superfast broadband.
Superfast broadband will inspire new applications designed to exploit the
increased bandwidth and performance it can provide, and these will undoubtedly
include educational services.
27. Regardless of location, concurrency – the need to deliver multiple, complex and
media-rich applications to multiple users simultaneously – is the key underlying
driver for superfast broadband. This is as true for schools and other educational
institutions as it is for homes.
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The National Education Network – written evidence
9. Appendix: NEN Information Sheet 1 – School Broadband Requirements
Summary
The Education Network
Information Sheet 1
March 2012
School Broadband Requirements
Commercial Internet Connections
compared with
Regional Broadband Services
Schools and public service agencies require best value in all areas including
broadband services. Could money be saved by using commercial
Internet connections, rather than a regional broadband service or a
Public Service Network?
• What does a school or public service establishment require from
their broadband provider?
• How important are reliability, rapid fix time, friendly help desk and
tight supplier management?
• Is advice in safeguarding, security and authentication an integral part
of the broadband service?
This paper assists a like-for-like comparison between commercial internet
and public service broadband providers.
www.nen.gov.uk
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The National Education Network – written evidence
An Internet Connection or a Broadband Service?
A regional broadband service is more than a fast Internet connection; it is a strategy to
provide equitable, high-performance, tailored broadband connectivity and educational
services across a locality or region. Economies of scale and detailed local knowledge
provide a bespoke service.
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The National Education Network – written evidence
Broadband Requirements
Capacity – Is it always fast enough?
Data must travel the whole path from your site to the distant application and back; the
local connection, the backbone, internet and security devices must all be free from
bottlenecks.
Connection Bandwidth: Sites differ in their broadband usage. Some have steady
email and Web flows; others may often upload data (remote backup) or download
(software updates).
The regional network gives you the flexibility to choose the bandwidth you require.
Applications: All facilities such as firewalls, filtering systems and email relay provided
with your broadband service need to be scaled for the throughput expected.
It is much cheaper for the regional network to design, procure and manage complex, high
capacity services, than for individual sites to procure such services themselves.
Rate of growth: Public service agencies are reporting rapid growth in bandwidth
demand. A typical growth rate is from 30% p.a. to 60% p.a. over the past decade.
By aggregating broadband requirements, regional networks can upgrade capacity at a much
lower cost than singly purchased services. Upgrade costs are shared between many sites.
Suitability – Will it do what education requires?
This is where the technical details are more important than the sales talk! Schools must
be confident that potential suppliers have answered these requirements satisfactorily:
Contention Ratio: There should not be any capacity headroom limits from site to the
Internet, and back, including filtering and security services. Commercial ‘business
broadband’ is nearly always contended at some point, which is how they can reduce
prices. Suppliers need to be open as to what is being provided.
The regional network monitors all connections and services 24 x 7 to ensure enough capacity for
each site connected is always available.
Regional networks can use multiple suppliers to ensure best value, for instance one supplier may
have developed better infrastructure in a particular area. Virgin Media, BT and other Telcos
have different coverage and services that will best suit particular areas.
Data Transfer limit: There must be no limit to the amount of data transferred. In
commercial contracts this is often a “fair usage” clause. This could prove expensive for a
busy office.
The regional network has no data transfer limits.
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The National Education Network – written evidence
Symmetry: There must be sufficient upload and download bandwidth for your
purposes. Videoconferencing, learning platforms and remote data backup require high
upload bandwidth. Video streaming and web research require high download bandwidth.
Schools’ requirement is moving towards symmetric bandwidth i.e. equal upload and
download, over time.
Most regional network fibre and LLU circuits are symmetric (same upload and download
capacity) which is ideal. Some of the new high-capacity asymmetric services are also satisfactory
having substantially greater upload bandwidth. However the standard ADSL circuit performs
very badly in educational use.
Latency: Voice increasingly uses the broadband connection and places strict demands
on the time delay (latency). Videoconferencing will replace travel to meetings as fuel
prices rise.
The regional network has very low latency and jitter. It is already used for voice and is
also engineered to support high quality videoconferencing.
Security and Reliability – Can I work confidently and safely?
Public services depend absolutely on email, calendars, intranets and shared services for
their operation. Cloud services depend utterly on reliable connectivity. The public
increasingly expects access on-line to Council services at any time of the day or night.
Reliability: The broadband service availability must be specified in the contract and the
service must work reliably in bad weather.
Regional network backbones are fully resilient from their Points of Presence to resilient Data
Centres and to the Internet and Janet. Janet and the regional networks deliver a resilient
National Education Network connecting schools, FE colleges, universities and selected public
services without traffic touching the Internet
Fix time: Full service must be restored rapidly after a break and access from the start
of the next day is important. How do you establish if the supplier really can deliver the
reliable and rapidly fixed service they advertise?
A regional network will restore service within 5 hours. Regional networks are monitored and
managed 24 x 365 with Network Operations Centres identifying faults across the
network and to the managed router at the school. The majority of network faults are
fixed without the customer having a service interruption and without them having to
raise a call to the support desk.
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The National Education Network – written evidence
Security and Safety: A balanced approach including policy, education and systems
strategies is required. Does the supplier actively provide you with access to all the
services you need?
Email traffic between sites on the regional network is more secure as it does not touch the
internet (e.g. inter-school or school - LA mail).
Difficult technical, legal or policy issues can be shared across a region as well as nationally. This
is particularly important for security issues as corrective action can be established and
implemented once for the benefit of all, rather than every site having to take individual
corrective action.
Traffic pattern monitoring on regional networks looks for unusual events and enables the edge
site to be warned if it appears to have been the victim or a cyber attack or there is other
unusual activity from an on-site network.
As a result of aggregation services can be offered regionally that are not available individually.
Some networks offer Security and Vulnerability Analysis and reporting to customers with Internet
visible servers. Similarly IPSLA reporting enables sites to see the quality of their connectivity as
well as their bandwidth utilisation.
Safeguarding: Unless on-line activity in a school enhances learning and is safe, it is an
expensive toy. E-safety policy and educational materials are required to work closely
with the internet access services which will include filtering.
A regional network will have a comprehensive e-Safety programme as part of its service.
Value for Money – Is my business delivery important to this
Supplier?
Lowest cost or best value? Public service users make considerable demands on a
network. Do you require a standard internet connection designed for the commercial
or domestic sector or a wider range of services? Will the supplier add services required
by your school, or must you engage a separate supplier or provide them within the
school? Has the school the expertise to specify the broadband services required and
select and manage the supplier(s)?
The regional network will discuss with schools what they need and design a whole solution that is
purchased to obtain economies of scale and reduce procurement costs. New developments can
be rapidly brought into service – for example a new BT Next Generation Broadband service can
be enabled as it is rolled out area by area.
Advice and Support: Wide area networking, security and safeguarding expertise is
still relatively rare. Public services require responsive and business aware advice and
support.
Regional networks collaborate together to provide expert help and guidance to partners as part
of the service.
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The National Education Network – written evidence
Contract management: Are the contracted service levels clearly stated? Is service
delivery monitored and reported regularly? What are the penalties for poor delivery?
A regional network service will require detailed monthly reports from its supplier and penalties
for non-delivery will be enforced.
Innovation: Does the supplier design a service around the needs of the schools in the
area, or just sell their standard service? If a school, a library or local government office
are neighbours, would the supplier be able to design a single shared connection to
reduce costs?
The regional network will act as an informed purchaser on behalf of schools and increasingly
also for public sector establishments.
Local points of presence create a wider range of connectivity options that cannot be purchased
by a single site. For example if several schools share a common telephone exchange, the
regional network can create new services (a point of presence or PoP) providing new, lower cost
options to all public service sites, as well as schools. A school acting alone would not provide the
telecoms provider with a sustainable business case.
More Education Network material is available on: www.nen.gov.uk
What Would You Need to Replace the Regional
Network?
Replacing a managed network with a simple commercial Internet connection is not
straightforward. The implications for site connectivity and service provision are
significant, in terms of the level of work required to set up and manage its contracts,
manage its externally provided services and to support any services it decides to bring ‘in
house’.
The true cost of ownership, i.e. including staff time, of the same level of network services
and management offered by the regional network will need to be calculated.
Additional resources would be required to:
Continually review your broadband service to ensure you are getting value for money,
including testing the market on a regular basis;
Monitor your network connections and have the support agreements in place to resolve
issues in a timely manner;
Put in place security services to replace the central services that protect you against ever
changing threats;
Identify and fix networking issues on your broadband services, and
Provide expert advice and guidance on networking and security.
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The National Education Network – written evidence
Multiple contracts for connectivity and services will be required
that:
Have short termination periods so you can change sites and services flexibly;
Have a flexible pricing structure;
Have a range of connectivity options with capacity for expansion as usage increases;
Allow you to monitor services in detail;
Provide a high level of availability and quick time to restore;
Provide you with the ability to “bolt-on” other services;
Provide a single point of contact for network and security services, and
Continue to provide value for money without you prompting a review.
A Checklist of Broadband Services required by Schools
Connectivity
Internet (without capacity limits?)
Configurable Internet filtering
email provision
email filtering and relay
Legally sound procurement
Strong supplier management
509
Single sign on - accounts and password
management for services
Remote backup and management
Webhosting
Videoconferencing
Security services
Safeguarding policy, advice and education

NG Events Ltd – written evidence
NG Events Ltd – written evidence
Respondent Background
This response reflects the views of a team dedicated to the development of learning and
knowledge transfer in the field of ‘Next Generation Access’.
NG Events Ltd - trading as NextGen - is a not-for-profit organisation providing a platform
for informed debate, knowledge sharing and the encouragement of influencers in what has
become, over the past 5 years, a high-priority infrastructure renewal imperative.
NextGen is technologically neutral and does not claim to represent specific commercial
interests. Our events are sponsored and supported by a wide range of industry suppliers
and other ‘Connected’ interests.
Full details of NextGen’s programme for 2012 can be found at
http://www.nextgenevents.co.uk/home. The organisation is not in receipt of public funding
except insofar that local government and Enterprise Partnership organisations may choose
to support local events.
Our views reflect the output of recent debates and inputs from our exposure to
developments overseas and particularly from the near continent. Generally speaking the
debate is not helped by the complexity of prevailing legacy and regulatory positions but
could benefit from an entirely fresh and open-minded approach.
Response
The questions suggested by the Committee cover a very wide range of issues and we have
been selective - only sharing an opinion where we have an authoritative view.
1. UK Aspiration
1.1 The current UK ‘best in Europe’ policy objective depends on the definition of
‘best’. The evidence for the current poor performance relative to competing
economies is clear. The graph can be used interactively to show real data from any
country for both upload and download performance. This also serves to highlight an
issue that there are many measures of network quality and that undue reliance on
headline download speeds alone is unhelpful – particularly in the light of Ofcom’s
annual reports showing the shortfall between advertised and achieved data rates.
1.2 Additional measures of network performance/quality may include ubiquity of
provision, Upload Speeds, Ping times (latency), multi-VPN capacity, Dynamic
Bandwidth flexibility, Packet Loss, Jitter and the ready availability of ‘dark fibre’ for
business networks.
1.3 In terms of fitness for purpose evidence is mounting that whilst everyday usage
experience for many is deemed ‘good enough’, a very rapid growth in network traffic
is expected, driven mainly by greater use of IPTV (Internet video), VoIP (Internet
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NG Events Ltd – written evidence
voice) and M2M – Machine to Machine interactivity. Whilst many commentators
focus on domestic demand for downloads it should not be overlooked that we live in
a symmetric world and the role of ‘user-generated content’ is becoming highly
significant – not only in business with increased use of ‘cloud computing’ but for
many ordinary people, communities and the machines they deploy. It is in this
context that the long-term adequacy of last generation copper-based networks must
be questioned.
1.4 On current trends the UK is not expected to achieve fibre maturity (20% take
up of FTTH/B) until sometime beyond 2022 (see Fig. 1). This would not matter if
existing copper-based or even wireless technologies could meet the demand but
evidence from countries that are ahead of the UK suggests that this hope will not be
fulfilled. Scandinavian manufacturers have replaced their old 100Mb/s symmetric
customer products with new Gigabit versions as standard.
2. UK Ubiquity
2.1 Enterprises with operations across the UK have long campaigned for national
standards but are unwilling for these to default to ‘the lowest common compromise’.
It is significant that in Sweden the provision of ‘dark fibre’ to enable businesses to
engage in their own network innovation has played a significant role in increasing
enterprise usage.
2.2 Business employment at home is increasingly evident and the old notions of
‘Business’ and ‘Residential’ lines are becoming irrelevant. This trend is felt very
strongly in rural areas where the economic and societal benefits of new digital
networks are as great or greater than the probability of the networks being or
becoming ‘fit-for-purpose’.
2.3 Fixed versus Mobile?
The notion that mobile infrastructure can in some way act as a substitute for a fixed
network is sadly mistaken – the two infrastructures are increasingly understood to
be interdependent in that delivery of LTE Mobile technology requires, in London
alone, around 70,000 additional base stations each of which will require a highcapacity
connection to a backhaul network. As a short-term solution to mobile
connectivity issues some operators (e.g. O 2 in Westminster) are providing a public
Wi-Fi service to offload traffic from the mobile network.
3. Upgrade or Replace?
3.1 There is a clear attitudinal difference between those who see this process as a
gradual improvement of existing networks and those who regard the ‘next
generation’ of access networks as a completely different infrastructure built for a
different purpose.
3.2 The reluctance of both fixed and mobile operators to ‘junk’ their legacy networks
is understandable but seems to reflect an essentially short-term perspective that is
out of kilter with the needs of an essential infrastructure utility.
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NG Events Ltd – written evidence
4. Actions
4.1 Despite this gloomy prognosis there are many initiatives in play to address the
issues. The NextGen Roadshows and NextGen annual conferences have attracted
growing numbers of attendees eager to learn more and develop their local
responses. Community Study Tours, the NextGen Challenge and ‘Connected
Causes’ all have a part to play in developing market momentum – the latter striking a
new chord in its attempt bring a wider economic perspective to this field.
4.2 At a time when DCMS is considering the shape of a new Communications Act it
may be timely to revisit the remit for Ofcom and consider its role in active support
for national objectives rather than a limited supervision of market behaviour. Even if
the latter function prevails it would be entirely appropriate for government to look
again at the effectiveness of ‘functional’ as opposed to ‘physical’ separation of BT’s
distinct businesses. The utility Access connectivity network (Openreach) has a very
different business model to that of competitive Retail and Value-Added Services and
long-term investment behaviour should not be constrained by short-term
expectations. At the same time there is little sign of any unbundling capability within
Virgin Media’s CableTV networks and other regulatory remedies to ensure customer
service choice may be required.
4.3 If the UK is determined to take a leading position in the provision of digital
networks (and reflect an appropriate level of urgency) then consideration of a
‘copper switch-off’ plan might be appropriate – providing of course that it is
accompanied by free market reforms that encourage new market entrants on an area
by area basis.
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NG Events Ltd – written evidence
Fig.1 Paragraph 1.4 refers.
Europe in Context: the Race to Fibre Maturity
12 March 2012
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NICC Ethernet Working Group – written evidence
NICC Ethernet Working Group – written evidence
Differences between BT GEA and ALA
1. Overview
At a high level the definitions of GEA and ALA are very similar. There are two capabilities
nominally supported by ALA that GEA doesn’t support, however one of these isn’t
significant and the other may be supported by GEA in the future.
There are a number of other areas where GEA lags ALA in capability. The major one being
the way GEA supports multicast which imposes unnecessary restrictions on the ISP service
offerings.
Therefore in summary the technical differences are not great and GEA could be moved to
ALA compliance relatively easily, however there may be OSS impacts to BT of doing so. It
might be expected that those impacts would be minor however that would have to be
confirmed by BT.
Where ALA differs fundamentally from GEA is that it is an open standard governed by NICC
which is an open membership organisation. NICC gives equal weight to all participants in a
standard, although since the meetings are technical in nature and not political, only
organisations with a serious interest in any given problem are prepared to spend the time
and money to work on standards. This does bias the contributors towards larger
organisations, however specifically in the area of ALA NICC has established collaboration
with organisations such a BSG – COTS and have indicated a willingness to work with INCA
if required to redress this balance.
GEA by contrast is a BT specific product which BT define, they do hold meetings with their
customers as part of this process. It should be noted that other companies offering a
product based on ALA would most likely hold similar meetings with their customers about
their product offering.
Because ALA is an open standard the ALA documentation explains not just the interfaces to
the ALA provider network (as a BT GEA SIN does) but also how to implement the service
end to end. It also includes a framework for measuring performance and SLA compliance
which GEA does not.
Another area where ALA differs from GEA is that it defines explicitly (or is in the process of
defining) the interface between the service providers OSS (ALA User) and the network
operators OSS (ALA provider). GEA has the equivalent interface but it uses the BT EMP
platform and is not, as currently defined, an open standard (although both ALA and GEA
OSS interfaces are built on open standards).
This difference in open standard rather than BT product is important because a small
operator cannot implement GEA but they can implement ALA. This means any third party
operator would have to use ALA and not GEA as their standard. Since ALA is not identical
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NICC Ethernet Working Group – written evidence
to GEA the OSS interfaces will be slightly different and this may cause an issue for ISPs
wishing to consume the operator’s service.
It should be noted that BT are members of NICC and voted to approve the ALA standards.
2. Functionality supported by ALA but not by GEA
2.1 ALA supports N:1 VLANs as an option
Note: This is not a significant issue, but is explained here to prevent confusion.
It should also be noted that the choice of whether to support 1:1 or N:1 VLANs is
specifically defined as one for the ALA provider because it has a large OSS impact. Therefore
while ALA nominally supports both N:1 and 1:1 VLANs GEA is not violating the standard by
choosing only one of them.
This model of broadband deployment allows a single VLAN id to be shared between multiple
end users and the individual end user traffic is destined for is determined by the Ethernet
MAC address. This type of service is relatively common amongst smaller providers and
certain European operators. , however it is not supported in BT’s network and so GEA does
not support it
This is far less significant than it might be because in general within the UK a 1:1 VLAN
model is typically used by large ISPs and the OSS is typically set up to support this. In
addition although N:1 VLANs are simpler to configure they require some care to ensure
security, and some QoS functions are harder to support
2.2 ALA supports a wires only presentation
ALA provides the option to support a wires only (or fibre only) interface in the home. GEA
always requires the use of a BT active NTE into which the ISP’s customer plugs their CPE
router. Note there is now an initiative to define wires only VDSL in NICC. If this is adopted
then there is a possibility (only a possibility) that GEA will support a wires only model for
VDSL. For FTTP GEA today uses PON to deliver the service, and this makes a wires only
fibre delivery more problematic. This is a technology limitation (and work is underway in
international standards bodies to address this).
Note this change to wires only makes it hard to support multiple service providers at a
single customer premises. It remains possible but it is difficult because one ISP’s CPE must
allow transparent transport of another ISPs traffic (or an open market router can be used to
achieve the same thing if the ISP permits third party equipment to be used as CPE). In reality
within the UK residential customers typically purchase broadband services from only one ISP
(although they churn ISP on a regular basis). Businesses have more reason to use multiple
communications providers however they would consume a different type of ALA/Ethernet
service that uses active NTE’s from the ALA provider in order to perform pro-active service
monitoring. These business NTEs provide a suitable platform to support multiple service
providers.
3. Areas where ALA is more capable than GEA
3.1 Multicast support and full multi-service IP over Ethernet
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NICC Ethernet Working Group – written evidence
Both GEA and ALA define multicast support. However they differ in how they implement it
in the customer premises and this has a significant impact on the support of IPoE for GEA
customers.
ALA for the 1:1 VLAN model defines a specific multicast VLAN at the customer premises. If
a customer wishes to use the network operator’s multicast services (e.g. linear TV) then
they send the channel join requests with a VLAN tag corresponding to the multicast VLAN
id.
For normal broadband traffic they must use another VLAN tag corresponding to the point
to point ALA User Connection that they are using for broadband. The ALA tagging at the
customer premises allows this traffic to be untagged and to place this untagged traffic into a
default VLAN for the customer premises if so required. This is defined in ND1030 as the Stagged
UNI.
Because traffic for the multicast AUC (upstream only IGMP is significant) has a separate
VLAN the ALA service determines whether an IGMP channel join request is addressed to
the multicast service by inspecting the VLAN tag. IGMP sent to the multicast AUC will result
in channels being added or dropped by the access network. IGMP traffic injected into the
broadband AUC will not be used to trigger a channel change because it is not within the
multicast AUC (it has the wrong VLAN tag).
GEA uses a single untagged VLAN in the home for all traffic, broadband or multicast; this
violates ALA. (for the 1:1 VLAN model). When this traffic enters the BT network at the
NTE then the NTE tags it based on the ingress port but classifies the traffic as being for the
multicast service simply by determining if it is IGMP. This means that if the customer sends
an IGMP join into the network then the fact it is IGMP results in the NTE forwarding it into
the multicast VLAN and this will result in a channel being added or dropped.
However services other than linear TV may also use IGMP, for example I might have a
broadband service that also uses IGMP to join and leave channels. These channels are
located back in the ISP domain and are nothing to do with the BT GEA service but it is
unable to determine this and will interpret all IGMP traffic as being for the BT multicast
service.
To get round this GEA requires that the customer uses IPoE encapsulation for the BT
multicast service (standard), but they MUST use PPPoE for their broadband service, thus
hiding any IGMP for broadband within a PPP wrapper and rendering it invisible to the NTE.
Since ALA/GEA are layer 2 Ethernet transport services this mandating of the PPP protocol
for broadband is incongruous because a layer 2 transport service is determining the higher
layer protocol for the consumer of the service.
ALA would allow IPoE encapsulation to be used for broadband and for the multicast service,
if the ISP wished to use PPP for their broadband then that would be entirely their choice.
Mandating PPP requires that the ISP must have a relatively specialised routing platform to
terminate it.
Note: GEA does seem to support IPoE for broadband but not (at the moment) if you also
take the multicast service.
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NICC Ethernet Working Group – written evidence
3.2 QoS
ALA provides a slightly better defined QoS model than GEA at this time. The packet
marking and drop precedence is defined for both but ALA is more explicit in its defined QoS
services. However there is no reason why a more explicit GEA SIN could not provide
equivalent functionality.
3.3 GEA complex tagging versus ALA
GEA uses the Customer Edge Port UNI (but violates it for multicast in a 1:1 VLAN model).
This is a permitted option in ALA (ND1030) but GEA does not support the S-tagged UNI
option which is mandatory in ALA.
The Customer Edge Port UNI is complex because if the end customer wishes to use VLAN
tags themselves then they potentially end up with 3 tags at the NNI (two significant to BT
and a third significant to them). This complicates the configuration of the Ethernet switching
equipment used by the service provider at the NNI, it may also restrict equipment choice.
The equivalent S-tagged UNI in ALA would ensure that at most two VLAN tags would be
significant at the NNI.
3.4 ALA service frame size
ALA specifies a larger (minimum acceptable) maximum frame size than GEA. For ALA the
maximum service frame size is 1600 bytes for GEA it is 1532 bytes.
A service frame length in ALA is defined as
“The length of an ALA Service Frame shall be calculated from the first bit of the Destination
MAC Address through the last bit of the Frame Check Sequence and includes the S-VLAN
tag that is present at the ALA UNI. Frame overhead that is added by the ALA provider
(including additional VLAN tags at the NNI) shall not be included in the service frame length
for the purpose of AUC MTU policing.”
In reality this will have no impact on domestic broadband services, some business service
may benefit from the larger frame size but this should be considered at best a marginal
benefit.
In fact the argument as to how big is big enough is not really resolved in international
standards. There is general upward pressure on frame size from the original Ethernet 1500
bytes and the Broadband Forum has also settled on 1600 bytes. There is no evidence that
1532 bytes is too small for broadband applications.
3.5 Service OAM
ALA defines an extended AUC MEG which is intended to allow an ISP to use service OAM
to check connectivity to a customer premises before they have themselves deployed CPE.
This functionality is not currently supported in GEA, however BT have stated in the SIN that
this will be a later enhancement. The implementation of the feature will be the same in both
protocols.
June 2012
517

Northern Fells Broadband (Cumbria) - written evidence
Northern Fells Broadband (Cumbria) - written evidence
1. In October 2010 parts of Cumbria were chosen as one of four authorities to act as
pilots by BDUK. The publicity generated by this announcement, together with the
lobbying of local MP Rory Stewart, caused a number of groups to form across the
north and east of the County with a view to ensuring their community received
superfast broadband (SfBB). Northern Fells Broadband is one such group: we came
together to discover a means of bringing to the seven parishes of the northern fells
of Cumbria.
2. The northern fells cover an area of over 100 sq. miles, being approximately 15 miles
north to south by about 9 miles wide. It is an area of extremely sparse population
and remote properties with few settlements; the largest village is Caldbeck with a
population of 714 (2001 Census).
3. The area comprises the seven parishes of Boltons, Caldbeck, Ireby, Sebergham and
Welton and Westward and Rosley in Allerdale Borough and Castle Sowerby and
Mungrisdale in Eden District.
These parishes form part of three electoral wards, namely Boltons, Greystoke and Warnell,
and fall within two parliamentary constituencies, five being in Penrith and the Borders and
the remaining two in Workington constituency.
4. The seven parishes of northern fells are a community of shared interest, being
predominately an upland area, remote from major road infrastructure and being
connected by a ‘C’ classified road running north-south with a number of unclassified
roads off.
5. For over ten years the area has benefited from the Northern Fells Group which was
set up with help from the Prince of Wales Rural Regeneration Programme. This
project delivers a number of community initiatives including a community bus service,
help to elderly residents and services to young people. There is a community owned
pub and adjoining mini-brewery.
6. A strong sense of community is evident across the area, illustrated by the large
number of community led societies and initiatives, as well as cooperation between
the parish councils themselves.
Finance and Targets:
7. The money allocated is almost certainly not adequate to the task which the
government has set itself, and is certainly not adequate to realise the greater
ambition which it can be argued should have been the aspiration. The social and
economic benefits of SfBB are well documented elsewhere but they will only result in
savings to national and local government where the majority have access to these
benefits. The Government were persuaded recently that mobile operators would
have to agree coverage of 98% of the country when bidding for the next generation
LTE spectrum but they continue to be content with coverage of merely 90%, and in
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Northern Fells Broadband (Cumbria) - written evidence
the case of Cornwall significantly less than this, for fixed broadband services. In
Cumbria more than 70% of the population live in urban areas. If coverage is only to
be ensured for 90% of the population then there is a significant possibility that 30% of
rural dwellers will be part of the digital divide after completion of the contract
currently being negotiated.
8. It is our opinion that targets may be met, but not on time. The targets are by no
means sufficiently ambitious: the acceptance of a USC of 2mb/s for a percentage of
the population is a disincentive to push for more. Furthermore 2mb/s is not adequate
for services available today with many demanding a faster download speed. If the
successful bidder is allowed to negotiate the pattern of the roll out they may find that
the cost of providing the USC is even greater than providing SfBB via a fibre to the
cabinet solution. There appears to be a reluctance to insist on the best possible
outcome because a moderate outcome will still be regarded as meeting the required
targets. There seems little appetite for the adoption of anything other than ‘safe’,
vision is not a word which is being embraced. This results in much of the finance
disappearing into a large ‘black hole’ created by the tacit agreement of the procurer
and the supplier: this may protect the jobs of those so involved but will do little to
promote private enterprise within rural communities who remain excluded from the
benefits of SfBB.
Communications Infrastructure:
9. Mobile connectivity is almost inevitably going to be the mode of choice as the current
younger generation mature. The rise in mobility and the demand for instant access
will make static broadband less relevant to some but will remain important to many
services and businesses. We, in the northern fells are the northern edge of the Lake
District, an area most visited in England after London, so tourism is of great
importance to our economy. We are already in an age where visitors expect to be
able to communicate at will with all their usual contacts: mobile or fixed line
broadband is needed to fulfil this desire of the public on holiday. It will be equally
important for those who are tasked with the care of the elderly as more remain in
their own homes but require regular monitoring of the assorted pathologies of old
age. A smooth integration of mobile and static service must be pursued.
10. The cloud is already an important place for the storage of information: it enables us
to access data from any of the many forms of connectivity those blessed with decent
connections can use and it allowing collaborative work to take place at a distance.
This will become more essential as this form of data saving becomes mainstream. A
major requirement will be the security of the data being stored and accessed by
multiple agencies. The need for security of access is something which providers and
agencies will have to address before data can be made available through the number
of portals likely to be involved.
11. SfBB has to change the way Government delivers its services dramatically or the cost
savings they anticipate will not be realised. Networks will have to work hard to
maintain bandwidth in an increasingly crowded arena: alternative means of
connectivity will have to be investigated and embraced. It is now apparent that fibre
will be an excessively costly means of delivery in sparsely populated rural areas and
alternative wireless methods, such as white space and LTE will form and increasingly
important role. When SfBB provision is universal then even more devices will be
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Northern Fells Broadband (Cumbria) - written evidence
designed to embrace its capabilities and consequently put pressure on its capacity, we
will no longer talk of the provision of broadband but of what you can do with
broadband – just as electricity started as a curiosity to entertain people with but is
now an integral part of our lives. Once SfBB is ubiquitous then the benefits of
machine to machine technologies will also begin to make an impact on our society
and the way we do things. See our website and embedded videos
(www.northernfellsbroadband.co.uk/videos)
12. Investment must go ahead of demand if industry is not to be constantly playing catch
up. Vision is required to provide the infrastructure ahead of demand rather than
attempt to shore up existing infrastructure which must be a false economy in the
long term as yet more innovations will be sought to meet the needs of society
through obsolete means: as we have already intimated fibre will be too costly to
extend over the whole country if the government is not to make the huge decision
to create a fibre optic national grid as a means of stimulating growth in the whole
economy – a move which could not be achieved with £530 million.
Further Thoughts:
13. The Government have stipulated that any rural network should be ‘open access’.
Northern Fells Broadband recognise that this is in line with the desire to see
competition thrive on the presumption that this is a major driver in keeping costs
down for the end-user. However broadband is an extremely competitive market and
the larger players appear to see take-overs as the only viable means of increasing
market share so true competition is fast disappearing. Rural communities such as
ours find the open access stipulation a great impediment to creating a viable
community network and for the above reasons we question the validity of the
government’s assumptions in seeking an open access network.
14. Although Internet Service Providers retain the word service in their title it can be
argued that the services they supply can all be found, and often at no obvious cost to
the subscriber, on the internet. A community network would be providing a service
not only to their community but also to the local authority and national government
agencies who would want to take advantage of the network to reach members of
that community. A network devised by and for a community can reasonably be
expected to have the interests of its constituents in mind and would therefore price
itself to reflect national pricing levels. In order to offer a number of ISPs, rather than
an internet connection with SLAs to suit the needs of the network users, it is
necessary to engage third party organisations with attendant costs of purchasing or
leasing software and that organisation would also expect monthly income from the
network on a per user basis. The competition imperative seems irrelevant when set
against the alternative of no SfBB but merely universal service provision provided by
a major retailer. This stipulation is having the effect of making community provision
unviable and is skewing the whole implementation towards a situation where only
major corporations will be in a position to take advantage of the government’s
money. Our proposal would be that a network, once created should provide choice
to the consumer which could result in allowing ISPs to offer a retail service over that
network in the future. Once retailers identify the growth of rural broadband as the
only way to increase market share then they will be keen to operate over smaller
networks, at the moment there is little evidence of this. Best value appears to be in
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danger of being disregarded in favour of the artificial demands of competition which
will result in a poorer service being offered to fewer people in rural communities and
no surplus being made available to reinvest as advances in technology demand or for
the community to use for other purposes.
12 March 2012
521

Objective Designers – written evidence
Objective Designers – written evidence
Introduction
Objective Designers believes are four main areas that should be considered when seeking
the optimal path for the UK’s transition from the old copper networks (that have supported
the PSTN networks for nearly a century) to the new fibre-based networks (that will serve us
for the next 50-100 years). These are outlined below:
1. Designing Suitable Franchise Areas
The current BDUK approach has created default “franchise areas” for Superfast Broadband
using the geographic split of the 44 English Counties and the devolved administrations of
Northern Ireland, Scotland and Wales.
Whilst this might be a convenient political split, there are a number of disadvantages to this
approach:
The BDUK approach focuses on rural communities (the so-called “final third” or “final
ten percent”). There is another programme focusing on cities and yet another, with
DEFRA, which has a different process and agenda. These programmes all miss the point
that an effective local broadband plan should integrate the digital infrastructure of the
cities with the hinterlands that support them.
Many of the English Counties are sub-scale for non incumbent operators to bid to
upgrade the digital infrastructure in these areas. Ideally they would like larger blocks to
bid for in England. The RDA’s were, perhaps a good size - but have been dismantled.
The LEP’s are not, in themselves sufficient to do this job as there are areas without LEPs.
The mobile spectrum allocation is not included in the BDUK framework, nor are the
needs and capabilities of the major mobile operators which will play a major part in
providing Internet Access in the future.
The need to include the needs for businesses, consumers and the ever-important needs
for SOHO customers within the franchise area.
Many parts of the Public Service Networks that currently support the franchise areas are
on long-term contracts and are not included in the relevant broadband plans. This makes
the proposition even more unattractive to non-incumbent operators.
This lack of joined-up thinking goes further, with other departments promoting networks
that overlap (e.g. Smart Metering) as well as comparing investments in other
infrastructure projects (such as HS2) - where we believe the business case for a new
national digital infrastructure will provide a far greater return on investment than more
traditional physical infrastructure investments in roads and railways.
Recommendations
We need a better design for franchising and licensing the country’s NextGeneration Access
platforms. We need an holistic approach that encompasses:
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Objective Designers – written evidence
The cities as well as the hinterlands that support them.
Well-designed city-region blocks that can differentiate themselves from one another in a
few strategic competencies - with the appropriate digital infrastructure to support those
areas.
Mobile, as well as fixed spectrum licensing regimes.
Businesses, consumers and the ever-important SOHO segment.
A willingness to include as much PSN infrastructure in these franchise areas to make the
proposition attractive to more than just BT.
An integrated approach to Next Generation Access that includes smart metering and
comparison business cases with other National Infrastructure Projects to show real
returns on investment.
Create a Department for National Infrastructure to understand and make the difficult
choices between various investments.
2. Connecting Smaller Players to a New Set of Local Internet Exchanges
The traditional way that both consumers and businesses connect to the internet is via an
Internet Service Provider, or ISP. The UK has one of the most consolidated markets for
ISPs in the world - and each one tries to differentiate on service - since most do not own
the respective network infrastructure to connect the so-called “last mile”. In some respects
collapsed the old telecoms franchising models in both fixed and mobile networks and have
lost the traditional distinctions between Distributor, Master Reseller and Reseller - a
structure well-understood in other industries.
BT and Virgin Media both have bespoke connections to the internet - as well as to other
businesses in the Value Chain. BT has, what is called the “Equivalence Management
Platform” or EMP as well as a set of bespoke Ethernet products. Virgin Media serves its
content through a few national “Head Ends”. Whilst it is not in BT, nor in Virgin Media’s
self-interest to make these respective platforms more open, there is a great opportunity for
the UK to lay down a new set of standards in these (and other) areas to make it easier for
smaller ISPs to connect to the larger players in the telecoms, media and other strategic
industries.
A key benefits for encouraging these new internet exchanges is that they will create
differentiated local offerings that are tuned in different ways to different (local) business
needs. So you might get a financial exchange in Manchester configured very differently from
a Digital Video exchange in Belfast which again would be very different from a
Pharmaceutical exchange in Dundee. As they develop, these new internet exchanges
become the attractors for new investment in new businesses in industry verticals - and gives
the UK a competitive lead over other less agile countries.
Recommendation
Encourage the creation of about 1,000 new, local internet exchanges across the country
that will differentiate their offerings and create new economies based on new strategic
industries (not just financial services).
Encourage Service Providers to collaborate at these exchanges to provide ultrafast
internet connectivity to specialised business parks and industrial estates.
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Objective Designers – written evidence
3. Creating a New Set of Policies for Middle-Mile Backhaul Networks
One of the key differences between traditional telephone networks (which are made up of
“Core Networks” and “Access Networks”) is the emergence of a so-called middle-mile
network that provides high speed internet connectivity to an aggregated set of broadband
users back to the Internet.
Traditional regulatory approaches (which could well be accused of driving the car by looking
in the rear-view mirror) have not grasped the importance of moving from the two-tier
telephony model the three-tier Internet access model. As a result, the Internet visionaries
who have coined terms such as “digital village pumps” and “local internet exchanges” are
being ignored by the National regulatory bodies because they continue to look in the rearview
mirror.
In the UK, BT has gleaned a major competitive advantage in retaining the regulatory
framework of the old two-tier model, because it can subsidise core network roll-out to each
of its cabinets in a way that other providers cannot. This is why the early trials of Fibre-tothe-Cabinet
never paid back in Rutland and why other SLU operators have had to innovate
using other middle-mile technologies such as Point-to-Point radio.
Recommendation
Create a new regulatory framework that includes a set of policies for new middle-mile
network that can be shared across local ISPs and which incorporates a fairer distribution of
internet access to cabinets, exchanges and multi-operator mobile base stations.
4. Continuing to Design Better Passive Infrastructure Access (PIA) Plans
The final brick-in-the-wall is to create a new set of policies that are absolutely clear about
how we, as a country, will design, build and operate the new passive infrastructure based on
fibre technology. BT’s recent proposals for PIA have not been taken up with anything like
the enthusiasm that the lobbyists might have hoped. This is partly a pricing issue and partly a
practical issue.
Other countries such as Australia have gone down a route that many believe to be
unnecessarily expensive. Yet, others believe the UK’s approach is too hands-off and that it is
under-investing in the new technologies. Our view is that the investment in the UK should
be around designing a set of franchise areas, internet exchanges and middle-mile backhaul
networks with as much shared passive infrastructure access as is practical. How we design
this new regime is the work that needs to be done. Work done to date on PIA is a good
start, but does not go far enough - as it only includes BT. We need to also include Local
Authorities and other infrastructure providers in the local designs.
Recommendation
We should continue to encourage policies that:
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Objective Designers – written evidence
a) Seek to create many more middle-mile backhaul networks (see 3 above) that share
passive infrastructure including ducts, poles and dark fibre across other infrastructure
providers such as electricity and water companies etc.
b) Seek to encourage new business models that will trade infrastructure assets (similar to
the G-Cloud) so that we reduce the barriers to entry for local specialised service providers
to innovate in whatever their chosen field.
Conclusion
In our opinion, if we create a sensible debate across the industry on how we can address
and improve the policies across these four key areas, then we will be able to design a new
infrastructure that will:
� Encourage local innovation and commercialisation in a way that no top-down National
Plan could ever do;
� Integrate all industry players to get behind a vision that is forward-looking, not backwardlooking;
and
� Show a business case that far exceeds more traditional infrastructure investments
� Require minimal government funding to implement;
March 2012
525

Objective Designers – oral evidence (QQ 75-114)
Objective Designers – oral evidence (QQ 75-114)
Evidence Session No. 3. Heard in Public. Questions 75 - 135
TUESDAY 27 MARCH 2012
Members present
Lord Inglewood (Chairman)
Lord Bragg
Lord Clement-Jones
Baroness Deech
Baroness Fookes
Lord Gordon of Strathblane
Lord Macdonald of Tradeston
Bishop of Norwich
Earl of Selborne
Lord Skelmersdale
________________
Examination of Witness
Mr Lorne Mitchell, Managing Director, Objective Designers Limited
Q75 The Chairman: Lorne Mitchell, welcome, and thank you very much for coming to
give us some evidence. In a moment I will ask if you could introduce yourself so that the
broadcast picks that up. We have a CV from you. Thank you. If you have an opening
statement you would like to make, please feel free to begin with that; so, if you could
introduce yourself, and then away we go.
Mr Mitchell: Thank you. My name is Lorne Mitchell, and I have been in the telecoms
industry for about 30 years, some of that time served with BT, which was useful, and since
then I have been with a number of companies, AT&T, MCI, KPN in the Netherlands and
PWC and IBM. These are all three letter acronyms that probably do not mean too much to
you. A little over three-and-a-half years ago I set up on my own as an independent—I do not
like the words “consulting company”. I always think consulting is a cross between a con trick
and an insult. I call myself a designer. I think that is important because design is a very
important discipline in telecommunications and I hope as we go through today we can
explore some of the design constraints that are placed on the UK infrastructure and some of
options we have going forward.
I am ultimately an optimist, I think because of my engineering background, and I think the UK
is a fantastic place for innovation. There is a lot going on here that it is worth noting rather
than jumping on an aeroplane and going abroad. There is a tremendous amount of stuff going
on in the UK, of which I hope to highlight some. In the last three-and-a-half years I have
become a bit of an industry facilitator, nothing like Lord Bragg’s deep insights every
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Objective Designers – oral evidence (QQ 75-114)
Thursday, which I listen to, but I try to get debate going within the industry. In fact, today I
should be in York facilitating an industry conference, but this is much more important.
Through the last, I suppose, four years I have become quite deep in terms of understanding
what is going on and what the options are going forward, which I hope is one of the reasons
I have been invited today.
Finally, about two years ago I decided that, rather than just talk about it, I should become a
practitioner. So I started my own scheme in rural Kent, in Goudhurst, which is going very
well at the moment and is something I am very proud of. We have managed as a community
to get £100,000 of grant funding from Kent County Council. I would like to bring that to
your attention as a case study where we have learnt an enormous amount in the last 18
months, and I think it will be useful in terms of articulating some of the options we have
going forward. I have also brought some slides along. I do not quite know the mechanics of
how this works, but my first one is a quote by Albert Einstein, which is a favourite of mine
and one of the reasons I set up Objective Designers, which is, “A perfection of means and
confusion of ends seems to characterise our age”. I think that perhaps is a succinct way of
putting the issue that we have facing us at the moment, although on the PowerPoint it has
not quite come out the way I meant it to, but it is there anyway. So, that is it.
Q76 The Chairman: Thank you, that is a very helpful introduction. I will set the ball
rolling by saying that the UK Government’s aspiration is for this country to have the best
superfast broadband network in Europe by 2015. To that end it has set a target of 90% of
premises having access to 24 Mbps and the rest at least 2 Mbps by 2015. Do you think this is
the right way to think about a broadband policy? Do you think then that these particular
aspirations are the right measures of what you should be doing? Is capacity the right point to
start in thinking about what you are trying to do in this area?
Mr Mitchell: It is certainly one of the factors. I think that capacity needs to be taken both in
terms of supply and demand. Often the “up to” whatever the figure is is a banner headline. If
you look at the demand side of the equation, I think that the public has become quite
confused as to what all this means, and indeed in my own scheme what I am finding is that
once people get over about 2 Mbps they change their mind about what is important. Within
our parish we have a main exchange and we also rely on other exchanges. About half of our
population can get 2 Mbps or more—in fact it is up to 6 Mbps or 7 Mbps—and that is
enough for a lot of people. So what we are finding is that the demand, if you like, for more
than 2 Mbps is considerably less—people do not think the issue is as important as if you are
less than 2 Mbps or less than 1 Mbps, and we have some parts of the parish that are down at
0.1 Mbps, so tiny. If you like, it is a hosepipe with a rock in it blocking it up. Those sort of
anomalies, even within a tiny parish—I have a map of the parish, which is that one; the green
areas are the ones that get reasonably good broadband up to about 5 Mbps, the light green
is about 4 Mbps to 5 Mbps, the orange is about 2 Mbps to 4 Mbps, and then the red areas
are less than 2 Mbps.
You will see that even within a parish like ours, which is about 5 kilometres across and
about 11 kilometres long, we have our own final third and the interesting thing is that as you
take this whole jigsaw puzzle down it becomes like one of those Mandelbrot things—the
smaller you get it looks the same. You could draw London in the middle there and have the
same sort of problems. Even in rural Kent we find that within a small area like that we face
many of the national problems, which again has been very interesting in terms of our case.
I am an optimist. I think that the targets that have been set have been set for convenience to
be more achievable than the targets that perhaps would put us on a better path to
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something that is longer term. I think the whole question mark around capacity really
depends on your time horizon and how ambitious you want to be. The Government set,
with Jeremy Hunt’s speech, the 2015 time horizon, which was convenient for this election
period. If we look beyond that to 2015 to 2020 then I think the game changes dramatically.
That is the work that I am doing currently with a number of industry bodies, including INCA,
supporting the broadband stakeholder group, and the CMA, the Communication Managers
Association, which is a group of businesses who use telecoms. I think there is a real concern
that between 2015 and 2020 we are going to miss the longer-term targets set by Europe. It
is interesting that Europe has set targets of 30 Mbps, not 24 Mbps, which deliberately does
not include the ADSL2+ technology, and they are setting targets of 100 Mbps not 80 Mbps,
because BT knows it can get to 80 Mbps through clever convolution of the copper network.
The European targets are a stretch target that require us to think differently.
Q77 The Chairman: But you said, and I will ask you about this as the second half of my
question, that you think that when people get a certain amount of access to bandwidth then
suddenly their attitudes change. How is that change going to read across into what we are
talking about? There is no point in having huge quantities of bandwidth if people do not want
it? How do you think the demand for bandwidth is going to change from now?
Mr Mitchell: If we could jump to slide 7, I will skip through a few things. There is a brilliant
bit of work written by a guy called Everett M Rogers in 1962, which is still highly relevant
and it is worth looking on Wikipedia at some of his work. He had this book Diffusion of
Innovations; it got to its fifth edition. The next slide is a wiring diagram, which I am not even
going to explain but what runs across it is, “Decision process in which an innovation is
communicated through channels over time moving among members of a social system”. So it
is a fairly big, broad thing. If we go to the next slide—I have nicked this, so I have probably
broken all the copyright laws going—this is his curve of product adoption. I think what we
have at the moment is that we are in this chasm on the left-hand edge. We have innovators
and early adopters taking up some of the faster broadband products that BT and Virgin
Media are currently adopting, and there is this question mark as to how we are going to use
this going forward. If you look in the theory of Rogers, what he says is to get over the chasm
we have to create a network effect among people who are using stuff more innovatively.
Let me give you an example. Within the last two weeks I have suddenly discovered that I can
download movies to my computer here. In fact I could do it a number of different ways but I
use a particular way. It takes me an hour to do it. So I talk to my wife, and I say, “There’s
nothing on television tonight”—which is normal—“we’ll watch a movie”. I go in and I order
it up before supper and an hour later it comes down and we watch it. This is our new way
of working. I was informed by my ISP I have finally triggered my 50% of usage. I have
something like or 30 Gb per month, an enormous amount of bandwidth that I never thought
I would use.
So the answer is, I think, as people start to use this stuff, and not just for pleasure but for
business as well, for instance a video broadcast or something—I do quite a lot of broadcast
material getting transcribed, which I send to the States. It normally takes me about an hour
to send it over to get it transcribed. Applications and things like that are starting to break
over. Once the early majority start to see how people are using it then I think we will get up
that next curve.
The next bit is also very useful, the late majority. This was drawn to my attention by a friend
of mine, Adrian Wooster, who has done some work in this area, and he says that in the late
majority the key there is not so much about individuals referring—in that case, I am using
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Objective Designers – oral evidence (QQ 75-114)
this great application to ship this movie so I can change it and I do not have to go to the
video shop—but it is much more about being in a club or being attracted because there are
common ways of using it. This is where local authorities, and indeed the Government itself,
can play a crucial role in bringing people online. I did a bit of research last night and I was
very pleasantly surprised to see I could download a list of all of your CVs and do a bit more
research about who was going to be seeing me today. I could not have done that 10 years
ago. The ability to interact with Government, understand who is important and get some of
these micro-agendas on the table is going to become a very good way, I think, to get into
that late majority.
The laggards become also very interesting because, as you will see there, they are the final
third of the final third—I call it the final ninth—of people who really do not want to use the
technology. Again, in that space you have to make it incredibly easy for them to use it and
show that there are benefits to them. Things like—I do not want to be too brand-specific—
Apple iPads with Skype mean that now my mother is seriously considering moving online
whereas before she got increasingly frustrated with email and all that sort of stuff.
I think the adoption curve is a key tool that we need to use when being clear about which
part of the debate we are trying to focus on and so much of this debate has gone off into
blah-blah land where everyone is throwing platitudes about. We need to be very clear about
what the objectives are and how we are going to hit each of those groups as a marketeer
might.
Q78 Baroness Deech: Just a quick question on your downloading of the film. Is it legal? Is
it free?
Mr Mitchell: It is totally legal. I pay £3.49 for some of them, and I pay 99p for others. The
platform is iTunes, and it is great.
Q79 Baroness Deech: Is the cinema industry content?
Mr Mitchell: Absolutely, because I still go to the Odeon for the latest releases. I am
watching things I did not manage to see about two, two-and-a-half years ago. I just watched
Anonymous, the great “was it written by Shakespeare” thing. It is a tremendous film but I
missed it at the cinema. So it is complementary and I think there is far too much focus in
Government on all this piracy and stuff. We need to get the thing sorted in terms of the
mechanics and then put the right traps in place to stop the worst offenders, but there is far
too much focus on that at the moment as far as I am concerned.
Q80 Lord Gordon of Strathblane: I wonder if you would agree that one of the drivers
towards people wanting higher bandwidth would be the arrival very shortly of things like
YouView?
Mr Mitchell: Definitely. I think to complement the film I have started to use iPlayer a lot
and I can now watch Lord Bragg’s excellent thing on the class structure of the country when
I want to, where I want to, without having to worry about watching it on the day and the
time that it is broadcast. We are shifting very rapidly now away from the broadcast world to
this on-demand world and that is a key driver we have to recognise and get behind.
Q81 Lord Gordon of Strathblane: Arguably that could be satisfied with 2 Mbps, could
it not?
Mr Mitchell: Indeed, and this is the interesting thing. I must admit that the ability for the
technology to adapt and deliver within the design constraints that we have at the moment in
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terms of the 2 Mbps copper network is quite extraordinary. But having said that, it still takes
me an hour to download a movie; I would prefer it in five minutes, and so the more
bandwidth the better, really.
Q82 Lord Gordon of Strathblane: Government is to some extent the language of
priorities. Assuming the two are in conflict, would you go for universal availability of 2 Mbps
or half the country with superfast?
Mr Mitchell: Can we go back to the second or third slide. I think this whole debate about
percentages is all blah-blah. This is a map of Kent. You cannot see it that well. The blue flag
in the middle is where I live and these are all the exchanges that BT has agreed it is going to
upgrade. You will notice there green is Tunbridge Wells—there are two of those where
they definitely have plans—orange is a place called Paddock Wood where they are going to
come soon, and the majority—I hasten to say over 80%—of the exchanges in my local area
have no plans at all. So the real issue here is that the percentage blah-blah rhetoric that has
gone on between BT and Government is a house of mirrors and if you get down to a local
level—
Q83 The Chairman: Do you mean that will not go above 2 Mbps?
Mr Mitchell: No. Each of those exchanges is served by a number of cabinets, and this is
where we get quite complicated. Say each of those exchanges has four cabinets hanging off it,
one of my villages, Kilndown, which is down at the 100 Kbps level, is left off the radar screen
of all this 2 Mbps rhetoric. Going back to the earlier question around capacity, we have
these headline speeds of “up to”, but the biggest capacity constraints we face are the
number of planning engineers in BT Openreach and the number of engineers we can get out
on the ground to hit the 2015 target. Kent was smart enough to get its BDUK submission in
so it is going to be eighth or ninth on the list. Heaven knows what North and South
Tyneside will get to.
I think with this whole banner headline that BT is going on around percentages, we need to
get down to cabinet level understanding of what is going on in order to ensure that this plan
is going to be met. At the moment it is all fuzzy.
Q84 Lord Gordon of Strathblane: If I can pursue that final point, it seems to me that
this is getting down to the nitty-gritty. At the moment, how many new installations do you
think BT could cope with in a year in terms of converting exchanges?
Mr Mitchell: They are not converting exchanges; they are converting cabinets. There are
5,800 exchanges. There is about, I do not know, 50,000 cabinets. I have not done the maths,
but I know people in BT who I have spoken to very recently are concerned about this
capacity problem within BT to deliver. We are not talking so much about Virgin Media.
Again, a lot of these people do not work for BT; they are contractors.
In Kent ourselves, where that orange thing is, we have one very smart ISP who is working
alongside BT to try to help them. He was training people in the middle of the snow to get up
telegraph poles. A lot of the training that needs to happen needs to happen very fast and one
of the obvious things to do is to train up ex-military people, which is what BT is starting to
do, who have many of the right disciplines and skills to get on with this, as they come back
from the war. But this is the capacity problem that I see—
Q85 The Chairman: Just so I am clear, are you saying there are not enough people who
know what to do out on the ground to do it?
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Mr Mitchell: Correct—to hit this plan, yes.
Q86 Lord Macdonald of Tradeston: Given that problem that you describe, would it not
be better perhaps to just go for basic broadband and make the priority stimulating demand
and encouraging non-users on to the internet rather than rushing rollout for superfast
broadband?
Mr Mitchell: Yes. Can we go to the next slide? I think in terms of my plan for the parish,
the green areas for 8 Mbps, we are looking to get that to about 30 Mbps this year and we
reckon that by getting community engagement into the plan we will—in fact some work has
been done on this. Adrian Wooster was very helpful last week with a pre-briefing. You can
get four times the penetration by engaging the community versus the current model that is
TalkTalk, BT, Sky, Three broadband, all that sort of rubbish stuff that they bundle with other
services.
If the Government is serious about broadband being a strategic infrastructure, a critical
utility, we need to find ways to get that multiple effect by engaging communities. This is
something that has been completely ignored by BT, by Virgin Media and by all the mobile
companies, apart from perhaps O2, who sort of get it.
Q87 Lord Macdonald of Tradeston: So focus on the mass rather than going for the
small number of superfast users?
Mr Mitchell: Indeed. If you look at the red and orange areas, we are probably not going to
be doing that with too many existing copper lines so there is a role for radio, there is a role
for a hybrid network. There is another anomaly. You will notice the big green patch in the
middle there. This is probably of no surprise to you, but that has four information super
highways running past it. Goudhurst is on the main link between London and Folkestone and
we have these large pipes going through and around the edge of the village that are strategic
assets for the large global ISPs like Level 3, Global Crossing, Cable & Wireless and a long list
of them.
One of the real opportunities we have to break the back of this is to recognise that the old
world thought in two dimensions. There were lines into the exchange and then there was
the access network that was the exchange outward. The internet works in three networks.
There is the internet, there is what is called the middle mile and then the access networks.
The middle mile is responsible for backhaul. I do not know if this is a term you have become
used to in studying this. Backhaul networks become absolutely critical. So, although we have
several motorways running through the village, we have no on and off ramps to get down to
the village. Within Kent itself we do not have just one of these; we have many of them.
Within Kent itself one of the great opportunities we have is to create some on and off
ramps into those information super highways.
Q88 The Chairman: Is that easily done?
Mr Mitchell: It is. Not quite as easily as I think Peter Cochrane said last week about a
screwdriver. I have had it costed. It is going to cost £100,000 to get into one of those
networks, at a maximum. But if Government is going to put effective money into this
problem, one of the greatest things it could do is to define these breakout points, get behind
them and then make them open access. Open access is another muddled debate not helped
by Europe. The openness must come in the middle mile. The access network itself should be
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competitive and people should be allowed to lay their own networks and possibly to begin
with not opening them up.
Q89 The Chairman: Could you say a bit more about the middle mile? I understand about
the open access point, I think, but what bit of the equation is the middle mile?
Mr Mitchell: Could we go a few slides further on? I think in pictures—you will have to
forgive me. I do not know how you are going to transcribe it. Here we have a complicated
picture that I am going to explain to you. On the right-hand side we have the users in the
white boxes. There is a mobile phone at the top, there is a home in the middle and there is a
business at the bottom. You then have, working back from the right-hand side, an orange
mast-looking-like affair, which is a mobile mast, and a BT cabinet. You have to just imagine
there are lines and connections and radio waves going between the lot of them. Then you
have your BT exchange, and then you have your internet. The middle mile is effectively a line
that connects, much like that red box down the bottom, from the internet through to the
BT cabinets or to the mast and it provides internet connectivity between the main internet
and the breakout point for that final access network.
That is a key design point that has been ignored by Ofcom, by the current franchise model
put forward by BDUK and by most of the local authorities who have put bids into BDUK.
That is quite convenient for BT because BT subsidises all its fibre into the back of its cabinets
by calling it core network and therefore not being regulated. No other provider can provide
that kind of subsidy into cabinets, which is basically why the Rutland business model failed. I
do not know if you are conscious of what happened in Rutland, but they tried fibre to the
cabinet and it just did not stack up economically because they could not lay fibre into that
cabinet and make money on it. The regulator has been—I do not know; I will shut up.
Q90 Lord Clement-Jones: You talked about critical utility, but you were talking about
the rather lower level of megabytes per second at that point, I think, 2 Mbps or whatever.
But in a way, just by talking about open access you have opened up a much different
possibility and you could go further perhaps. You have listened to what Peter Cochrane had
to say. He thinks we are being grossly unambitious—
Mr Mitchell: He does.
Lord Clement-Jones: —in terms of the speed and the capacity. 24 Mbps is not enough,
frankly; we should be far more ambitious, given that a change of strategy, as you have
described and he described, the open access strategy, could deliver a very different world.
Mr Mitchell: It could, but I think we have to be practical here. We are on a course. The
current Government is halfway through a term; it needs to implement something. I have
spoken to a number of people in the industry who, on balance, think that the costeffectiveness
of the current plan is okay. There are people who believe that a natural
monopoly in the final third is probably the answer anyway and that BT is probably the
answer to that.
Q91 The Chairman: The final third is the middle mile?
Mr Mitchell: The final third is the term used to describe effectively where I am in rural Kent
where you are not in the first half, which is competitive, because it has Virgin Media and
other operators—you are not in a city. You are quite a long way either from a cabinet or
your exchange has not been upgraded to ADSL2+. It is a fuzzy term but of the country as a
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whole, it is the last third who have the lower access speeds and the lower availability to the
internet.
Q92 The Chairman: If you start with the final consumer, how far back in towards the
core of the internet does the final third arrive, through the cabinet or by BT exchanges?
Mr Mitchell: Yes. Where I am the BT exchange is on ADSL technology. It is not even on
ADSL2+ so the limits there are 8 Mbps, but you will notice from the grey blobs on the map
most of my part of Kent is. So this is where the percentages become meaningless and they
are as bad as the whole debate around “up to”.
Q93 Lord Clement-Jones: Is this not where the strategy, you are saying, is to keep on
course because then you will be able to solve that particular final third?
Mr Mitchell: I have clients in Northern Ireland. BT has made a massive difference in
Northern Ireland. Northern Ireland has one of the best connected rural setups going. It is
attracting inward investment; technology companies are moving there because of it. I am a
great supporter of what BT has done within the constraints that it has, but I think we need
to be more ambitious in the longer term. This is the kind of balance we have to make. So
rather than criticise what is up to 2015, the group that we have got together, including
INCA and others, have said, “Look, there is no point in criticising what is there, which is
going ahead. We might be able to tweak it a bit, but let’s look at the 2015 to 2020 time
horizon”. I think that is where we need some new thinking, new designs, new way of
franchising the model, and the franchise model to me is key. The next slide up is the whole
way that we franchise or license out this next wave of development, and I think we need to
put some serious thinking behind that.
Q94 Lord Clement-Jones: That is the point when you are talking about much higher
speeds. You are talking about maybe a universal service obligation for higher speeds and so
on.
Mr Mitchell: Yes. On a geographic level probably Scotland and Northern Ireland and
Cornwall and Wales are good blocks for playing with. I think there is a challenge at the
moment with the whole BDUK process. There are so few bidders, which is another
problem, but that aside, the English counties are probably too small. I think in terms of
getting rid of the RDAs, the current Government has thrown the baby out with the
bathwater. Maybe nine is too few, but certainly England needs to be thought about in terms
of sensible blocks. Just as with water you would look for the natural water courses and
valleys and things, telecommunications has a similar topography that needs to be designed
into the overall franchise model. We need to include mobile and fixed with this funny thing
we have in the UK where fixed and mobile are kept separate. It brings you to the point
where—certainly Michael Foreman and I have spent many hours debating this—the idea of
creating some sort of local internet exchange, a local place where the backhaul is delivered
to that is not necessarily the telephone exchange, becomes very interesting. On the righthand
side of this model the next slide should show that there are these new types of
telephone exchanges that are emerging. They are internet exchanges, for want of a better
word.
At the moment we only have five internet exchanges in the UK. There is London, which is a
mega one; there is Amsterdam, which does not really count but is the biggest in Europe;
there is Manchester; there is Leeds; and there is Edinburgh; and then Dublin also has one.
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We need many more of these in order to get to the next wave of internet development. If
we took, as a nation, a clear and decisive objective as part of our overall programme to
create 100 internet exchanges across the country, we would be spending our money much
better, I believe, than this current ultrafast cities thing that we have, which is rather awkward
and sitting on the edge of the BDUK programme as something that is almost
unimplementable.
Q95 Bishop of Norwich: Can you explain exactly what an internet exchange is? I am not
sure I understand.
Lord Clement-Jones: And the difference with the cities thing you have just talked about.
Mr Mitchell: Sure. I hope I am not being too outrageous here, but I think it is important
that people speak their mind on this. So, going back to the internet exchange, a good
example is how the internet has developed internationally so far. Back in 1999 I was
fortunate enough to help create Level 3, which is a big global ISP system across Europe. They
have, effectively, data centres or collocation space that they allow their customers to come
in and put computers in to serve up data for the internet. Effectively that is what we are
talking about.
As time has gone on those internet exchanges have differentiated themselves by doing
particular things. There is a good example in terms of a company called Equinix who have a
big data centre or two outside Slough and they were very early in identifying the opportunity
in the UK to create not just an internet exchange but financial exchanges that relied on the
internet and they specialised in financial exchanges. They then moved on and they have some
that are media friendly so they are very used to handling large amounts of content.
The opportunity for the UK is to allow new internet businesses to be created around these
internet exchanges, and it is a bit like an incubator. In Germany, they are top down, so they
force you, “If you want to be in the content-moving business, you have to move to
Hamburg”. I am not suggesting that. This thing could grow organically as we go. Last week I
was in Manchester. We are looking at a bilateral arrangement between Northern Ireland and
Manchester and ways we can trade services in the digital media industry. This is all without
Government intervention at the moment. We would like some going forward to fund the
initiative, but at least initially industry is waking up to the fact that we can differentiate on a
regional basis by getting cities talking to one another. I think, again, it is a much smarter way
of developing this whole city strategy than just giving each city £10 million and telling them
to get on with it to give to BT to put out more cabinets. It is not the point.
Q96 Baroness Deech: Just a quick question. Some of us around the table are dinosaurs,
but is enough being done at school and university to educate people? You have already
mentioned there are not enough engineers. It is not enough to know what is going on now;
they need to able to see ahead. Are we providing that education?
Mr Mitchell: I am not an academic. I think there are people better qualified than me. I
gather we are not training enough engineers. I have an engineering background, but I have
learnt more than I ever learnt out of university. I did aeronautical engineering and things at
university that were terribly interesting at the time, very mathematical, and I have forgotten
it all now. There is a practical side to this at the deployment level of getting people who do
not need to be that highly qualified. Getting up a telegraph pole and stringing wire together, I
did that way back. You need an apprenticeship scheme, for want of a better word, and then
above that people who have the engineering skills.
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Q97 Baroness Deech: Yes, but to have the vision to go forward, ought we to be
recommending that there be more education in this field, or can you say people can leave
university with a degree in engineering and they will learn it as they go along?
Mr Mitchell: For every person who leaves with a degree in engineering we need 10 behind
them helping to deploy these networks and then we might get there. We have a great
opportunity to get a lot of people back to work doing this stuff. It is practical. It is the sort of
thing young men particularly enjoy doing; it is challenging, as you are out in all weathers, as I
was describing, and you are training in the snow. The way that, unfortunately, the industry
has restructured itself with outsourcing everything has made this whole thing become
slightly more difficult but it is certainly there.
I think a national broadband—and I do not really like the word “broadband” either because
it has so many connotations—or national infrastructure access plan, much like they do in
China, is not perhaps such a bad thing, where we calculate the number of engineers we need
and we calculate the number of people we need to get on the back of diggers and lorries.
We had another project in Kent last week that has this amazing bit of kit that will dig a
trench and slot cutters—as Peter Cochrane was saying yesterday, men with toys and all that
stuff. Forgive me, this is a male thing here, but there is an enormous amount of potential
there to get behind a plan that could be tremendously powerful in bringing the economy
back to its knees.
Q98 Earl of Selborne: You are touching on how you engage at the level of community.
You referred earlier to the need to engage the local community, and in your green patch in
your map of Goudhurst you suggested you could quadruple the broadband investment by
engaging the community. I was not entirely clear how the community was going to be
engaged in order to achieve this. Is this the answer, that you are going to bring in tackle like
this?
Mr Mitchell: Can we go back a few slides? There are three layers that you can engage the
community on. The base layer is the digging and the physical work, and this is the passive
infrastructure. At the moment you have probably heard of this PIA—passive infrastructure
access—product that BT offers, or you may not have, but that is a critical layer in terms of
BT opening up its network. At the moment that is only offered out in the final bit, the access
network. So the opportunity for new service providers to emerge, engaging the community
to provide internet access into communities—so it is, if you like, fibre to the community as
opposed to fibre to the home—is a great opportunity, and that is very physical. At the next
layer up you have the more technical world of advanced electronics where you are putting
electronics on either end of the network and making sure that the two bits talk and that
they are tested properly. Then at the final level you are talking about the conventional
service provision layer, which is about making new products, pricing them, attaching
customers to the network and billing them.
So there are three distinct layers that communities can take in this. Some of the models in
some of the trials that have been done so far in the UK have muddled a lot of those up and
as a result their commercial models have failed somewhat. In order to do this properly, I
think you would have to think through and design a proper scheme but allow people to plug
into it.
Q99 Earl of Selborne: If I could just take you back to your Goudhurst rural model, here
you have a community and I am sure you have some rural businesses who need wide-
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spectrum broadband because they want to do video-conferencing and all sorts of things.
What they need surely is fibre optic cables straight to their business. Is that right, or am I
missing something?
Mr Mitchell: They need internet access. I struggle with this fixation on fibre in the final third
because it is so bloody expensive. There are ways to deliver high speed internet access into
rural communities not using fibre that are perfectly feasible. Point-to-point radio is a
perfectly feasible solution. There is a big supply-side push by the fibre part of the industry to
sell as much fibre to anyone who wants to buy it as possible. But I believe that over 90% of
the fibre in this country is unlit. So one of the things we could do—Peter Cochrane’s
calculation is that every community is within 1 kilometre of fibre; certainly we are within 1
kilometre of fibre—is create these on ramps. Currently the UK is one of the very few
countries that taxes you to light up fibre. In the Netherlands they do not do that; they tax
you for having dark fibre that is not lit to encourage you to light it. I think that many of our
incentives around how we incentivise service providers to get in at that blue bottom layer
and get this passive infrastructure active and working for communities is another missed
opportunity.
Q100 Lord Gordon of Strathblane: You said that fibre is so much more expensive, but
I understood that 80% of the cost was really the civils, the laying the thing.
Mr Mitchell: It is, yes.
Lord Gordon of Strathblane: Surely fibre is not that much more expensive therefore
than copper.
Mr Mitchell: No, but the copper is in the ground already. Where you are looking to
upgrade a rural community, a perfectly valid plan is to put a radio link in for the first year or
two. For instance, if we go back to my Goudhurst map at the beginning, you will see right at
the top there is a school hat with a black box at the top. That is Bethany School. They are
the largest internet user in our community. They have 450 users online during school hours.
There are 400 students and 50 academics. They have spent a large amount of money putting
their own fibre optic network into the school, and they have a 7 Mbps backhaul link to the
main village of Goudhurst, which is a radio backhaul link. They are a prime candidate to put
fibre in.
If you allow fibre to follow the demand over time—and this is where BT’s on-demand
product is not such a bad idea; it is just not costed very easily to encourage deployment—
then you will start to reinforce the high users initially and then back that up eventually.
Further down—the two other hats—that school asked to put a large fibre link in recently
and it was going to cost £250,000 just to dig the fibre in. That was with BT and the exchange
is only about 2 or 3 kilometres away. So the way that the industry charges communities to
get this stuff in is abhorrent. BT will subsidise some of that if you get your digger out and
you get your JCB out. In the community there, a farmer wanted to have in his fields very
complicated spraying equipment that was going to knock into telegraph poles and he got BT
to agree that he would dig the trench, he would lay the duct and they would take out four
telegraph poles. He did all that for free for BT and now BT goes underground not
overground. In a local sense BT has the mechanics to work with communities to get this
stuff in but they are just not very clear about how they are going to do it in scale. I think
they need to be encouraged to work with the communities.
The other big issue and the big blockage is what is called the build and benefit model. The
idea is the community builds it, digs the holes, gets everything there, and then BT benefits
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because the whole thing goes on to BT’s balance sheet. There is no way currently that BT
will accept joint assets within a community over a long period of time. If only we could get
BT and other investment vehicles in to accept, much as we did in the early part of the cable
industry, that innovation at the early stages requires joint investment not monopolistic
investment, we would get a lot more of this fibre rolled out much more quickly. We have to
come up with a mechanism to do that.
Q101 Lord Skelmersdale: Surely all houses and businesses are already connected. They
are connected usually by poles, either because of electricity or because of telephone. What
is stopping those poles being used for any other purpose?
Mr Mitchell: BT’s passive infrastructure access product as it relates to poles and ducts only
allows you to create an access network. The obvious thing to use the poles and the ducts is
to distribute the internet closer to communities. I live in a hamlet where if we could get a
large mast we could probably provide a wireless scheme and get a big kicker. So the answer
is nothing is stopping people building access networks. The price point is pretty prohibitive
and the uptake on the PIA product has not been that great. One of the local companies in
Kent has been trialling it and they think it is pretty good. But there are costs associated with
using existing poles and there are health and safety issues. Where I am, a lot of the
telephone lines go down power cables so you do not want to put any old Tom, Dick or
Harry up there.
Q102 Lord Skelmersdale: That is more than digging trenches, is it?
Mr Mitchell: No, it is still cheaper than digging a trench.
Lord Skelmersdale: Yes, it must be.
Mr Mitchell: Yes, still cheaper.
Q103 Lord Skelmersdale: But there is no open access, as I understand it?
Mr Mitchell: No. Well, BT has this thing called Openreach and you would assume that is
open access. It is not open access. It is open at one end and closed at the other. So, within a
community point of view, we are closed. At the other end it is open to the big ISPs but if
you are a local network and you dig your own local network it is impossible to connect back
to Openreach and offer up that asset, that piece of extended network, back to BT. They will
not accept it. That is, again, part of the business model that would be very interesting to
change. I am not sure how you would change it.
Q104 Lord Skelmersdale: Do you think it is a matter of regulation? Does Ofcom have a
part to play in this or not?
Mr Mitchell: Yes, I think it would. That is to a level of detail that we have studied, but we
have not gone down to the “how”. However, we see that as the issue. But certainly by
creating these new internet exchanges, which are open at both ends, it would force BT to
join the party. So I think that you could create a new environment by looking to the future,
creating these new internet exchanges and then just saying, “If you want to use your
network, come and join in”. That has happened in the Netherlands and there are cases
where that has actually happened quite well. They are trying to do this in Australia and other
parts of the world that have these NBN—national broadband network—schemes that are
very expensive and up until now are not proven. There is a whole spectrum of opportunities
here in terms of how we could do this. I think that comes back to the design and I do not
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think there is any one right way. What I have found with Goudhurst is that even within a tiny
parish of 11 kilometres by 5 kilometres, we are having to deploy about three or four
different systems to get to the sorts of levels that we want. This is an engineering problem.
Just as if you are going to build a bridge you do not build it just out of concrete—you use a
bit of steel, you use a bit of tarmac and everything else—I think in building these networks
this fixation around fibre has somehow missed the point in terms of how we deploy access
networks.
Q105 Bishop of Norwich: Can I take you back to open access, which I thought I
understood but it is getting more complicated as time goes on as far as I can see.
Mr Mitchell: It is.
Bishop of Norwich: Can I establish that you think wholesale open access to both dark and
active fibre would create a comprehensive national network, or is that too simple a concept?
Mr Mitchell: I think it is at one level too simple. The way I would choose to do it is to say,
“Let’s forget our bipolar old world telephone exchange access network thing; let’s move to
the internet”. Where this could be most effective is in opening up the middle mile. The
openness that Europe puts down on networks is rarely due to Government money. There is
quite an interesting case in Holland at the moment where Neelie Kroes, the European
Minister for this whole area, is going up against the Dutch Government, who are trying to
force the cable networks within Holland to open themselves up. We have a similar situation
here in the UK where Virgin Media is not open, and it has no intention of being open.
Why should you apply a whole set of rules to these local networks where you are really
disadvantaging them in the early stages of their growth where they have, in our case, a
network? Sure, it is going to be open if BT chose to come and connect to it, but we know
they will not. It would be nice to encourage them, but effectively the competitive advantage
of any scheme we put into our community is that we are buying time and we will hope to
get a percentage of the community, perhaps 30% to 40%, on to this network, maybe more if
we are using this one-to-four ratio of community engagement, in a way that we can
provide—I hate to use the words “local monopoly” because it is not a monopoly; there are
other choices within the community—a local advantage, as opposed to a local monopoly.
The key to me, and I have thought this through quite hard, around the open problem is the
openness of the middle mile, which is the connection back to the internet. If that can be
designed in a way to give each community a chance to get to one of these community hubs,
fibre to the community, and that itself is open, can be provided by anybody, we would then
make a massive leap forward in terms of the way that we deploy the—
Q106 Bishop of Norwich: Can that be done by regulation or incentive?
Mr Mitchell: I think it can. A bit of local town planning, local authority planning.
Q107 Bishop of Norwich: Why are we so blind to that?
Mr Mitchell: We are blind because we have nationalised this industry, or renationalised this
industry—and I do not use it in the Thatcher sense of nationalisation and denationalisation. If
you look at the actual organisational structure of BT and Virgin Media, they are incapable of
taking on any local nuances in terms of their products. If you wanted to put a Virgin Media
mast on top of Norwich Cathedral, they would blow a gasket; they could not do it because
they do not have a product that is masts for cathedrals. They are very tramlined.
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Bishop of Norwich: The Diocese of Norwich does have a company called Why Spire.
Mr Mitchell: In fact we are looking at our church. I noticed that last week you were talking
about this. Church towers are a fantastic asset. In fact, where we live we are on the hills in
Kent. Herefordshire have taken some very large strides in terms of using church towers.
When you take it down to a local community, this is where you get the community
engagement and the church has a massive role to play in this, it really does, in terms of
unlocking some of the potential here.
Q108 Bishop of Norwich: One of the interesting things when we heard evidence from
Finland was, if I remember it correctly—I was not here but I read it—that the larger
providers were no use when you got to places of considerable sparsity but they had
significant local providers for whom a smaller profit margin was acceptable. Is that—
Mr Mitchell: Absolutely. Let me give you an example in Kent. The scheme that we have
gone into that we won is a scheme run by Kent. They have, I believe, between seven and
nine suppliers on their list, which they went out to procure last year. They have a range of
services and we have had back—I cannot tell you the result because it is still under
procurement—a range of very interesting bids, about five or six bids, coming back, a range
of technologies, all very interesting in terms of how they would be funded. We only have
£100,000 in the grant so they have had to mix and match technologies. Full fibre deployment
for our tiny little parish was going to cost between £1.5 million and £2 million. We went
back into the community to try to raise that kind of money. In fact, we have somebody who
used to be one of the three founders of TalkTalk in the parish, and he has done his business
planning well because he said the return on investment for these fibre networks in rural
areas just does not stack up so you have to deploy hybrid networks.
We have nine companies interested in the Kent scheme. I do not know how many BDUK
has. I hear that it is possibly three or maybe less. So at the national level we have far fewer
people being allowed to play than at the local level, and one of those providers in Kent
comes from Spain because under European rules we had to open it up to anybody in Europe.
So not only do you have the local providers but you also have this quite interesting mix of
other national providers coming in, because the scale is not massive. They do not have to
employ armies of engineers; they can come in, do a job and go away so the diversity
becomes really interesting. We need to encourage diversity in this next phase of
development and find ways to encourage local approaches, which we can do within the
current franchise model if we are flexible enough.
Q109 Baroness Fookes: I am particularly interested in your Goudhurst experiment. I
live not far away and I have spoken under our Peers in Schools scheme at Bethany School.
Mr Mitchell: Excellent.
Baroness Fookes: So I have a particular interest in it. We have been told that in the next
Parliament there might be an extra tranche of public money available of perhaps £300
million, but we do not know for certain. Could you see how that might be used to advantage
in some sort of collaborative effort for local projects such as you have been describing?
Mr Mitchell: I think so. Could we go to the almost final slide, because obviously it is time to
start wrapping up? We have talked a bit about franchise models and the way that counties
are now taking control of their own broadband plans. I think that is a good step. Some
counties need a lot more help than others, and I think we have developed a kind of queuing
system, which is going to have its own ramifications. We have talked about how this money
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Objective Designers – oral evidence (QQ 75-114)
might be spent in some of the access networks but I think there are certain enablers that we
also need to consider when we are planning this national investment of national taxpayers’
money as opposed to local money that would be from the local community. If we can get
that blend and that mix right of local schemes feeling empowered enough to create
community funding models that are reasonably well understood and reasonably robust, and
match that to some of the national moneys that are putting some of the enablers in—not
just trying to put money into local schemes, which to me is a mismatch of objectives—I think
we could get the right blend.
If we have, say, in the order of £300 million, how we design the interventions to make that
money most effective is a debate well worth having. I would suggest these four points on
here, in terms of the franchise model, the local exchanges, and these middle-mile breakout
points. If we are going to design a motorway system for the UK, let us get the on and off
ramps right so you can get access on to the motorway if you are a local thing, and let the
local counties worry about the A and B roads and get them empowered to start sorting out
some of the local planning issues that require fibre into the community. I do not know if that
answers your question.
Q110 Baroness Fookes: Yes, it is certainly very helpful. Would you see some actual
matched funding arrangement that if the community raised X amount, the Government
would match it?
Mr Mitchell: One of our schemes has certainly looked to that sort of matched funding. I
think one of the troubles of matched funding at the national level is that BT and Fujitsu are
the only two players that have shown any interest in matched funding because the figures are
so big.
Q111 Baroness Fookes: I was thinking of this local level you are talking about.
Mr Mitchell: I think at the local level definitely. We have pilots. I do not know if you are
conscious of the B4RN local initiative up in Cumbria, which certainly Lord Inglewood is close
to, where I gather they are raising thousands of pounds a week for a local scheme. It
requires a degree of local intelligence and a local knowledge to drive it through. We have
another one in Crockenhill, locally in Kent, that is out there now looking at providing local
businesses. One of the other insights that is useful is that when we did the survey for
Goudhurst we found that the old world industry splits business and residential—business
and consumer—in terms of how it sees the market. We found that there was a massive
untapped, misunderstood part of the market called home-working and 60% to 70% of the
houses used their internet access neither for home alone nor for business alone. They used
it for home working, and I am one of them. I left big corporate three-and-a-half years ago
and I rely on it. I set my own company up 15 years ago, and I just could not do what I do
now.
So the economic driver to get this stuff right locally gives people an incentive to want to
invest in the local networks and, yes, there is an opportunity to match fund and there are a
number of ways with tax schemes for rich people. Forgive me, I do not have enough money
to know what they look like, but I am told there are those sorts of schemes out there that
are very attractive if you are a long-term community investor wanting to invest. After all, if
you look at the original telephone exchanges, why we have so many is that the local lord of
the manor said, “Well, I am not going to have that parish over there with a telephone
exchange; we want one”, and so there was a race. I think we need to create a race to fast
broadband, and that is effectively what we did in Goudhurst. We were triggered by this race
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to infinity. We will never get to infinity, but it is good to get on the road and start training
together.
Q112 Lord Bragg: What do you think we can learn more broadly from the broadband
infrastructures being implemented across the rest of the world, apart from abolishing BT?
Mr Mitchell: No, I do not think we should abolish BT. I think BT is a great asset. I think BT
needs to be put inside the camp, not treated outside of it. I will be contentious here. I do
not think you need to go anywhere. I think there are enough cases within the UK at the
moment at the local level, like Goudhurst, like B4RN, like NYnet. There is this conference in
Yorkshire today where there is a gathering of local community projects from all across the
country. We run these—that is, the extended community that I am part of, including BT, by
the way, who come—exploring the opportunities to make this stuff happen. I think that we
have spent too long looking at our navels, worrying about whether the Singapore model or
the Korean model or whatever is right or wrong. I think we need to create our plan, which
we own, which drives the right types of behaviours within the industry, and it drives the
right types of behaviours at national, regional and local level, to get this next wave right.
The current plan is a good first step there. I am not going to criticise it; that is not my role.
The real opportunity is to shape 2015 to 2020 and if we get that bit right we will not only be
best in Europe; we will be best in the world, and I am sure we can get there. I am an
optimist.
Q113 The Chairman: That is a fine clarion call to end on. I have just been asked to put
one question, which is where does your Goudhurst scheme get its backhaul from?
Mr Mitchell: We have not decided the supplier yet. It is likely that the chosen supplier will
either get it from one of these big trunk lines going through the village and we will have to
find some way of getting access to that £100,000 worth of unbundling, effectively, or we
radio beam it in from another node in the wide area network to the church tower and from
thereon distribute it. It is a hybrid network. We have not decided the final solution yet. The
answer is backhaul can be provided more cost effectively by point-to-point radio at the
moment than by fibre because of the way fibre is locked into these motorways. I do not
know if that answers the question.
The Chairman: I think it does, yes. What you are saying is that if you are near the
“motorway” and you can get an access point easily that is probably the best option but if you
cannot then it is node to node with radio.
Mr Mitchell: Yes, and I think that that is a perfectly acceptable short to mid-term solution.
Q114 Earl of Selborne: In the long term, does the radio present a constraint because of
the width?
Mr Mitchell: Yes, and the weather and various bits and pieces. In the long term if you look
at how these solutions deploy—like my Bethany School example, where you have a point-topoint
radio link with 450 users, they want a lot of bandwidth, they could easily carry 100
Mbps—then you will start laying fibre. There used to be a big computer in BT sitting in
Ipswich that would define which fibre line would be laid next on an economic model. This
stuff is not difficult to do. We just need to get it more open and understand that the middle
mile backhaul network is the thing that we need to invest in. We need to create these new
internet points of presence, these new internet exchanges that are not telephone exchanges,
and we need to take that control away from BT but still let BT play at the party, and then
we can set ourselves apart. We will design a new network that looks very different from the
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Objective Designers – oral evidence (QQ 75-114)
old network that was created back in the 1930s. There were 5,000-odd exchanges in the
1930s, and there are 5,000-odd telephone exchanges now. We have not upgraded the
infrastructure for 80 years. We need to be thinking about the next 80 years and the
deployment and the topography and the design to get it right for the new internet age.
The Chairman: Thank you very much indeed. You have been extremely kind. We have
taken a bit longer than we had allocated but I hope that was all right on your count.
Mr Mitchell: It was fine by me. I could carry on all day, as you can see. Thank you very
much for your time.
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Ofcom – written evidence
Ofcom – written evidence
Section 1
1 Introduction
1.1 Ofcom welcomes this opportunity to submit evidence to the House of Lords
Communications Committee’s inquiry into Superfast Broadband. As the United
Kingdom’s independent regulator for the communications sector, Ofcom’s principal
duty in carrying out our functions (set out in section 3(1) of the Communications Act
2003) is:
• to further the interests of citizens in relation to communications matters; and
• to further the interests of consumers in relevant markets, where appropriate by
promoting competition.
1.2 Ofcom has a number of statutory duties and powers relevant to superfast broadband
deployments. In meeting those duties, Ofcom:
• is required to secure the availability throughout the UK of a wide range of
electronic communications services;
• must have regard, where relevant, to the desirability of encouraging investment
and innovation in relevant markets; and
• must have regard, where relevant, to the desirability of encouraging the
availability and use of high speed data transfer services throughout the United
Kingdom.
1.3 When assessing the relative merits of different regulatory approaches to next
generation access, it is important we have an objective against which specific
approaches can be measured. At a high level, our objective is to ensure that:
• timely and efficient market led investment in superfast broadband access
networks and services takes place across the UK, meeting residential consumer
and business customer demands. An environment which enables these
investments should be supported, where necessary, by proportionate and timely
regulatory intervention; and
• that there is a competitive environment for the delivery of superfast broadband
access services that facilitates innovation and experimentation with new types of
services and business models. This should allow a range of different services to be
developed and provided to consumers based on wholesale inputs.
1.4 These objectives lead to two main challenges for Ofcom: how to secure timely and
efficient investment in superfast broadband; and how, following investment, to
promote a competitive environment for delivering a wide choice of retail broadband
services to consumers.
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1.5 This memorandum is confined to those areas where the committee has sought views,
using the inquiry’s terms of reference for section headings. In some of those areas,
particularly the effectiveness of the Government’s procurement programme, we
conclude that it is not possible to offer any assessment. In others, such as the use of
headline speed as a performance metric, we outline some of Ofcom’s research and
current work.
Section 2
2 What changes in the use of digital infrastructure can be anticipated over the next 20 years
and how should these affect strategic investment in our digital infrastructure?
Demand for data is likely to intensify
2.1 Future customer demand for capacity and coverage of digital networks is likely to be
driven by a potentially unlimited appetite for data services, predominantly over the
internet and increasingly consisting of rich media content, including video. This poses
a number of challenges for network operators. Chief among these is translating this
demand into the significant incremental revenues necessary to justify the potentially
large scale capital investment programmes needed to satisfy it.
2.2 While growth in fixed broadband take-up has recently slowed, growth in mobile
broadband via dongles and smartphones is placing increasing demands on the mobile
access infrastructure. This trend is expected to continue; Ofcom consumer research
has found that 59% of smartphone users purchased their device in the last year, 190
and increased smartphone take-up is expected to be complemented by the use of
tablet devices for “on the move” consumption of media content.
2.3 Even though fixed broadband take-up may be approaching some form of plateau,
consumers are transferring increasing amounts of data. Ofcom’s recent Infrastructure
Report revealed that, on average, a UK fixed broadband customer uses 17GB of data
a month. Data consumption has increased seven fold in last five years 191 and CISCO
predicts a further three-fold increase between 2011 and 2015. 192 This trend is
supported by evidence that the currently limited number of customers on higher
speed packages tend to consume more data, as shown by information published by
Virgin Media on the behaviour of its customers on 50/100 Mbit/s services.
Consumer willingness to pay is not certain but new service needs are emerging
2.4 The intensity of broadband competition in the UK, coupled with the availability over
the last few years of a number of access technology upgrades at relatively low
incremental cost, has meant that consumers are accustomed to getting more for less
– potentially reducing their willingness to pay a premium for superfast broadband
services.
2.5 While there is a proven demand for more data volume per customer, current
evidence suggests that consumers are generally yet to see a pressing need for
190 http://stakeholders.ofcom.org.uk/binaries/research/cmr/cmr11/UK_CMR_2011_FINAL.pdf, p.47
191 http://stakeholders.ofcom.org.uk/binaries/research/telecoms-research/bbspeeds2011/infrastructure-report.pdf,
para 3.38
192 http://www.cisco.com/en/US/solutions/collateral/ns341/ns525/ns537/ns705/ns827/white_paper_c11-520862.html
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Ofcom – written evidence
superfast speeds that would justify the higher prices that network providers need to
charge for them. Currently, less than 5% of UK homes subscribe to superfast
broadband services, despite availability exceeding 50% of all premises.
2.6 However, the market is developing at a rapid pace with developments such as the
imminent launch of the YouView video service, the increasing number of connected
TVs able to take advantage of such services and the widespread use of WiFi-enabled
tablet and smartphone users off loading traffic from the mobile to fixed network in
the home (to avoid both mobile network congestion and traffic charges) leading to
much higher aggregate peak load in a given set of premises. This trend will inevitably
lead to an increased likelihood that higher speeds will be regarded as being an
essential “necessity” in order to achieve adequate performance in multi user/multi
device households.
2.7 As take up increases, it is possible to predict a virtuous circle, in which a greater
range of viable content-rich services stimulates greater yet take up, leading to those
take up levels matching availability much more closely. While the existence or
potential for such a cycle cannot be taken for granted, it may indicate that current
levels of demand are a poor proxy for potential.
2.8 Additionally, demand for mobile data (see below) could also increase the demand for
enhanced fixed network capacity by both the in home off load phenomenon (see 2.6)
and the increased need for backhaul capacity from mobile network radio base
stations to their core networks.
2.9 Taken together, these developments are likely to drive greater levels of take up and
markedly improve the current business case for the significant capital investment
needed in new fixed networks.
Substantial investment in new fixed networks is underway
2.10 Notwithstanding this apparent lag in the crystallisation of demand, the UK’s fixed
networks have arrived at a point where substantially enhanced performance can only
be delivered via an equivalent step-change in the level of investment. Over recent
years industry has mainly relied on upgrades to transmission technologies to extend
the life and capability of existing passive assets (i.e. assets such as cables, ducts and
pole infrastructure used to deliver services, in contrast to active assets such as
electronics) at relatively low levels of incremental investment. Investment in passive
infrastructure can support the network for a number of decades. However when
parts of the network do need to be replaced, this may require very substantial levels
of investment (primarily due to the high cost of the necessary civil engineering to add
new ducts and poles and replace copper cables with fibre).
2.11 This is a particular issue in rural areas, where the amount of physical infrastructure
required to reach each consumer is higher due to low population densities. 90% of
UK premises are within 10% of the land mass and the remainder of the population
are much more dispersed (See Figure 1). Consequently, higher levels of civil
engineering per home passed are required in rural areas, owing to the longer
distances involved and the proportionately lower number of homes served by any
increment of infrastructure investment.
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Ofcom – written evidence
2.12 The population distribution effect is evident in the architecture of most UK
networks, with the final 10% of the population requiring a disproportionately high
percentage of total network capital costs to serve with both fixed and mobile
technologies. This is illustrated in Figure 2 and 3 for Fibre To The Cabinet (FTTC)
and Fibre To The Home (FTTH) respectively, which show the characteristic “hockey
stick” curve for costs in very sparsely populated rural areas. The result could be that
investment in next generation network enhancements for rural areas will remain very
difficult if overall commercial returns are marginal.
Figure 2: UK population distribution
Figure 2: FTTC roll-out economics
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Ofcom – written evidence
Figure 3: FTTH roll-out economics
2.13 Private sector investment in access networks depends on a small number of
companies, of which BT is the largest in terms of revenue and profit. For fixed
networks, the picture of investment needed to deliver super fast broadband over the
next few years is already reasonably clear. BT and Virgin Media have both made
commitments to capital investment programmes that address the passive network
infrastructures enhancements needed to deliver superfast broadband to over 66% of
homes by the end of 2014.This will satisfy the forecast growth in video content
consumption and other key fixed network capacity drivers for a many years and
compares favourably with most of our international comparators.
2.14 Nevertheless, a number of countries are expected to have a more extensive super
fast broadband deployment than the UK in the medium term. Although
circumstances differ, and a great deal of uncertainty remains, there are a number of
reasons why deployment may be more extensive elsewhere. These include:
• an extensive legacy cable industry which competes aggressively with the
telecommunications providers;
• substantial state intervention (e.g. Australia);
• a highly concentrated population, particularly in high rise blocks (e.g. Japan);
• an immature pay TV market (due to low cable or satellite availability) providing an
opportunity for network operators to monetise investments through “triple play”
(TV, telephony and broadband) consumer propositions.
Mobile network capacity is set to improve
2.15 The mobile sector is currently in a phase of infrastructure consolidation and
optimisation. Predicted coverage of current mobile networks is reasonably goodfor
voice and, in urban areas, data services, but this is not fully reflected in actual
consumer experience.This is illustrated by the mobile coverage issues identified in
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our Infrastructure Report last year. The availability of additional spectrum,
(800MHz/2.6GHz) due to be auctioned beginning later this year and the adoption and
use of more efficient technologies such as Long Term Evolution (LTE) by operators
should improve overall coverage and data service performance, but operators may
still need to build more masts and other infrastructure to meet demand since:
• the capacity of a mobile cell is defined by the amount of spectrum it utilises and
how efficiently it is used;
• capacity per user can be increased by making cells smaller, thereby dedicating the
capacity to a smaller number of users. However this requires more physical sites;
• given the predicted rise in demand for mobile data it is expected spectrum and
new technology will not be enough to meet demand and more sites will need to
be built.
2.16 Mobile network operators are therefore potentially faced by similar “step-change”
challenges as those faced in the fixed sector and industry is focusing on meeting these
capacity demands. Rapid roll-out of 4G technologies is expected in urban areas
following the planned 800MHz/2.6GHz spectrum auction and award – this new
spectrum will help deliver greater capacity from existing masts. In dense urban areas,
fixed operators are developing “metro wireless” solutions using council owned assets
offering Wi-Fi and LTE access points at 100m intervals – “fibre to the lamp post”. As
an example, O2 was recently awarded a contract to deploy Wi-Fi on Westminster
City Council street furniture. In addition, home Wi-Fi connectivity to fixed
broadband offers mobile network operators the opportunity to off load data, easing
the capacity impact on their own radio networks. Virgin Media, BT and Sky are
active in this space and standards bodies are developing solutions to make connecting
to hotspots easier for consumers.
2.17 We anticipate improvements in coverage as a result of the Government’s and
Ofcom’s interventions:
• the Government is undertaking a £150m procurement to improve mobile
coverage in rural areas – concentrating on total outdoor voice not spots; 193
• O2 is proactively deploying 3G technologies using re-farmed 900mhz spectrum –
leading to improved coverage for data;
• Ofcom is consulting on a coverage obligation for one of the 800mhz licences to
increase access to high speed data in rural areas; 194
• securing access to fibre backhaul in rural areas can be cost prohibitive, but
synergies with super fast broadband in the “Final Third” are being explored by
BDUK and
193 http://www.hm-treasury.gov.uk/press_112_11.htm
194 http://stakeholders.ofcom.org.uk/binaries/consultations/award-800mhz/summary/combined-award-2.pdf
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Ofcom – written evidence
• Vodafone is testing open femtocell technologies in rural villages. Deployment on
telegraph poles and buildings with broadband return path brings 3G voice and
data at low cost.
2.18 As noted in 2.2 and 2.3, the rapid adoption of smartphones and tablet devices,
coupled with increasing consumption of video “on the move” gives mobile operators
the clear growth in market demand needed to justify new network investment, and
they will shortly have access to the spectrum and technology building blocks
necessary to satisfy it. There is caution about the degree to which consumers can be
convinced to pay more to meet the costs of investment, although this seems less of
an issue than in the fixed sector.
Section 3
3 Is the Government’s investment being effectively applied to develop maximum social and
economic benefit?
The Government’s procurement programme is advancing, with deployment
anticipated
3.1 As explained in Section 5, Ofcom’s framework for superfast broadband is aimed at
encouraging commercial investment and promoting competition. As a result of the
declared investment plans by both Virgin Media and BT, the commercial, market-led
deployment of super-fast broadband is predicted to reach approximately 66% of the
UK premises by the end of 2014.
3.2 For approximately one third of UK premises, known as the “Final Third”, we do not
therefore anticipate the availability of commercially-deployed superfast broadband for
the foreseeable future.
3.3 In October 2010 the Government announced plans for a £530m procurement
programme to bring superfast broadband to 90% of UK homes by 2015(including
those approximate first two thirds of premises). This initiative is being led by a
Government body, Broadband Delivery UK (BDUK) with Ofcom providing assistance
in a number of areas. 195 There are currently no plans to extend superfast broadband
access to the remaining 10% of UK premises, but this may change if deployment costs
fall significantly and/or further public interventions are brought forward.
3.4 The Government’s core funding is expected to be matched by local authorities and
the successful bidders, and will be complemented by additional grants from the
European Regional Development Fund and other sources in many instances. The total
investment in the Final Third, state funds plus commercial, is expected to be about
£2bn. In addition, there is the potential for a further £300m of central Government
funding after 2015.
3.5 The application of this funding is at a comparatively early stage. Local Authorities
were required to produce their local broadband plans by February 2012, but some
have yet to be submitted and accepted. 196 BDUK is currently establishing a
195 http://culture.gov.uk/images/publications/BDUK-Programme-Delivery-Model-vs1-01.pdf
196 http://culture.gov.uk/news/news_stories/8912.aspx
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Ofcom – written evidence
procurement framework against which Local Authorities can select a supplier, with
contracts expected to be in place by the end of 2012.
3.6 In addition, the Government has committed £100m to fund 10 “super connected
cities” across the UK. This Urban Broadband Fund is aimed at accelerating
deployment of ultra fast broadband (i.e. services nominally capable of headline speeds
in excess of 80 Mbit/s) and public access superfast broadband wireless in cities. Ten
cities will be granted support from a £100 million fund, with the four capitals and
Bristol, Manchester, Birmingham, Leeds/Bradford and Newcastle named as the
recipients in the 2012 Budget. 197
3.7 It is not, therefore, possible to assess the impact of this programme, and Ofcom may
not in any case be the appropriate body to do so. However, there is currently a
constructive level of engagement between Ofcom and BDUK, together with a good
understanding of objectives and risks.
Section 4
4 Is speed the best way of monitoring this?
Superfast broadband is generally defined by the download speed
4.1 Definitions of superfast broadband vary, but are generally based on the download
speeds delivered. Superfast broadband is generally taken to mean broadband
products that provide a maximum download speed that is greater than 24Mbit/s. This
threshold is commonly considered to be the maximum speed that can be supported
on current generation (copper-based) networks. In September 2011, Broadband
Delivery UK defined superfast broadband infrastructure as “infrastructure capable of
delivering speeds higher than 24Mbit/s, and superfast broadband speeds as “headline
download speeds of greater than 24Mbit/s”. 198 The European Commission’s Digital
Agenda sets coverage and take-up targets based on broadband at 30Mbit/s and above
and 100Mbit/s and above. 199
Download speed is the best single metric – but others are important
4.2 Although download speed may be the single best criterion for defining and
monitoring superfast broadband, other metrics are of course important in defining
the quality of the user experience. In addition to download speeds, Ofcom’s research
into broadband performance also collects data on a range of other performance
metrics including upload speeds, latency, packet loss, DNS resolution times and
failures, web-page loading times and upstream and downstream jitter. 200
4.3 Broadband connections of course work both ways, and it may be that a definition of
“superfast” should also include upload speeds, which are becoming increasingly
important as broadband users embrace applications such as cloud-storage, two-way
video communications and file-sharing. Similar criteria to that used for download
speeds could be applied – to be defined as superfast a broadband connection should
197 http://cdn.hm-treasury.gov.uk/budget2012_complete.pdf, para 1.224
198 http://www.culture.gov.uk/images/publications/BDUK-Programme-Delivery-Model-vs1-01.pdf
199 http://ec.europa.eu/information_society/digital-agenda/scoreboard/index_en.htm
200 http://stakeholders.ofcom.org.uk/binaries/research/broadband-research/Fixed_bb_speeds_Nov_2011.pdf
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have both download and upload speeds which are faster than those delivered on
current-generation (copper-based) networks. The fastest upload speeds delivered
over ADSL networks are 3Mbit/s. By these criteria, Virgin Media’s cable services with
a headline download speed of 30Mbit/s would be classified as superfast, as Virgin
Media offers upload speeds at 10% of the headline download speeds. Fibre-to-thecabinet
services would also in general meet these criteria, with BT Openreach’s
Generic Ethernet Access product offering upload speeds of up to 15Mbit/s. However,
it should be noted that the lowest price service fibre service offered by BT Retail
(More Broadband… with superfast BT Infinity) currently offers headline download
speeds of ‘up to’ 40Mbit/s and headline upload speeds of “up to” 2Mbit/s (its more
expensive product – Unlimited Broadband… with superfast BT Infinity – offers upload
speeds of ‘up to’ 10Mbit/s).
4.4 Research Ofcom commissioned from Sagentia in 2009 tested the effect on user
experience of variations in download speeds, latency, jitter and packet loss on a range
of applications including standard definition and high definition iPlayer, Skype and
different types of online gaming. 201 The conclusions showed that while the
importance of different metrics varied between applications, in general the average
jitter, latency and packet loss delivered by all of the UK’s fixed-line broadband
providers was, given sufficient download speeds, capable of delivering acceptable
performance for all applications tested. The exception was large-scale multiplayer
online gaming, where the requirements for very fast responsiveness make jitter and
latency very important metrics. 202
4.5 Therefore, Ofcom considers it appropriate to focus on download speeds in
presenting the findings of its fixed-line research, although there has also been an
growing emphasis on upload speeds in recognition of the increased use of services
where this is important. Also the higher latency typically associated with mobile
broadband could mean that it may have as significant an effect on the quality of user
experience as download speeds (for web browsing and particularly for online gaming
and VoIP): this was shown in Ofcom’s research into mobile broadband
performance. 203 It is also the case that the high levels of latency associated with
satellite broadband are likely to be at least as significant as download speeds in
determining the quality of the user experience.
Assessing the UK’s superfast broadband network
4.6 In December 2010 the UK Government set out the UK’s ambition to have the best
superfast broadband network in Europe by 2015. 204 To measure this, it proposed to
adopt a scorecard based on four headline indicators: coverage and take-up, speed,
price and choice. Figure 1 details the proposed indicators that Broadband Delivery
UK (BDUK), which is part of the Department of Culture, Media and Sport (DCMS)
has identified to be included in the Broadband Best in Europe Scorecard.
201 http://stakeholders.ofcom.org.uk/binaries/research/technology-research/NetworkQoE.pdf
202 For conclusions from the Sagentia research in relation to average performance of UK fixed-line broadband
providers, see: Ofcom, UK fixed-line broadband performance, May 2011
http://stakeholders.ofcom.org.uk/binaries/research/telecoms-research/bbspeeds2011/bb-speeds-may2011.pdf
203 http://stakeholders.ofcom.org.uk/binaries/research/telecoms-research/bbspeeds2010/Mobile_BB_performance.pdf
204 BIS and DCMS, Britain’s Superfast Broadband Future (December 2010),
http://www.culture.gov.uk/images/publications/10-1320-britains-superfast-broadband-future.pdf
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4.7 Ofcom has agreed that it will identify and collate the best data available from
European countries in order to compile this scorecard. This data will draw on those
collected by the European Commission, the OECD and other agencies. Wherever
possible we will use data that is in the public domain; however, in order to have the
most robust and up-to-date data it may be necessary to conduct specific data
collection or commission specific research. We plan to publish the first dataset in
summer 2012, alongside the next update of the Broadband Communications
Infrastructure Report.
Figure 4: Proposed measures to be included in the Broadband Best in Europe
Scorecard
Source: Broadband Delivery UK
4.8 The scorecard recognises that in order to assess the UK’s superfast broadband
infrastructure it is necessary to understand the wider context of supply and demand
for broadband services. There is no single metric against which to measure success
against the UK’s ambition to have the best superfast broadband network in Europe
by 2015. For example, widespread superfast coverage would be undermined as a
measure of success if take-up was constrained by high prices, or if a monopoly of
supply resulted in lack of choice for consumers and a subsequent lack of incentive for
service improvements.
4.9 Superfast broadband services co-exist alongside previous-generation fixed-line and
mobile broadband services. This affects the dynamics of competition as well as the
take-up and usage of superfast broadband services.
4.10 Focusing solely on the deployment of superfast services may be overly limiting
because there is no direct relationship between availability and take-up of superfast
services. For example, in the UK in November 2011 superfast broadband services
were available to around 60% of households, but only around 5% of households had
connected to superfast services. By contrast, Sweden has lower availability of
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superfast services (around 32% of households at the end of 2010), but higher take-up
(approximately 18% in June 2011). 205
4.11 Similarly from a public policy perspective, the take-up and availability of superfast
services should be seen in the context of the availability, take-up and performance of
previous-generation broadband. For example, according to European Commission
data, in July 2011 Romania had the fourth highest proportion of households in the EU
with superfast broadband connections, with 23% of households having a broadband
connection with a headline speed of 30Mbit/s or more. 206 By contrast, 4% of UK
households had a superfast broadband connection. But a broadband connection is
available to virtually all UK households compared to around 80% of household in
Romania, and over 80% of UK households have a broadband connection, compared
to under 50% in Romania.
4.12 BDUK also includes price and choice within its broadband scorecard. These are of
course fundamental to the market context of broadband services and may provide
insight into the longer-term development of the broadband market. High levels of
choice may in the short-term constrain the take-up of superfast services, as users
select services which best meet their needs but in the long-term are likely to
promote innovation and the availability of services which meet the evolving needs of
broadband consumers. The price of superfast services is driver of the take-up of
services – and the price premium for superfast broadband compared to previousgeneration
broadband is a key metric in determining levels of take-up.
Section 5
5 What is being done to prevent a digital backwater in areas where the roll out of superfast
broadband is not commercially attractive?
Commercial investment is continuing
5.1 In October 2010, Ofcom set out the regulatory framework for superfast broadband.
This framework aims; (i) to promote commercial investment in superfast broadband
and (ii) to promote competition in the supply of superfast broadband services to
consumers.
5.2 To promote investment, Ofcom elected to give companies who invest in superfast
broadband networks pricing flexibility on these new services. It also required BT to
open up its infrastructure so that other companies could invest in upgrading this
network. To promote competition, Ofcom required BT to provide wholesale access
to its new superfast broadband network, where available, on non-discriminatory
terms.
5.3 There has been considerable commercial investment in superfast broadband over the
past few years, with plans to continue these investments into the future. Virgin Media
has upgraded its entire cable network, which covers c.50% of the UK population, to a
205 Ofcom, International Communications Market Report, pp227-233,
http://stakeholders.ofcom.org.uk/binaries/research/cmr/cmr11/icmr/ICMR2011.pdf
206 http://ec.europa.eu/information_society/newsroom/cf/document.cfm?action=display&doc_id=719
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Ofcom – written evidence
technology known as DOCSIS3 and is currently offering services up to 100Mbit/s. It
is continuing to invest in more capacity and has announced plans to double the speed
of all its services by mid 2013. BT has upgraded about 25% of its ubiquitous network
to a technology known as fibre-to-the-cabinet (FTTC) and is currently offering
services up to 40Mbit/s in these areas. It plans to continue upgrading its network,
using as combination of FTTC and fibre-to-the-home (FTTH), over the next couple
of years with the intention of upgrading c.66% of its network in total. It has imminent
plans to increase the speeds available over FTTC to 80Mbit/s and intends to offer
speeds of up to 300Mbit/s over FTTH.
But public intervention is required to ensure coverage in the Final Third
5.4 The combined coverage of Virgin Media’s and BT’s superfast broadband networks is
currently about 55% - 60%, as the two overlap to some extent. When BT’s upgrade
is complete, the combined coverage is predicted to be 66%, as it is believed that BT’s
network will entirely overlap with Virgin Media’s. At the current time there are no
planned commercial investments beyond this point. As mentioned in section 3, this
leaves about a third of UK without any planned superfast broadband deployment –
the ‘Final Third’. Broadband Delivery UK (BDUK), part of DCMS, has been setup to
allocate the central Government funds provided to address this issue, including
capturing the commercial benefits of such deployment, and to establish a
procurement framework.
Section 6
6 What role could or should the different methods of delivery play in ensuring the superfast
broadband network is fit for purpose?
Different technologies are suited to different service requirements
6.1 A number of different technologies are currently used to deliver broadband services
to consumers. For example: ADSL/ADSL2+ from the exchange, cable (DOCSIS 207 ),
VDSL from the cabinet (aka fibre-to-the-cabinet (FTTC)), fibre-to-the-home (FTTH),
mobile, fixed wireless and satellite.
6.2 In keeping with a technology neutral approach, any technology that is capable of
delivering the required service should be considered fit-for-purpose. Commercial
investors can then select the most efficient technology when addressing a given
situation.
6.3 The key to determining a short list of technologies is therefore defining the required
service. Here, the focus is often on peak speed, but this is only one of potentially
many service parameters. Other important parameters may include minimum
guaranteed speed and latency (propagation delay time).
6.4 The chosen service parameters, and more importantly their level, can therefore rule
out certain technologies. For instance the maximum speed achievable using ADSL2+
207 Data Over Cable Service Interface Specification
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Ofcom – written evidence
from the exchange is 24Mbit/s. Therefore, if the required peak speed is higher than
24Mbit/s then this technology is automatically ruled out. Equally, satellite has a high
latency, due to the signal being transmitted up to a satellite and then back down
again. This means that if low latency is a requirement then satellite is ruled out.
Technologies that rely on spectrum (e.g. mobile, fixed wireless and satellite) have a
finite, and limited, total capacity. Therefore, although often capable of achieving high
peak speeds, these technologies struggle to deliver high guaranteed speeds to each
customer.
6.5 The fixed technologies, such as FTTC, FTTH and cable, are generally capable of
supporting high peak speeds 208 and therefore high guaranteed speeds. They also have
low latency. For this reason, these technologies are often favoured. However, these
technologies are generally more expensive to deploy, particularly if you are building a
network from scratch. Further, their economics make them very costly on a perhome
basis in sparsely populated areas.
6.6 Given this understanding of the limitations and costs of the different technologies it is
common for policy makers balancing costs with aspirations to set a high general
service requirement but then accept a lower fall-back position in certain situations.
6.7 Any overall solution will inevitable involve a technology mix, and the optimum mix
will change as service requirements and technology evolve. An effective procurement
programme should aim to reveal the best technological approach, based on industry
expertise, rather than setting rigid criteria for the application of specified
technologies.
21 March 2012
208 Peak speed achievable using FTTC (VDSL from the cabinet) is dependent on the distance between the cabinet and
the end user.
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Ofcom – oral evidence (QQ 650-747)
Ofcom – oral evidence (QQ 650-747)
Evidence Session No. 9. Heard in Public. Questions 650 - 809
TUESDAY 19 JUNE 2012
Members present
Lord Inglewood (Chairman)
Baroness Bakewell
Lord Bragg
Baroness Fookes
Lord Gordon of Strathblane
Bishop of Norwich
Lord Razzall
Lord St John of Bletso
The Earl of Selborne
________________
Examination of Witnesses
Mr David Clarkson, Competition Policy Director, Ofcom; and Mr Steven Unger, Chief
Technology Officer, Ofcom
Q650 The Chairman: Can I extend a warm welcome to you from Ofcom together with
your colleagues? I will just for the sake of the record confirm that, David Clarkson, you are
the Competition Policy Director at Ofcom?
Mr Clarkson: Correct.
Q651 The Chairman: Steven Unger, you are the Chief Technology Officer and also the
Group Director responsible for Ofcom’s strategic approach to communications regulation?
Mr Unger: That is right, yes.
Q652 The Chairman: Thank you. Before we go into the hearing proper, just to let you
know that the proceedings are being televised. Now, first things first. Is there anything you
would like to say by way of any kind of introductory statement?
Mr Unger: Maybe just very briefly we might cover at a high level what we see our role as in
the matters looked at by this Committee.
The Chairman: Certainly.
Mr Unger: Broadly, I think we see the issues being discussed under two headings. There is a
set of questions that relates to investment, the investment that is required to ensure that
our infrastructure is fit for purpose. Then there is another set of questions that relates to
competition, the promotion of competition in the services delivered over that infrastructure.
It is important to note that we have duties in both areas, given to us under the
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Ofcom – oral evidence (QQ 650-747)
Communications Act, so we have duties to promote investment and innovation—those
relate, of course, to both fixed and mobile infrastructure—and we also have duties to
promote competition. We see both sides of both sets of issues.
It is also important to realise, though, that that to be of symmetry does not quite apply when
we get to the powers that we have in those two areas. In relation to competition policy,
there is a well established framework. We have both the established position with BT of
functional separation of BT Openreach, and we have a process where regularly we review
the access remedies imposed on BT and potentially other operators. That is a quite mature
framework. Essentially, we have significant levers with which to deliver against our duties.
It is worth noting, though, that in the area of investment it is more complex. There is a duty.
Ofcom’s role, I suppose, is broadly to make sure that there are no barriers to investment to
create a climate that is favourable to investment. But I think it is also important to be clear
that ultimately investment is for the commercial sector to determine. It is not something
that can be magically created by a regulator. To the extent the commercial sector does not
invest, in the end it is for Government to decide whether it is willing to fund additional
infrastructure. In that area, we work very closely with DCMS and BDUK.
Q653 The Chairman: Thank you. That is a helpful start. If I might begin the proceedings
by asking a question that in a sense very much arises out of all that, which is how do you see
Ofcom’s role in ensuring, “Availability throughout the UK of a wide range of electronic
communication services”? Specifically, what do you feel that the words “wide range of
electronic communication services” in fact mean? Do you think it is part of your job to
ensure that the Government’s strategy is the right one in order to bring about universal
access to superfast services? To what extent, in any event, do you think the Government
strategy in this regard is the right one?
Mr Unger: We clearly have an important role, given our duties. We have a particular focus
there. I would say the range of services is important. Perhaps the most important ones are
broadband, particularly superfast broadband; I would also say mobile broadband. It is
important to look at those two together. There are other services that are also important,
but those tend to be the primary focus. Last year we produced the first of our infrastructure
reports in which we set out, in advice to the Government, what we saw as the position in
the UK in relation to particularly those services. That said, I think as I said in my
introduction, there is no silver bullet to delivering universal access to these services. I think
it is important to take that duty but then think about practically what can be done. In that
work I would say I think we work with Government, particularly with BDUK. I do not think
it is quite for us to determine whether their strategy is right, but it is certainly of interest to
us, in so far as it goes to our own duties as well.
Q654 The Chairman: Do you think universal access is a priority among your obligations
in this regard?
Mr Unger: Yes, I think so. There is a question of detail as to what that means in practice
but, for example, the commitment to a 2 Mbps universal service commitment was something
we strongly supported. We strongly support also the work to get superfast broadband to
the first 90% of the country, yes.
Q655 The Chairman: Do you think the word “superfast” is really helpful or is it just
politicians’ puff and it sounds good in a political slogan?
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Ofcom – oral evidence (QQ 650-747)
Mr Unger: One can get too hung up on these definitions, and particularly one could get too
hung up on headline speeds as something that is, I suppose, symbolic. That said, having
targets that are simple to understand and communicate, is also useful, but it is important to
look beyond those as well.
Q656 Baroness Fookes: Looking at the practical issues and referring to the superfast
broadband access networks, in your written evidence you do not make much reference, if at
all, to what is usually described as the middle mile. Is there some reason why this is left out?
Mr Unger: No, there is not. David, do you want to describe in more detail what we do
there?
Mr Clarkson: Yes, sure. I think it is fair to say that it is more than just access. It is needing
to deliver a service.
Baroness Fookes: Precisely.
Mr Clarkson: A lot of people have said for many years, “All the problem is in the last mile”.
In reality, the competition problem extends much more than that. Probably the last 15 to 25
miles is more like the situation. This is something that we are certainly comfortable with
and, in fact, we do regulate both access and mid-mile, what we often refer to as backhaul. In
both those markets, where we find market problems we impose regulations. Those
regulations will normally take the form of an access requirement and, in addition, some sort
of charge control and regulated terms. It is fair to say that what we find when we look at the
markets is as we go from the core network, the central big cities and so on, we find in those
areas there is quite a lot of competition because there is a lot of aggregation. But as you go
further out you get less competition, so in the mid-mile there is less and when you go to the
access you get less again. But it is absolutely the case that we regulate both. I know you
probably have some follow-up questions, but just yesterday we published our consultation
on our findings in what we call the Business Connectivity Market Review. That includes an
assessment of all of the backhaul and the mid-mile networks as well.
Q657 Baroness Fookes: You would accept the importance that has certainly been
detailed to us by people giving evidence that this middle mile is very important and may, in
fact, have a considerable effect on the rollout of the super broadband?
Mr Clarkson: Yes, absolutely. It is definitely important, and it is definitely required for the
rollout of broadband.
Q658 Baroness Fookes: You have mentioned regulation, but what about
encouragement?
Mr Clarkson: To use the services?
Baroness Fookes: Yes. You could regulate to the extent where nobody wants to go into
it.
Mr Clarkson: Okay. What we find in the mid-mile is that in some places—not everywhere
because we find in the City of London there is quite a lot of competition—there is
insufficient competition. We find BT to have market power. Therefore, in order to
encourage people who may want to build networks that require those mid-miles, we
regulate access to the mid-mile part of BT’s network. BT is under an obligation to supply a
range of different mid-mile circuits of different capacities and different technical interfaces,
and to do that at regulated prices as well.
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Ofcom – oral evidence (QQ 650-747)
Q659 Baroness Fookes: Are you satisfied that they are meeting those requirements?
Mr Clarkson: Yes, I think so. The mid-mile regulation, certainly up to now, has been quite
effective and a lot of the mobile networks and a lot of the operators that use local loop
unbundling—the likes of TalkTalk and Sky—use that regulatory remedy quite extensively.
Mr Unger: It is worth emphasising, I think, that local loop unbundling relies for its success
both on the ability to access the copper loop at the exchange, but also on new types of
middle-mile technology at an appropriate price to enable competition. That was a very
important part of that.
Q660 Baroness Fookes: Such as?
Mr Unger: Particularly access to reasonably cheap ethernet transmission. That has I think
been where our main focus is, on ethernet transmission in the middle mile as a way of
providing cost-effective backhaul.
Q661 Bishop of Norwich: How do broadband prices in the UK compare to those in
other countries?
Mr Unger: I would have to take away the detailed question, but I think generally, when we
look at the price in the UK compared to other European countries, I believe we compare
well. My recollection, but I have to check this, is that in the most recent comparator study
we were number four across Europe; but I would certainly have to check that. Generally,
one of the strengths of the UK environment and the competition that exists is that it is given
a good pricing structure. That links, of course, to the fact that take-up is also reasonably
high.
Q662 Bishop of Norwich: We have received criticism that the ever faster, ever cheaper
model that Ofcom seems to promote ignores the need for substantial investment in building
and maintaining an advanced communications network. What would you say to that?
Mr Unger: There is definitely a trade-off that needs to be considered. For any model of
competition based on access remedies, access to BT’s network, that is why we have set out
our parallel duties at the beginning. It is always important to think both about the
competition and investment that we are trying to promote downstream of the access
remedy, and the investment that you also want to promote upstream of that access remedy.
It is worth noting that is an area that has got more complicated in recent years. If I go back
to when we last did our major strategic review of telecommunications, and the review that
led to the separation of Openreach, at that point in time our goals, in relation to investment
and competition, were quite closely aligned. That was because the investment that we were
trying to promote was downstream of the access remedy, and so was, of course, the
competition. The situation is now more complex because the key investments that are now
being made in the underlying infrastructure are largely upstream of our access remedies. We
do have to take into account the effects of regulation on the companies we are regulating.
Q663 The Chairman: Just so that everybody is clear, when you are talking about the
access remedies and how these things are upstream, could you just put on the record
exactly what you mean by that?
Mr Unger: Of course. What I mean is that at the moment we impose an obligation on BT to
provide access to a certain part of its network, a remedy that we call VULA. Essentially that
requires it to open up its passive infrastructure, and a certain amount of its active
infrastructure to its competitors. What that enables is competition in markets that are
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Ofcom – oral evidence (QQ 650-747)
downstream of those, in the sense that they are markets that build on that part of the
network but also add value. ISPs would take that network access and they would add value
to that network access using their own networks, their own infrastructure and their own
ideas about services. In that sense they are downstream.
Q664 The Chairman: Do you think that your powers over the bits of the active
infrastructure you talked about are wide enough? Are there bits of the active infrastructure
you think you possibly cannot regulate that it might be in the national interest to regulate?
Mr Unger: I do not believe so, in the sense that we are able to look at where there is
market power and where there is market power we are able to impose access obligations.
There are some exceptional circumstances where it is possible to impose access obligations,
absent market power, but that is the exception rather than the rule and that, I think, is the
way it should be.
Q665 The Chairman: You were giving the impression that the regulatory decisions that
you are now able to make are less able to promote investment than they were.
Mr Unger: No. It is simply that the nature of the investments that are now being made are
different. The investments that are now being made are in a part of the network that is
intrinsically not open to competition. There is no access remedy that will promote
competition in the provision of ducts, for example. What is driving investment in the
underlying passive infrastructure is actually end-to-end competition, so competition, for
example, between Virgin Media and BT. That is a good thing, but it is not something that is
created by regulation. In fact, one has to carefully think about regulation that there are no
unintended consequences.
Q666 Lord St John of Bletso: Could I just go back to what you said earlier on? You said
prices in the UK compare favourably to Europe. My understanding is that the BT price fibre
to kerb, superfast broadband, is around £14, whereas the price for KPM in Holland and TI in
Italy is only £13 for fibre to the home. Surely there is scope for prices to fall in the UK for
fibre?
Mr Unger: My comment was a general comment, particularly about current-generation
broadband, where I think we have had high take-up based on reasonably low prices. I think
there is another set of questions around the take-up of next generation access and the
pricing structure there. I think the position there is more mixed.
Q667 Baroness Bakewell: In your written evidence—we will stay with this question
about investment, if we may—you say that investment in the superfast access network is lack
of demand, and yet the operating costs of fibre is lower than copper and the core capital
expenditure is a lifetime of over 30 years. That all looks very favourable, so are there other
considerations that you have not paid sufficient attention to? Indeed, this expectation that
there is going to be a blossoming demand for superfast, is that not rather glib?
Mr Unger: Let me take the two questions in turn. First in terms of, I suppose, supply-side
benefits of deploying fibre, I think that is a difficult one. It has certainly been said that the
operational costs of fibre are lower than copper, and in some areas that may be the case. I
think there are two important points. Firstly, the upfront costs of the transition is likely to
be very significant, particularly if it involves an extended period of the parallel running of two
networks. There is a significant upfront cost. Secondly, in the long run there may be an
operational saving, but it is both uncertain and, frankly, a long way away. Particularly once we
start talking about potential operational savings 30 years away, at a modest discount rate of
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Q668 Baroness Bakewell: BT told us they have a 20-year plan.
Mr Unger: I think they talked about a 12-year payback.
Baroness Bakewell: A 12-year payback but a 20 year plan—
Mr Unger: They have a plan, and I think the point I would make, though, is that this is an
area where, because of the uncertainties I have just described, we have to be careful about
second guessing the company that knows the business best. Because it looks as if BT is
enthusiastic about deploying superfast broadband, and there are some quite practical
challenges in doing so. I am nervous about taking this idea of operational cost savings and
concluding from that that BT has missed the trick.
There is a second point about demand where I agree with you, though the story about
demand is, I suspect, quite complicated. It is quite clear that there is not a single killer
application but it does look as if there is a collection of uses that might over time drive
demand.
Q669 Baroness Bakewell: We have heard a lot of evidence to suggest that perhaps
there is a lack of investment, because other companies are frightened off by what is
perceived to be your bias towards BT.
Mr Unger: We certainly do not have a bias towards BT.
Baroness Bakewell: You are believed to have.
Mr Unger: I would be interested to see that particular statement. I think it is simply a
difficult investment case to make for anybody. It is a difficult investment case for BT. It is a
difficult investment case for others. BT has taken quite a long-term view, for example, on
payback. I think others are not even willing to take that 12-year payback period. It is just a
difficult investment case.
Q670 Lord Gordon of Strathblane: If it is a difficult investment case to make, is it not
equally a difficult case to justify government intervention and public money being invested in
it?
Mr Unger: I think that is really a question for Government, actually, but—
Q671 Lord Gordon of Strathblane: But you advise government quite a lot.
Mr Unger: Of course. I do think that in terms of our duties, we do have a concern if we get
to the point where there is a digital divide where commercial providers have got to the first
two-thirds of the country and the remainder of the country have nothing. That is a concern
for us. Yes, I think there is a concern. The question of the scale of government intervention
is for them, but I think we are supportive of it.
Q672 Lord Gordon of Strathblane: But would you agree that if there is Government
intervention it must be in a universality of provision basis? You cannot have Government
intervention that simply benefits cities or urban areas, or can you?
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Mr Unger: The bulk of the government intervention I think is about universality. It is about
getting superfast, however we define that, to 90% of the country and 2 Mbps to the
remainder.
Q673 Lord Gordon of Strathblane: Forgive me, 90% is not 100%.
Mr Unger: I agree.
Q674 Lord Gordon of Strathblane: In a way, the extra 10% is the most difficult and
most costly. I want to be quite clear that if we are intervening with public money, we are
talking about the same provision as we have in television, however uneconomic, that we
create transmitters that reach the remotest parts of the country. Are we talking about the
same thing?
Mr Unger: There is a very difficult challenge around the last 10%. Basically, the first 90% it
feels like the right target. The last 10% is just difficult because the cost of deploying fibre to
the home in that last 10% would be perhaps £7 billion or £8 billion. The trick there is to find
something that can practically be done for the last 10% that takes them beyond where they
are at the moment, but we also probably have to accept that it will never be quite the same
as, say, the centre of London.
Q675 Lord Gordon of Strathblane: Just to be clear, if superfast broadband were being
used for broadcasting—which is not technically impossible—it would be surely unthinkable
that 10% of the country are deprived of broadcasting.
Mr Unger: If I go back to the 2 Mbps universal service commitment, the rationale for that 2
Mbps was that that was sufficient to support broadcast quality video.
Q676 Lord Gordon of Strathblane: For one person, yes.
Mr Unger: Absolutely, so that was its starting point. Moving forward, I think in 2020 that
will probably no longer be sufficient. You get into this question of where you have multiple
users in a home and we probably need to go beyond 2 Mbps in the last 10%. There is a
question as to what that needs to look like.
Q677 Baroness Bakewell: Just to continue this point about investment, we all find it
very complex, this issue, and obviously you do, you are on top of it, but it is complex. Do
you think investors do not appreciate and they are waiting for the Government to make it
clearer than at present what their intentions are so that they can invest with confidence?
Mr Unger: I do not think so, actually. Investors have for a number of years been interested
in deploying infrastructure. I have worked in the past for two companies that both deployed
infrastructure. Investors are generally nervous about the risks that arise. There is a certain
amount the Government can do about that, but, if you are a regulator, it is very important
that we do what we can to provide regulatory certainty, particularly around issues such as
access to BT’s network. But in the end, many of the uncertainties around the business case
for superfast broadband are on the demand side. I think there is a common consensus
among most of the industry that most of the uncertainty is around the willingness of
consumers to pay a premium for these sorts of services. There is not a great deal that either
a regulator or the Government can do about that.
Q678 The Chairman: If there is this uncertainty, why do you suppose then the
Government is so convinced that we should do it?
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Mr Unger: What the Government is doing is trying to meet the gap between what the
market is willing to do, which is the first two-thirds of the country, and there is a particular
issue around the digital divide where it is absolutely appropriate for the Government to have
a role. Where the market stops and there is a digital divide, then it is absolutely appropriate
for the Government to play a role in filling that divide.
Q679 The Chairman: Just so I am clear, what you are saying, then, is that there is the
market case for all this, but at the same time there is a wider public case for broadband
rollout and the applications that broadband might have for non-market, non-consumer
driven activities by the public sector and the state. Is that right?
Mr Unger: Yes. First, the market, it is important to remember, is actually doing quite well.
We will have a set of market-driven solutions and a degree of competition in two-thirds of
the country and that is a pretty good outcome. It is actually a much better outcome than
many of us thought we might get just a small number of years ago. There is this question of
the remaining third, where the Government comes more into play. There are two publicpolicy
rationales, of course, for the Government to get involved in. One is around a citizenfacing
set of issues around digital divide and there is also, of course, a set of questions about
the economic wealth of the UK, where it is also appropriate for Government to take a view.
Q680 Earl of Selborne: You must surely be a bit disappointed, to say the least, that of
the original nine approved suppliers there are only two now effectively in the game bidding
for the BDUK funds. Do you think with hindsight that the process perhaps was the wrong
one?
Mr Unger: If I may make a high-level comment on that and then pass over to David, who
has been more involved in the detail, I think it was always going to be a challenging process
because these sorts of networks do suffer from scale economies. It was always going to be a
challenge having competition. It was right to run a competitive procurement process, but it
is also not too surprising that we end up with a limited number of competitors. In that
context, what is important is to back up that competitive procurement process by some
further tests of value for money. BDUK is also looking at those value-for-money questions
over and above the competitive procurement process. David, is there anything that you
would want to add to that?
Mr Clarkson: That probably captures it all. It is right that it would be nice if there were
more competitors, but just looking at the commercial investment there has not been a lot of
investors, so there is no reason to assume that we are going to get lots of investors. The
most important thing is to run a process that actually ensures that you seek credible
investors that are going to be sustainable who offer value for money to the taxpayer.
Q681 The Chairman: Did you expect more when you started?
Mr Clarkson: Probably not.
Mr Unger: It was striking that we started with, I think, effectively it boiled down to nine, did
it not?
Mr Clarkson: I think it is really for BDUK. It really started with nine but it reduced to three
quite early on during the establishment of the procurement framework. The most
interesting thing to note—and this is public so I can say this—that, of course, a number of
the people who are active in the broadband market today, the likes of Virgin Media, Sky and
TalkTalk, were never one of the nine. They never started on the process, and they are the
people that have about 60% or 65% of broadband customers today.
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Q682 Earl of Selborne: It has been put to us that the very process of determining that it
must be bid for on a county-by-county basis by giving the grants through county councils has
meant, effectively, that you have lost the opportunity to have a wider spread of uptake,
obviously spreading the risk, and would presumably have made it easier for new entrants
other than Openreach to have made a more competitive bid and be more interested. Would
you accept that that is a fair criticism?
Mr Clarkson: This is the size of the individual contracts that are being placed being too
small?
Q683 Earl of Selborne: Yes, and also not geographically wide enough.
Mr Unger: It is worth using as a reference point what the market has done in these areas. If
you look at the way the commercial players have played out over a number of years, we end
up with a high degree of consolidation among commercial players in both mobile recently as
well as in fixed. If you look also at the history of, I suppose, small geographic markets, then
the history particularly with cable is of essentially imperatives to consolidate, that the cable
franchises that were set up many years ago as, I suppose, small-scale networks, they have
had over a number of years to consolidate into a single national network. In Virgin Media’s
case they have had to do that in order to be an effective national competitor to BT. There is
just the reality that this is a scale game.
Q684 Earl of Selborne: Which is why I ask whether larger franchise areas would not
have been more sensible?
Mr Unger: That is the importance of the framework process. What we have with the
BDUK process is a combination of a framework that tries to exploit the economies of scale,
but also the ability to have some control at local level to take account of local needs. I think
it is that balance that is important.
Q685 Earl of Selborne: It has been put to us that the process has effectively given
Openreach an advantage over the competitors. How do you respond to that?
Mr Unger: Openreach does not have a bidding advantage, but it has many advantages simply
because of its scale. Openreach is effectively the natural monopoly in the first two-thirds of
the country. That is why we regulate it the way we do. It is perhaps not too surprising,
therefore, that it emerges also as the natural monopoly in other parts of the country. It is
disappointing. It would have been great to have seen, I suppose, more infrastructure
competition emerging because in many ways it is that that drives innovation investment, but
we also have to be realistic.
Q686 Lord Razzall: Their answer to the question you were asked was the reasons you
have given; because they have such a large operation they can take a much longer timescale
in terms of payback. Therefore, they say that the GEAAP funding model did not really
advantage them. What really advantaged them was the fact that commercially they could
take a much longer timeframe to get their money back.
Mr Unger: It is worth distinguishing between two types of advantages that BT may have. It
would be a concern if BT gained an advantage through privileged access to its own network.
Of course, much of what we do is to make sure that is not the case. If we go back to the
creation of Openreach, that was done precisely to ensure equality of access to the
bottleneck assets in BT’s network. That has been important. That said, BT has other
advantages such as its wins take a longer term view on investments.
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Lord Razzall: That is what they say.
Mr Unger: That is what it comes down to. As long as they win for those legitimate reasons
then I think that is—
Q687 Lord Razzall: That is what they say and you accept it is true?
Mr Unger: Yes. Our job is to be very watchful on the first set of issues. We should always
be on our guard against some unfair advantage for BT, but that does not seem to be the
main factor here.
Q688 The Chairman: On this point, too, you say in your recently published Business
Connectivity Market Review consultation document that a number of potential infrastructure
providers appear to believe that the limitations of physical infrastructure access, PIA, made it
more or less impossible for them to invest and compete. What is your view about that
comment?
Mr Unger: That has certainly been put to us. Again, David perhaps will want to talk a little
more, but the basic point we are trying to make in the BCMR document is that this has been
put to us but we need to see evidence. If we are given evidence, then we potentially can act
on it. At the moment, we have not yet seen sufficient evidence.
Q689 The Chairman: When you say if you see evidence you can act on it, is this not
rather a bit late in the day as far as these tenders are concerned?
Mr Unger: I would say we have been making the same point for quite some time now, so it
is not a new point.
Q690 The Chairman: No, I am not suggesting that, I am just trying to investigate.
Because it does seem that with PIA, if my memory is right, you only can use it for residential
connections and not for commercial connections.
Mr Unger: That is right.
Q691 The Chairman: In reality, I put it to you that the commercial and the residential
distinction in this context is, shall we say, pretty bogus.
Mr Clarkson: Can I pick that one up?
Mr Unger: Yes.
Mr Clarkson: Yes, it is not quite a commercial/residential distinction. We introduced access
to BT’s ducts and poles in order to address a problem that was potentially a lack of
investment for next generation access, so in new superfast networks. That was the point of
it. Those networks could be used to supply both businesses and residential customers, but
the point being it was about addressing a lack of investment. It was about the rollout of
effectively next-generation access networks.
I said earlier on that we also regulate backhaul and other business connectivity markets,
which you just made reference to. In those markets, we do not see the same lack of
investment. In fact, if you want a backhaul connection or a leased line, you can get one and
you can get one on regulated terms. In that market, we have not seen the need for the same
remedy. Now, taken separately, I think that works. If you want to deploy NGEA you can. If
you want backhaul circuits you can. As Steve was saying, of course we recognise that if you
want both, potentially there are advantages in using ducts and poles to provide both because
there are potentially some economies of doing that.
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This is something that we have always been mindful of because we would not want to deter
genuine investment potential in NGEA. If we could find that that was being deterred or
undermined in some way, we believe we have a number of powers or levers that we could
use to solve that problem. Of course, which ones we use depends on how big the problem
is and how it lies. We have constantly been seeking to get that sort of evidence and
information and we reiterate it in the recent Business Connectivity consultation document
because it was raised again when we put out a request for inputs a few months ago. We
picked it up and again we are open to that evidence because if there is investment in NGEA
to be unlocked, then we absolutely would want to do that.
Mr Unger: If I could perhaps make a slightly more general point, I think we are very aware
that one of the risks for a regulator is that you impose a remedy but you do not make it
work in practice. It was very important that when we introduced the PIA remedy we put a
great deal of effort particularly into looking at the prices that were proposed. The result was
that those prices came down by a very significant factor. We spent a great deal of time
looking at the operational processes that make that remedy real. What we have to judge,
though, is which of the various effects might be material. At the moment, we are not
persuaded. We can see the point in principle. We are not clear at the moment that in
practice it is material, but we are open to the point.
Q692 The Chairman: But then if the majority of these bidders did not actually carry it
through, what do you think the reason for that was?
Mr Unger: One would have to ask them, of course. It goes to the fact that even with access
to BT’s infrastructure it is a difficult business case. If I take a very simple comparison, if two
companies both have access to BT’s infrastructure, one is willing to work to a 12-year
payback period and the other is only willing to work to a five-year payback period, then the
person with the 12-year payback will always win. There are various forms of nonequivalence
that go beyond regulation. We believe that a number of those factors are
significantly more material than this point about the—
Q693 The Chairman: Are you then suggesting to us that the financial structure of BT is
such that it gives it, as it were, the capability of taking a more long-term view than a number
of other competitors?
Mr Unger: I am simply saying that a company that is willing to take a long-term view on
investments, and it is very clear that investment in fibre is long-term, will not receive pay
back in five years. The only companies that invest in fibre will have to be companies that are
willing to see that long-term investment.
The Chairman: Thank you, that is helpful.
Q694 Lord St John of Bletso: We noticed that BDUK intend to use a scorecard
administered by you at Ofcom on whether we achieve the goal of the best superfast
broadband network in Europe by 2015. I notice that the fixed line speeds are measured on
an average speed rather than a medium speed and this is heavily fraught with problems. How
will we know whether the increase in speeds is not simply going to benefit those who are
already receiving the best speeds and thereby increasing rather than reducing the digital
divide?
Mr Unger: This is a complex area, as I think you recognise in that question. It is first worth
noting that we gather a great deal of data in this area. Last year, as part of this infrastructure
report process, we gathered data on the actual speed of every single line in the country, so
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that is the speeds that the modem actually delivers for each line in the country. We have
that underlying dataset and we are in the process of refreshing that dataset this year,
particularly in the areas around superfast. So we do have the data.
There is then the question as to how we best present that data in a way that is helpful for
policymakers and also by way of consumers. What we did last year was we published a set
of interactive maps that gave the 200 administrative areas a set of KPIs. What we are looking
at doing this year is whether it is possible to make a split between, I suppose, rural and
urban. What we are doing is we are acquiring a dataset that will for each postcode
categorise where that postcode sits from a city down to rural. There are seven levels of
categorisation. We will then publish data that are disaggregated between those different
categories of rural, semi-rural, suburban, urban and so on. That hopefully means we are able
to look at how things are changing not just with the cities progressing and pulling everyone
up but also how things are changing for people in more rural areas.
Q695 Lord St John of Bletso: When are you likely to publish this data?
Mr Unger: We do not yet have a firm publication date. What we will do is we will probably
publish the raw data in some form as part of our infrastructure report, which I think is due
this autumn. But we have also committed this year to carry out a piece of work on
economic geography, which would include some more detailed analysis on that data. That
will be published around the same time but perhaps slightly later.
Q696 Lord Gordon of Strathblane: Could I ask a supplementary to that?
Mr Unger: Of course.
Q697 Lord Gordon of Strathblane: It has been put to me that independent research by
Akamai Technologies says that, in fact, we are not doing as well vis-à-vis Europe as Ofcom
are suggesting and that various countries like Switzerland, Denmark, Romania, Czech
Republic, Latvia and Belgium have better connection speeds than we have and they are not
even included in your data. How would you reply?
Mr Unger: We are aware of the Akamai numbers. This area of measurement is very difficult
because the dataset that we looked at last year, as I say, that focused on the access part of
the network, on the speed of the access part of the network. It is very clear, though, that
the experience for consumer depends not just on that but also on the degree of contention
further into the network. Akamai, of course, operate their own content distribution
network and they will measure performance at that level of the network. They are
measuring something that is slightly different. The problem is that that then includes a
number of other factors, not just the access network but the way in which data are
contended within the core networks. But yes, there is a challenge in comparing those
different datasets. It is worth noting that alongside data online speeds we also have a regular
programme of monitoring broadband speeds over the top in a way that is somewhat closer
to the Akamai tests.
Q698 Lord Bragg: It has been suggested that to restore and preserve the open internet
in the UK is necessary. Do you think that is part of your mission to make sure it is restored?
Mr Unger: We do have a set of duties here. In particular, under the European framework as
recently revised we now have a duty that I would broadly describe as the promotion of net
neutrality. It is not couched in precisely those terms. It is couched in terms of ensuring that
users are able to access a service of their choice. We have a duty there. We also have
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powers. We have powers that allow us to ensure that ISPs are transparent about the
services they offer. For example, if ISPs block certain services we have the power to ensure
that that is transparent to consumers, and that is important. We also under the new
framework have a backstop power, which is to set a minimum quality of service that would
ensure that, I guess, best effort internet access continues to drive innovation in the way it
has in the past. Yes, we definitely see this as an important part of our responsibilities.
Q699 Lord Bragg: Do you have anything to add to that?
Mr Clarkson: Sorry, no, I do not.
Q700 Lord Bragg: You have no hesitation at all in saying this is a part of your mission?
Mr Unger: Yes. In fact, we were here yesterday at a roundtable called by the Minister to
discuss the net neutrality question. We have the powers. We published a statement last
autumn setting out our approach to net neutrality. We have made clear that what we will do
is monitor on an annual basis the way ISPs behave against those principles, and we are
working closely with DCMS who are trying to establish a voluntary code of practice for ISPs
on net neutrality.
Actually, could I just add it is important to note that the net neutrality debate, though, is not
primarily around competition? There is a story there around innovation and it goes beyond
conventional competition laws also.
Q701 Earl of Selborne: I want to go into the issue about why it is that the fixed-line and
mobile access are different markets. The consequence of this, as I understand it, is that
significant market power requires PIA access to fixed line because that is a market in which
there is a monopoly for residential properties. It does not apply to connecting to mobile
masts, it does not apply for commercial properties, and yet that is where access is needed as
much. You say that you cannot interfere with that because there is not the same degree of
monopoly. Therefore, we have the perverse consequence that, where we actually need the
access to be enlarged or widened, you say you are not in a position to do it. Would you
agree that that is a summary and is there any solution to that?
Mr Unger: I would say at a high level I do not think it is quite a fair summary in the sense
that there are remedies that address the issue; for example, a mobile backhaul. David, do
you want to talk in more detail about that?
Mr Clarkson: Yes. This is an interesting one. I think your fundamental point was: why do we
regulate or look at mobile and fixed access networks separately or differently? The main
reason for this is when we actually draw a band around a market to try to identify the
economic market to see whether it needs regulation or not, what we in fact do is we look
for substitutes. If it is a substitute, then it should logically be included in the same market.
Now, in the case of fixed and mobile today, all the evidence we have is while clearly there
are some customers who are prepared to get rid of their fixed line and take a mobile only
service, generally that is not the case. In fact, most people take both. In fact, they
complement one another, not substitute. It is on that basis that we find them not to be in
the same economic market.
Now, of course, it is possible that as technologies change and purchasing habits change,
more and more people will consider them to be substitutes. In fact, every time we do a
market review that is one of the things we look at. We are certainly not closed to the idea
that at some point in the future they could become substitutes and they would become one
big market. But this is where your summary was not quite right, because if we did find one
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large market, remember that today we do not actually regulate access to mobile networks.
We do not regulate access to mobile networks because we believe that there is sufficient
competition in the mobile space with the four main providers. Now, if we found in the
future that we had a larger market that included both fixed and mobile, it seems apparent
that that market will be more competitive than the mobile market today. Actually, we are
likely in that situation to find there to not be market power and it would remove our
requirement and, indeed, our powers to regulate fixed access. It would not go the other
way. Now, of course, in terms of backhaul to mobile networks, as we have discussed a
couple of times already, that is a different part of the network. It is something we look at
and it is something we regulate. If people want backhaul to mobile network, then there are
regulated products available.
Q702 Earl of Selborne: What you are describing to me is something that is perfectly
logical. You are saying it is not SMP; the mobile is a wider market. Therefore, you cannot
regulate. Therefore, the inbuilt advantage that earlier in the session we have established that
BT have for a number of reasons—they are there already, they have the infrastructure—you
cannot allow PIA, you cannot allow access to this and, therefore, a situation where there is
an inbuilt advantage to BT must continue. Is it not correct that under Article 12 of the
revised EU Framework Directive you are now able to ignore SMP, and why do you not do
so?
Mr Unger: That is exactly where this takes us. Where we are at the moment is we had a set
of market-specific remedies in both fixed and mobile. That does create this challenge of the
economy of scope between the different markets. Article 12, particularly in relation to
passive infrastructure access, would allow us to intervene without a market power founding
and that is the way we would expect to proceed. It is still subject, though, to a test of
proportionality. The framework does require us to show that there are benefits that would
outweigh the costs. That is why we would need to see evidence that extending passive
infrastructure access in that way would bring real benefits that outweigh the costs or else
we would not meet that proportionality test.
Q703 Earl of Selborne: If you read some of the evidence that we have been given there
were certainly people who are maintaining that.
Mr Unger: Yes.
Earl of Selborne: Are you saying it is up to them to come up with the case to you or are
you in active mode on this or passive mode?
Mr Unger: Active in the sense that we have been engaging with many of those people. We
are certainly aware of the claims. What we need to understand is the materiality of how
much difference would this really make. If there was this intervention, would it really be a
game changer in terms of investment? If so, there would be a strong case for that
intervention, but at the moment—
Q704 Earl of Selborne: It does not have to be.
Mr Unger: Not a game changer, but it has to—
Q705 Earl of Selborne: Yes, I was going to say it does not have to be a game changer. All
it has to do is show a public benefit.
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Ofcom – oral evidence (QQ 650-747)
Mr Unger: Yes, it has to show a benefit that outweighs the costs, but that does require a
degree of evidence. We have said to a number of these companies that we need to see
somewhat more evidence if we are to show that proportionality test is passed.
Q706 The Chairman: Did I hear you rightly saying that if you did go in this direction it
would raise the costs?
Mr Unger: It is simply that if we are to intervene then there may well be additional costs. It
depends on the nature of the intervention. There are two ways this could take us. One is
that it could take us to extending the scope of the existing obligations on BT, but it has also
been put to us that we ought to extend that intervention to other operators; for example,
Virgin Media. Both those potentially increase costs, particularly if the intervention extends to
other operators.
Q707 The Chairman: Yes, it might or it might not, but it would also extend choice,
would it not, and increase competition?
Mr Unger: Yes. If that is the case, then it might be proportionate but we would need to see
the evidence. We need to be able to demonstrate that those benefits are real enough to
justify the costs.
Q708 The Chairman: You cannot be absolutely sure before you start, can you?
Mr Unger: Of course, so as in all these cases, in any forward-looking assessment it is not
that we are expecting there to be a perfect prediction of the future, but there needs to be a
credible articulation of the benefits—and that can be qualitative as well as quantitative—but
for any regulator that needs to be credible and it needs to look proportionate when
considered against the costs of intervention. That is all I am saying.
Q709 The Chairman: But do you think that the advent of Article 12 of the revised
directive will materially affect the way in which the regulatory process that you carry on will
be conducted?
Mr Unger: It has the potential to in that it gives a specific mechanism for providing access to
passive infrastructure, as you say, in a way that does not require us to find market power.
That is clearly significant as a point of principle. In practice, we have to be careful. It cannot
take us, though, to simply opening up every infrastructure we see. There has to be some
sense that we intervene in a way that is proportionate. The question for us to consider is
how we apply that proportionality test.
Q710 The Chairman: Yes. Now, we were talking earlier about physical infrastructure
access and the ducts and the poles and so on. Certainly, I think I understood Mr Clarkson to
say that my understanding that it was only for the creation of networks for residential
customers was, strictly speaking, inaccurate. Is that right? Certainly, that is the perception
that has come from a number of witnesses who have given us evidence and we have talked
to. They feel this has been working to their detriment. The first thing is that that is not, in
fact, a correct analysis of the rules that relate to PIA and access to it now.
Mr Clarkson: I think that is right, and the position is quite clearly set out in what is the
Wholesale Local Access Market Review statement, which is the vehicle that introduces that
remedy. In fact, in the legal instrument that introduces it, it says for residential and business
use. It is more about getting investment in new access networks.
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Ofcom – oral evidence (QQ 650-747)
Mr Unger: I think it is fair to say, though, there are restrictions on use. I do not think we
would want to suggest that there is no—the points that have been put to you I think have at
least a level of principle. There is some substance to them. There are restrictions on use and
it is possible to imagine circumstances where that might—
Q711 The Chairman: You presumably do not—and I am not going to press you, if you
do not—have them at your fingertips now?
Mr Unger: Sorry?
The Chairman: You do not have the restrictions at your fingertips now?
Mr Unger: I think it would be best if we could dig those out separately and give them to
you.
Q712 The Chairman: Could we do that, please? Does all this not suggest—and this is in
a sense, I think, the underlying crucial point—that in terms of investment in infrastructure,
whether it is going to ultimately benefit domestic or commercial undertakings is immaterial?
Mr Unger: I think it is fair to say that there is a sort of commonsense version of this, which
is that if a company builds a network, then generally you would expect to provide services
to as many customers as you can that you pass with that network, which I think is the plain
English version of the economy of scope point.
Q713 The Chairman: Yes. Then it would follow from that that the rules surrounding
access to the network should recognise that as a reality?
Mr Unger: That is why I say there is some merit at a level of principle in the point that is
made. On the other hand, to intervene in a way that goes beyond, I suppose, the
conventional market-based approach, which has a great deal of standing in terms of
competition law, I think one has to have a pretty clear understanding of the benefits that will
flow from that intervention that will be material to be sure that that intervention is
proportionate. Because once you go beyond a market-based approach based on market
power, then what is there to stop a continuous process of intervention? There has to be
some reasonably clear sense of a test that is applied to demonstrate that the benefits that
are being delivered are material.
Q714 The Chairman: But you might argue, might you not, that where you have either
public money or the benefit either of deployed statutory powers or the threat of them to
enable you to roll something out, the state has an interest in ensuring as many diverse
people as possible might use the resulting infrastructure, and that in that sort of context
providing access generally to anybody who wants to it is contributing to the overall efficacy
of the network taken as a whole?
Mr Unger: Again, at a level of principle I can see that. The question is whether in practice
that has been of most concern to the people who have been bidding for this money. Our
sense is that it has not been the main reason why the outcome has been what it is. There
have been many other factors that have led to the current outcome. I think part of the issue
is that if you go to these very rural areas, there is not a particularly profitable business
supplying services to business users either. It is one thing building a network to cover a city
where absolutely you would want to cover both business and residential premises, but if you
go to my village, then it is a difficult business case for both the residential and the business
users.
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Q715 The Chairman: Is there a wider public-interest argument for favouring that the
network should be being used by as many people as possible providing, in many cases
perhaps, very niche products?
Mr Unger: Taken in isolation, yes, but you have to be careful. If one intervenes to ensure
that, you have to be quite careful about unintended consequences of any intervention. In
isolation, yes, but if because of that intervention it undermines investment incentives in
another market, we have to look at this market by market. That is not ideal but it is the
approach that is taken. There is an argument that says that if things were done differently
across a range of markets, that would be better for one particular market, but we also then
have to think about the consequences for these other markets, and particularly this market
for business connectivity. Is there an impact on investment in those other markets? Is there
an impact on competition in those other markets? That has to be weighed as well.
Q716 The Chairman: But are we in favour of investment and in favour of competition?
Mr Unger: I think the point that Dave was making previously was that in business markets
we observe there is a reasonable degree of competition and a reasonable degree of
investment. If we were to intervene in that market as well in order to deliver this benefit in
terms of next generation broadband, there is a risk that there would be unintended
consequences in that market.
Q717 The Chairman: Are they more than there being a risk of not intervening? I am just
proposing. I am just trying to test your proposition that is all.
Mr Unger: The problem at the moment is that we have not seen evidence of tangible
benefits from that intervention. The current position is that absent a story on benefits, we
certainly have a story on costs, particularly if we were to extend infrastructure access to
other operators such as Virgin Media. At the moment, even based on what we know, it
looks as if the cost would outweigh the benefits.
Q718 The Chairman: That actually may be the nub of the issue. What evidence of extra
costs do we have here?
Mr Unger: I think we have a sense of the costs incurred by BT in their current remedy. I do
not think we have looked in detail—
Q719 The Chairman: I thought there was a fundamental principle that the costs that BT
Retail would pay and the costs that any other internet service provider would pay would be
the same?
Mr Unger: People should pay the same costs, but if new costs are incurred, those still will
ultimately be passed to consumers. We need to be sure that the benefits would outweigh
those costs. There could well be a case for this intervention and that is why we said in the
BCMR yesterday that we are open to that evidence. We have been saying that for some
time and at the moment we have not seen that evidence.
Mr Clarkson: This goes back to the conversation we had earlier where I was saying that if
you look at backhaul and business connectivity services in isolation, we see that there is
sufficient investment and, in fact, in some cases there is even competition. Where there is
not sufficient competition we regulate. That works fine for us. Of course, in the broadband
case and superfast broadband we see a lack of investment and so we say, well, if people want
to invest here is an opportunity. But we recognise that there could be some overlap
between these two things. I said that if there was scope to unlock investment in NGEA, we
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absolutely want to see how we can do that. Of course, in making the assessment of how we
do it—and you raised Article 12 and that is one potential option—we would like to see the
evidence to see that it is important and the effects that it has, such that, whatever we
introduce, we can try to limit any unintended consequences and minimise any knock-on
costs.
Q720 The Chairman: Is it the case, though—and I am not sure whether it is—that the
nature of the active infrastructure could make opening up the passive infrastructure such
that it would put more costs on the end user?
Mr Clarkson: It gets quite complicated. I think there is two things that—
The Chairman: I am right on the edge of my expertise.
Mr Unger: I think the answer is, “possibly”.
Mr Clarkson: I think there is, quite genuinely, and I will try to give an example that makes
sense. We regulate BT’s lease lines, as I said earlier, and we regulate the price of them. Now,
we have all recognised that there are economies of scale in these markets. If we introduced
another remedy, which was actually a different remedy to supply some part of the lease lines
market, the number of lease lines would go down and we would get losses of economies of
scale. That actually means unit costs would go up.
Q721 The Chairman: But is it a zero-sum game? I am not sure it necessarily is. Because if
you change things, as long as you do not reduce the number the people who lease the lines,
surely there is more money to go all the way round? Am I being terribly foolish and naive
about it?
Mr Clarkson: No. It is exactly the things that we run around with all the time, something
that we put in the BCMR. I think where you actually end up with a sum positive increase in
costs is quite simply this: it costs more for two people to deploy networks on top of each
other than it costs for one person to build one big network. That is where the loss comes
in. What you get is increased costs through duplication, which then leads to two networks,
both running with smaller scale. It is the increased cost of the duplication that is actually the
resulting extra cost burden there. That has to go somewhere and the question is: where?
That is why we are very keen to understand, if we make a regulatory change in this area,
who is going to be impacted by it.
Q722 The Chairman: I do not want to go any further on that, other than to say that if
you have, in the hypothetical event, two parallel pieces of a network—particularly near the
end of the network—and one is better than the other, the better one will probably triumph
at the expense of the weaker one. Is that not called competition, though? That is what it is
meant to be all about, is it not?
Mr Unger: It is worth emphasising that if we thought that competition based on passive
access might be an effective way of promoting competition, and then there would be a
compelling case. If we were to focus on that as our key remedy, in a way that previously we
focused on local loop unbundling. The problem we have now is that we risk having a number
of different remedies at different points in the value chain. Each of those brings with it a
certain amount of fixed costs and, while accepting that the size of the retail market stays the
same, we need to be careful because introducing extra fixed costs within the value chain is
not good for consumers.
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Ofcom – oral evidence (QQ 650-747)
The Chairman: I think probably we have exhausted this one for now; so, Lord Gordon.
Q723 Lord Gordon of Strathblane: This question I think is costs-neutral; at least I
hope so. We have heard—and I am sure you have too—from a lot of communities who
want to build their own network. Equally we have heard from BT and, quite properly, they
need a standard system to administer a network. The question is: as a regulator, can you
help marry these two by prescribing connection standards, so that if necessary people can
build their own networks but still fit in with the BT network?
Mr Unger: This is a difficult set of issues. We have a certain role here. In particular in the
past we have set out, I suppose, some high-level ideas as to what we would like services to
look like. We have talked about if someone was to provide a wholesale bitstream service,
the characteristics that service ought to have. That is the ALA discussion. We have also
talked about a set of characteristics that VULA should have, which is the remedy that we
propose. I would also say that, when it gets to detailed technical standards, that tends to go
beyond what a UK regulator can do much about. Essentially, technical standards nowadays
are determined by global markets, and actually that gives a high level of standardisation.
There is a good news story here, which is that most operators who go out and buy
equipment probably end up buying equipment broadly from the same manufacturers,
manufactured to many of the same standards.
Q724 Lord Gordon of Strathblane: Regulators in all kinds of fields surely prescribe
certain standards that must be met before something can be done?
Mr Unger: We do, but in the end the UK is not going to change the nature of the global
standards of the infrastructure.
Q725 Lord Gordon of Strathblane: No. But presumably you would take account of that
in stipulating the standard?
Mr Unger: That is right.
Q726 Lord Gordon of Strathblane: I agree that the market probably does it anyway, in
which case all you would have to do is add in a sentence in the document saying, “Everyone
should reach standard X, Y, Z”, or whatever it is?
Mr Unger: Our culture is generally to closely track the standards. For example, that is a
very topical issue when it comes to unbundling of passive optical networks. There are some
circumstances when we might intervene, but generally we have to be cautious about
intervening in that area.
Q727 Lord Gordon of Strathblane: Yes. Would you consider what might be thought to
be a very radical intervention and that is allow access to dark fibre between cabinet and
exchange?
Mr Unger: That is a question we would look at in market reviews. I would make the general
point that you would need to be clear what you were trying to achieve. It is potentially a
competition remedy, and we could look at that in the market reviews. But I would make the
fairly obvious point that if what you are concerned about is that fibre does not already exist,
mandating access to fibre does not help with that problem.
Q728 Lord Gordon of Strathblane: A final point, if I may? I understand that Active Line
Access is superior to GEA, or is that an unfair statement?
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Ofcom – oral evidence (QQ 650-747)
Mr Unger: I would say that Active Line Access is a set of aspirations, which we have set out,
for the type of service that you would want an ISP to buy at a wholesale level. GEA is
something quite different, which is why I think we have to be slightly careful about the
comparison. GEA is really BT’s response to our VULA specification. What we have to make
sure is that VULA/GEA enable other ISPs to provide this ALA service, but they are
essentially different things.
Q729 Lord Gordon of Strathblane: Could you not insist that BT do that?
Mr Unger: The point is that by mandating VULA we have required BT to provide access to
their network, in a way that should enable other ISPs to provide ALA. Therefore, the
market should be able to deliver ALA.
Q730 Lord Gordon of Strathblane: It would not surprise you to know that some of
them think it does not quite do that?
Mr Unger: It would not surprise me.
Mr Clarkson: I hope Steve made the point clear. The point being that ALA is a very broad
set of requirements. It includes backhaul; it includes access; it includes things like security; it
includes things like multi-cost, lots of value-add. VULA is of course a remedy to an identified
problem in access. Of course, when we regulate we try—
Q731 Lord Gordon of Strathblane: Also it was necessary to meet the European
conditions, was it not?
Mr Clarkson: Yes. When we regulate, we try to focus on those areas that cannot be
replicated by other people. There are some parts of the ALA standard that can be
replicated. The point is, if we could regulate the access properly—and do not get me wrong,
I am sure there is scope to change GEA and VULA—if we get that right, then people can
take that and they can build those other parts, which are in the ALA standard, to make the
services that end up being delivered to consumers.
Q732 The Chairman: Can I just ask two quick questions arising out of that? The first one
is some of the evidence we have had is that the effect of GEA access is that, if you are
another ISP and you want to get into it, it is expensive because it requires additional active
infrastructure hardware to do it? Is that a fair comment, do you think?
Mr Unger: They do not like the price. That is fair to say.
Mr Clarkson: It is fair to say—and from what I just said there a moment ago—that you have
to put more things on top of GEA to make a product that you can sell to consumers. GEA is
delivered quite locally. It is delivered at a local access node, so you could find yourself in one
of several hundred local nodes, and you get this GEA product. You then need to put
backhaul on it. You need to get connectivity into the internet. You probably need to put all
sorts of service—
Q733 The Chairman: But are there some circumstances where equivalent problems are
faced elsewhere in the world?
Mr Unger: It is like the analogies with LLU. What we were trying to do was take a similar
approach that we adopted with LLU, where we provide access. The principle that we
established in our strategic review was to provide access at the deepest points of the
network where the competition was sustainable. In a copper-based world that was LLU, and
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Ofcom – oral evidence (QQ 650-747)
that requires other operators to make significant investments, over and above what BT was
doing, in order to deliver retail products. That was the nature of the competition model we
were trying to provide. GEA is the fibre equivalent of that.
Q734 The Chairman: When BT Retail uses BT Openreach infrastructure, it does not
have to do anything, above and beyond the most elementary connection, is that not right?
Mr Clarkson: No. You have to do exactly the same thing. What pops out in BT Retail is
ultimately based on GEA, which Openreach is required to supply to everybody on exact
equivalent terms. BT Retail, or whoever is supplying the service, takes the GEA product,
builds on it, and then sells that in the retail space. For example, the cheapest GEA product
today I think is about £6.90 a month, minus VAT. That is the rental. The cheapest Superfast
Infinity product that BT Retail sells is about £18 a month. Of course, the difference between
those is—sure, BT retail probably wants to make some profit—there are costs in converting
that GEA into a retail proposition, in exactly the same way—
Q735 The Chairman: The suggestion that it is somehow unfair, that BT Openreach has
set these things up to benefit other parts of the overall organisation, is misplaced?
Mr Unger: The only issue that there is, is that the business case is challenging. The margin in
the fibre world that is available for the value-add is actually more challenging than the margin
that exists in the copper world. That is an issue but it is an issue that is faced by every
operator.
Mr Clarkson: Including BT.
Q736 The Chairman: Just so we are clear, in the overall scheme of things, a number of
these criteria for access are determined underneath the new telecoms package, are they?
Mr Unger: Yes.
Q737 The Chairman: I have heard it suggested that our standard did require a bit of a
derogation. Is that right or was it thoughtfully compliant?
Mr Clarkson: This is what we introduced under the market reviews. We introduced VULA
or what has become GEA. We introduced this under the local access market. Traditionally
that market had all been about non-active, so passive access. That is because traditionally
that market was about local-loop unbundling. Of course we moved forward and we were
looking for a remedy that would work for NGA. As Steve said a moment ago, if we believed
that ducts and poled access would provide us with that basis of competition, we would go
for it, we would forget VULA and that is what we would focus on.
However, because of the economics, it just did not look likely—certainly today—that we
would see multiple people building their own networks. Indeed, the people that are active in
the market, the big quite well financed players, told us categorically that, at this point in time,
they were not going to invest and indeed that have not. So, VULA, although we clearly
introduced it, it was not us pushing it, per se, it was really responding to the players in the
market that were saying, “If we want to continue to compete and offer superfast services in
the retail market, and if we are not going to build our own network, we need something
else” and GEA is that something else.
Q738 The Chairman: Has an equivalent thing occurred on the continent, elsewhere
where the directive runs?
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Ofcom – oral evidence (QQ 650-747)
Mr Clarkson: Yes, it has in a number of countries, the Netherlands for certain but they have
done a similar thing to us. Speaking to National Regulatory Authorities, which we do quite
frequently, I think that there is quite broad recognition that actually, as a basis for
competition, people building competing FTTH or FTTC networks, deploying their own fibre
does look quite unlikely at the moment. In fact, there is more emphasis on some sort of raw
active product to fill that gap.
Q739 Baroness Bakewell: My question is a slightly more general one but a big one. Do
you agree with the view, which we have heard quite often, that, even if only in the long run,
the ownership of the infrastructure should be completely separated from the provision of
the services that run on it, which is ideological, really?
Mr Unger: No, I do understand. This is a question we looked at in great detail with our
strategic review of telecommunications a few years back. There we looked very hard at this
particular idea of structural separation of the operator of the infrastructure from the
downstream business. Where we got to there was that we concluded that the functional
separation of Openreach gave the benefits in competition terms. In particular, we described
those benefits in terms of equality of access to the ownership of infrastructure. We thought
the functional separation could deliver those benefits, at a lower cost and with less
disruption. That is why we have ended up with the current position, that Openreach is
functionally separated from the rest of BT but not structurally separated. Our view was that
functional separation gave those same benefits in competition terms.
It is worth noting that that is where we were on a competition analysis. If what you are
concerned about is investment in infrastructure, and your concern is that there is an
upstream monopolist who is not investing in infrastructure because they do not face
competition, then actually structural separation and functional separation makes no
difference. If the hypothesis at the moment is that investment by BT are being driven mainly
by end-to-end competition from the likes of Virgin Media, then actually there is no obvious
model of structural separation that changes that.
Q740 Baroness Bakewell: It has been put to us that the situation in the country is like a
car manufacturer owning the roads, that the whole thing is bunched together in a way that
lacks the clarity of planning that people want to see.
Mr Unger: This issue of vertical integration, the car manufacturer owning the roads, was
precisely the issue that we looked at in our telecom strategic review. The functional
separation of Openreach was a very significant intervention. It created a separate entity
within BT, with a number of rules that were designed to make sure that it behaved in a way
that was broadly equivalent to being structurally separated. It is not quite the same as
structural separation but, again, it has most of the benefits with much reduced costs and that
was the position we got to.
Q741 Baroness Bakewell: Are those rules up for reassessment depending on how it
works out? Because there are objections, there are people who say, “It is within BT. It all
sounds fine, but none the less—” and I wonder whether the criteria you establish are up for
re-examination.
Mr Unger: There have been a series of minor changes to the rules, particularly those
undertakings that were established in a world that was about copper-based broadband. We
have made minor modifications to the rules already to address new fibre-based products.
The question of a more far reaching view—it would be quite a big deal, and I think you
would have to be very clear what problem you were trying to solve. If the issue was about
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Ofcom – oral evidence (QQ 650-747)
upstream investment, I think it is quite difficult to see how structural separation is the right
answer to more upstream investment, but it is not something I would rule out.
Q742 The Chairman: Can I ask you one quick point on this? Do you think it is helpful, in
terms of the infrastructure rollout, that the people who are rolling out the infrastructure are
part of an organisation that is very cash-generative in other parts?
Mr Unger: I think that is a point that BT have made. The thing we hold on to, more than
anything, is that Openreach has to respond to the various retail operators that buy its
services. At the moment the retail provider that is most interested in superfast is BT Retail
of course, and Openreach responds to that. No doubt there are reasons why TalkTalk and
Sky are not so interested at the moment. But there are other powerful companies in the
market at the retail level. It is possible to imagine circumstance where those other
companies were also interested in investing, and I think it would be very important that
Openreach responded to those companies as well. So I think you have to be careful about
the idea that the relationship between Openreach and BT retail is particularly important.
The Chairman: Time is rapidly running out, so I hope that we can just scamper through
our last three questions very quickly.
Q743 Lord St John of Bletso: I will be very quick. As you know, the EU 2020 target is
that we should have 30 Mbps available to all and 50% of the population should subscribe to
100 Mbps. Is this feasible? I say it in the context that, according to our calculations, every
premises would need to be within 800 metres of copper, and I think it is within 570 metres
of a cabinet fed by fibre.
Mr Unger: I think the short answer is that the 30 Mbps for everyone is challenging,
particularly in the last 10%. There is a really important question for us, which is, I suppose,
how close can we get. It is pretty clear that in that last 10% of the country we need to do
better than 2 Mbps, by 2020, which is what we are currently committed to. But the cost of
delivering fibre to every home—which would be the way of guaranteeing it—is very high.
We need to look creatively at the range of technical solutions for delivering moderate
bandwidths to that last 10%. That can include wireless technologies. I think TV white spaces,
fourth generation and mobile technologies are interesting in that context. They might not
quite get to 30 Mbps but they might get some way there.
Q744 Lord St John of Bletso: What percentage of the population do you think will be
within 500 metres of fibre?
Mr Unger: I think 90% of the country is likely to get 90%, one way or another. I cannot
answer that question off the top of my head but I can take it away. For the last 10% of the
country, almost by definition, that is going to be very challenging.
Q745 Lord Razzall: A slightly strange question, bearing in mind the evidence we have
had is querying whether there is a real demand for superfast broadband in every household,
but are you confident that sufficient steps are being taken about future demand? For
example, if by 2020 there is a demand for 1 Gbps to the home, will we have laid sufficient
fibre to every cabinet or will we have to dig more? I think it is rather a fantasy question
personally.
Mr Unger: Where fibre to the home is already being laid what that currently provides is 2.5
Gbps, shared between 32 households. However, that is upgradable. There is a roadmap,
already seen within the standards bodies, which takes that to 40 Gbps shared between the
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Ofcom – oral evidence (QQ 650-747)
32 homes. So, fibre to the home, we can see a relatively straightforward roadmap for a 1
Gbps per home if that is what is needed. Clearly, where there is copper as the final means of
access I think it is difficult. There are some interesting new copper technologies and they do,
in principle, provide 1 Gbps bandwidths, but over very short copper loops. The
demonstration I have seen is of a technology that provides 1 Gbps over copper, but over a
line of 100 metres’ length. You actually have to get fibre almost to the home, in order to
deliver gigabit service. Yes, for those homes that are currently being served by fibre to the
cabinet, I am sure there will be a need for laying more fibre.
The Chairman: Can I then—sorry, do you?
Lord Gordon of Strathblane: I was just going to ask the final question, but it does not
matter.
The Chairman: All right, you ask it.
Q746 Lord Gordon of Strathblane: In evidence to us a couple of weeks ago, TalkTalk
said that BT were deploying GPON technology, which was more difficult to unbundle and
would have the effect of reducing competition as we had feared. Last week BT denied that.
What is your comment as the regulator?
Mr Unger: We are watching closely the evolution of these Passive Optical Networks
standards. What we observe is that there is a push to what are called wavelength-division
multiplex PON technologies. I think that is driven mainly by incumbents.
Q747 Lord Gordon of Strathblane: Can we know the timeline for that?
Mr Unger: Yes. It is 2014 to 2015, but not many wavelengths is the point. The particular
issue is that incumbents are very interested in that, because it provides more bandwidth,
more capacity. We are interested for that reason, but we are also interested in the potential
to unbundle wavelengths. It will probably be some years before that roadmap allowed a large
number of wavelengths to be provided, and therefore significant levels of competition. But it
is interesting, and we are watching that standardisation process closely, because I think we
are very conscious that, while incumbents are interested in the capacity growth, they may be
less interested in the unbundling opportunities.
The Chairman: We have already gone over our allotted time. We have covered quite a
range of topics, in slightly different levels of detail. I am very grateful to you for answering a
lot of the queries that have been thrown up to us by previous witnesses during the course of
the inquiry. Thank you both very much indeed for coming.
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Chi Onwurah MP – oral evidence (QQ 250-282)
Chi Onwurah MP – oral evidence (QQ 250-282)
Evidence Session No. 5. Heard in Public. Questions 250 - 353
TUESDAY 22 MAY 2012
Members present
Lord Inglewood (Chairman)
Baroness Bakewell
Lord Bragg
Lord Clement-Jones
Baroness Deech
Lord Dubs
Baroness Fookes
Lord Gordon of Strathblane
Bishop of Norwich
Lord St John of Bletso
Earl of Selborne
________________
Examination of Witness
Chi Onwurah MP, former Head of Telecoms Technology, Ofcom, and Shadow Minister
for Business, Innovation and Skills
Q250 The Chairman: Even though we are technically one minute ahead of starting time, I
would like to welcome Chi Onwurah here this afternoon to talk to us. While you are and
have been many things, the particular focus for which we have asked you to come to us is
because you were head of telecoms technology at Ofcom. I gather that you were focusing
on the implications for competition and regulation of the services and technologies
associated with the next-generation networks, which obviously has a big effect on the work
that we are doing, so please feel free to respond to us in the way you want. Feel relaxed if
you suddenly want to go slightly away from the question, if you think it is important. We will
try to bring you back to the questions that we think important. We have a very tight
timetable, so I have urged everyone to try to be as concise as they can. Would you like to
briefly introduce yourself and make a short statement? There is no compulsion.
Chi Onwurah MP: Yes. I will just say that, as the Lord Chairman has said, my previous role
was in Ofcom as the head of telecoms technology, but I also feel that I am here because,
prior to that, I had 17 years’ experience in the private sector in telecommunications. I was
building out networks in a variety of technologies, wireless and wired—but always building
out networks, so network economics has long been an important part of the work that I do.
I have experience of that in the UK, Africa, Europe, the US and, in fact, across the world, so
I will be drawing on that experience in my responses as well.
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Chi Onwurah MP – oral evidence (QQ 250-282)
Q251 The Chairman: If I might, I will just get the ball rolling by saying that the
Government have explained that it is their intention that the UK should have, “the best
superfast broadband network in Europe by 2015”. If you are in government and you are
rolling out such a network, what do you think its essential characteristics should be?
Chi Onwurah MP: I do think that “Let’s have the best network” is a bit of toys for the
boys, if you like, because what is the best network? What the country needs is a network
which is fit for purpose. Now, I have seen that Ofcom has identified certain characteristics,
such as the amount of actual speed, down and up, and the coverage. For me, we need a
network which will deliver the economic and social benefits of broadband. That is about
having the right speed—certainly, faster than we have now—but also about having a network
which everyone can reach. Right now, we do not have ubiquitous coverage. There is at least
10% of the country which cannot get broadband, so it should be ubiquitous and have the
right speeds that businesses need now and in the future. That is what we should be focusing
on, rather than talking about the best. When you wake up in the morning you do not think,
“I want the best broadband”, you think, “I want the broadband that is going to allow me to
send my e-mails, watch iPlayer and do what it is that I need to do that day”.
Q252 Lord Clement-Jones: Just paraphrasing Prospect’s evidence to us, I think it stated
the view that Ofcom put too much emphasis on price competition and not enough on
investment. Would you agree with that?
Chi Onwurah MP: I think that that is a false dichotomy, if you like, because it should not
be—as it often is—implied that this is either about competition or investment. The evidence
is that competition actually drives investment. When you have a number of different players,
such as we have now, in standard-speed broadband they are investing in the networks
themselves, so competition can drive investment. In addition to that, Ofcom is using price
regulation for the existing copper network. In actual fact—I am slightly biased, being there at
the time—Ofcom, together with many, has recognised that when it comes to a new market
such as superfast broadband, the emphasis should not be so much on price control. Indeed,
BT’s Infinity product is not actually price regulated. They can charge what price they want
for it.
Q253 Lord Clement-Jones: But we have this sort of duopoly in the urban areas, do we
not, as that is where the competition takes place and where they have invested. It is outside
those areas that they are only now, patchily, having full broadband rollout, so to speak.
Chi Onwurah MP: Yes, that is absolutely right. We have the benefits of competition in the
50% of the country where Virgin Media also has coverage. We need to look for ways of
getting the investment into the rest of the country, which is the objective of Broadband
Delivery UK, but it has to be clear that competition is a really important part of making that
investment. Otherwise, we will end up in the situation where we have a monopoly, and we
know that monopolies are not good for investment. They are not good for consumers or
for choice and—particularly important, I think, when we are looking for a sustainable
economic environment—they are not good for innovation and therefore not good for
growth.
Q254 Lord Clement-Jones: Even when you are talking wholesale, so to speak, and not
just retail?
Chi Onwurah MP: If part of the regulation for any future monopoly is to require wholesale
access, the key question there is: what kind of wholesale access? Many of you can probably
remember where we had simple wholesale resale for normal-speed broadband; that was just
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price competition. It has to involve the right kind of wholesale access. I should probably
declare an interest here in that, while I was with Ofcom, I was responsible for defining the
standards for what we consider to be the most competitive form of wholesale access. It is
called active line access. Again, BT has refused to sign up to those standards, whereas Fujitsu
has. We are in a situation where if we had a wholesale model as the outcome—I do not
think we want a monopoly infrastructure, but if we had that—we do not have a wholesale
product which is standardised and could be used to support competition as well.
Q255 The Chairman: Arising out of that, do you think that the nature of the network,
as it goes out into the more dispersed parts of the country, is capable of bearing
competition?
Chi Onwurah MP: Network economics would say that, as you get further and further out
from the urban areas, there is less and less to be gained from rolling out two wires to the
front door. Where exactly that point is, where it costs too much, is a matter for modelling.
It looks like we are looking particularly at the final third; I think that it is a bit further than
where we have Virgin Media and BT at the moment. But even then, you should be able to
offer competitive products and services running across. This is a wholesale model which is
about separating the infrastructure from the services that run across it. You should be able
to get competition at the service level. I am not talking about just “me too” reselling, as that
is only price competition and not competition that can encourage innovation, which I think is
particularly important. There is a large part of the country where we can have infrastructure
competition as well, and it is really important that we recognise that we have that as an
objective.
The Chairman: I suggest that we go straight to the Bishop of Norwich and then come
back to Lord Gordon.
Q256 Bishop of Norwich: One of the interesting things about this inquiry has been that I
am learning all sorts of new terms—“the middle mile” for example—that make theology
seem less impenetrable. One of the things that struck us was that it seems that government
subsidies are being given to the owners of the middle mile to extend their fibre networks
rather more than to communities that want some support for the final mile to extend their
network back in, as it were. Is that a correct analysis of present policy? Do you agree with
it?
Chi Onwurah MP: I would hesitate to disagree with the Bishop of Norwich, but I would
characterise it slightly differently. It is clear that the subsidy is going to BT, which owns most
of the middle mile, but the problem is that there is not enough of that middle mile. We do
not have fibre to many towns, never mind villages. Access to the middle mile would help. It
would probably help companies such as Fujitsu, which does not have its own network, to be
more of a competitor to BT, but for the communities that you are talking about, access to
the middle mile is not an important part of the solution. There are 30 million households in
the UK, so digging 10 metres down each of those garden paths would be 300,000
kilometres. That is far more than the cost of doing the middle mile. What I think is stopping
small communities taking ownership of this—we have seen small communities in Finland and
Sweden digging their own trenches—is the fact that there is not a standard interface. If they
build out their network, it is likely that they will be a digital island. They may be able to talk
to each other, and those of them who, like me, are a bit of a geek may be able to set up
their own ISPs, but national offerings—Sky, TalkTalk or Virgin—will not go there because
there is no standard interface. That comes back to standard active line access, which is not
being supported by BT.
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Bishop of Norwich: I think that I understand that.
Chi Onwurah MP: It is more about having a standard interface than about having the
motorway coming up to your front door. You need the interface so that you can connect
easily.
Lord Clement-Jones: They call them ramps as well, do they not?
Chi Onwurah MP: Yes, that is more the motorway.
Q257 The Chairman: Can I ask what sounds like a tautologous question? Are there
enough middle miles?
Chi Onwurah MP: No. If you want the middle mile to be fibre in order to have the
capacity, there is not enough fibre. When Jeremy Hunt was talking about pumps in the
village, there is not the fibre to the village so that that data can be back-hauled. To get more
middle mile and to get more investment in that part of the fibre, there are a number of
things that government can do. Rating of fibre is an absolute nightmare and a big barrier to
investment in fibre. There are also issues about wayleaves, which are very complex. There is
also access to ducts, BT’s ducts and potentially other ducts—water and electricity. There is
a lot that policy-makers can do to get more middle-mile fibre, but the big cost is that 10
metres down the garden path.
Q258 Bishop of Norwich: Is fibre the only answer?
Chi Onwurah MP: I think that fibre is generally the only answer for back-haul for the
middle mile because the levels of data you are carrying there are going to be huge. When
you are talking about a home, I believe that ultimately fibre is the only answer, but right now
you can easily support the data requirements of most people’s homes. The Government’s
definition of superfast broadband is just 24 Mbps. You can easily support that on 4G, so in
the mean time we can have 4G.
Q259 Lord Gordon of Strathblane: Can I take you back to your point that no one likes
a monopoly? I am not saying that I do, but given the choice between a universal service
provision that covered literally the entire country but was a monopoly versus competition in
urban areas and nothing for the people outside those areas, it becomes a slightly more
difficult choice, does it not?
Chi Onwurah MP: I think that is absolutely right, but that is not the choice facing us. We
could have one physical network but have competition over it.
Lord Gordon of Strathblane: In other words, you could make a distinction between the
provision of the network, which could be a monopoly, and the use of that network, which
should be open to competition.
Chi Onwurah MP: Not only could you, but you would have to. If you ended up with a
monopoly in the network—and I know you have Ofcom coming in and it is something I
would like to hear emphasised—that has to be regulated to ensure competition. Otherwise
rural communities will get great broadband speeds, but they will not get the services, the
choice or the innovation that come from having different service providers.
Lord Gordon of Strathblane: The provision of the actual infrastructure itself for this last
10% of the population will probably cost very nearly as much as the previous 90%. It might
be unrealistic to expect more than one provider, nor do we need more than one.
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Chi Onwurah MP: It would be unrealistic to expect more than one provider to every
home, but it is realistic to expect that more than one provider might be interested in it
because there is a business case for it. If there is business case for BT, why is there is not a
business case for Fujitsu as well? I think that it is worth while encouraging more than one
provider because, for one thing, at least the procurement has choice.
Q260 Lord Gordon of Strathblane: I have one final point, which is slightly off the
beaten track. You mentioned the extra cost of digging the front garden. Has any thought
been given to the idea that that should be the responsibility of the householder rather than
the network provider?
Chi Onwurah MP: Yes, there has been a little bit of thought. I cited the example of Sweden
and Finland where people have dug their own trenches, but it has not really been considered
for this country because I think the assumption is that we are not that good at digging up
roads ourselves. There are also issues around how you would interface that. To be more
specific, when it comes to new-build housing, there has been thought about a requirement
that all new-build houses should have the trenching that supports fibre. I think we have not
done enough on that because it is a very small incremental cost, but it makes it a lot better.
Unfortunately, the rate of new-build housing is such that it does not really solve our
problem.
Q261 Earl of Selborne: We have heard about the amount of dark fibre around and the
frustration of people living above it who cannot access it. What can be done to create
access? What should be done?
Chi Onwurah MP: In order to encourage access to dark fibre, some things are being done
to encourage access to ducts, which would lead to there being more fibre, but regarding the
issue of encouraging access to the existing fibre, there is the issue of the rating of it and
whether it is lit or unlit, which is a very complex area but one that the Treasury should be
encouraged to grab hold of. There is discussion about whether or not to make it a
requirement that BT should offer a dark fibre product that anyone could use. Currently,
Ofcom is reviewing the market. In the past, it has not been thought that it is a fair regulatory
remedy to require BT, after it has invested so much in building this network to automatically
open it up, and I can understand that. However, you need to make an assessment of how
important dark fibre is to getting the ubiquitous superfast broadband network that we want.
Q262 The Chairman: Do you have any idea of the answer to the question you posed?
Chi Onwurah MP: My sense is, again, that it is all about the last mile. Getting more access
to dark fibre might make it easier for companies such as Fujitsu to compete in the network
provision, and I believe that that is important. It should be strongly considered, but getting
everyone on the broadband network is more about the last mile—even the last 10 meters—
and we need to focus on getting that right.
Q263 Earl of Selborne: It is not going to be available to more than a few selected
communities. What is the disadvantage of using this dark fibre, if it is, indeed, physically in
the right place?
Chi Onwurah MP: The dark fibre is physically in the right place for part of the middle mile.
There is also dark fibre in many cities and business parks et cetera, but that is not where our
problem is. Generally, our problem is where there is no dark fibre.
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Q264 Earl of Selborne: We heard about a village in Kent, for example, which happened
to be situated immediately over dark fibre that it could not access. That seems to be a good
example of something I could not understand. What is the physical or regulatory constraint?
Chi Onwurah MP: I am not aware of this village in Kent and I think that that would be quite
rare, but it is not so much the regulatory constraint—there is no requirement on BT or
whoever owns the dark fibre to give access to that fibre. It is their network and they can do
what they want with it. There would be a cost involved to BT in lighting that fibre, but I
think that you are right that we should look again at encouraging fibre owners to be more
flexible in providing access, because, in that case, that would certainly reduce the costs of
getting fibre to that village—although BT would obviously still have to distribute it within
that village. However, I really do believe that that is a very limited example. I know that in
Suffolk, for example, there is very little fibre already in the ground. It is not a big part of the
solution.
Q265 The Chairman: You just touched on rating and unlit fibre. Because of the work
you have done, do you have any thoughts about how you deal with the problem that you
said the Treasury will have to deal with?
Chi Onwurah MP: I am loath to tell the Treasury what to do, but we obviously need to
reduce the cost of lighting fibre.
Q266 The Chairman: You do not have any special insight into how you might
differentiate these things?
Chi Onwurah MP: You change the rating on the fibre.
Q267 The Chairman: How? That is the question. If you do not know just say no, and
that is fine.
Chi Onwurah MP: No.
Q268 Baroness Deech: You have recently written that BDUK needs more and better
resources. Can you tell us more about that and its extent?
Chi Onwurah MP: I do not want to be overly critical of BDUK because of what it is doing
with very few resources. An Answer to a Parliamentary Question stated that it had 10
people working on the whole local deployment of superfast broadband. There are over 500
local authorities, each of which is supposed to be producing a broadband plan. Broadband is
very complicated—the technology, the services, the interconnection of different suppliers.
There are clearly not enough people. In December, 70% of local authorities had not
completed their local broadband plan, and were being criticised for that. However, BDUK
does not have the people to provide the extra technical support that these local authorities
need. Many local authorities are turning to consultants. It is great for consultants, but that is
increasing the cost on the public purse, as well as the fact that the consultants may not have
experience of this kind of network deployment and procurement. We are trying to make
sure that there is superfast broadband to each of 30 million homes across the country, and
we have 10 people working on that. In addition, we now have superconnected cities, and a
second set of superconnected cities, and then we have the rural and mobile infrastructure. I
am not saying what the right figure would be, but there are only 10 people to do that job,
even without considering the fact that they need the engineering and technology expertise.
I put down some PQs on how many engineers there were in DCMS, and the answers
suggest that that expertise is not there as well. We need much greater resources.
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Fragmenting the procurement, which is what happened by making each local authority put in
its bid, does not really take away the need for strong technical resources at the centre.
Otherwise, we are going to end up with a wholesale mess in the localities.
Q269 Lord St John of Bletso: Can I ask a supplementary? You mentioned in your
opening comments that the country needs a network fit for purpose. What is being done to
stimulate the demand for broadband, because a lot of the country does not really utilise
broadband, and could be doing a lot better?
Chi Onwurah MP: That is a very interesting question, because not only is it the case that
we have parts of the country where there is access to broadband but low take-up, but if we
also look at the fact that superfast broadband already covers 50% of the country and we
have only 5% take-up, it is clear that we need to do more to stimulate demand. A number of
things need to be done. One is to get everybody on basic broadband. In terms of network
economics, this is not like when the last home was connected to the electricity network and
no one else will notice. In terms of network economics, when everybody is on the network,
it will make a huge difference—when you know that if you have a new product or
application everybody in this country would be able to access it. If we ever get there, we will
be surprised by the impact of having a truly ubiquitous network.
Also, the Government could do more in terms of its digital inclusion plan to show the
advantage and to help support the development of applications, which really make
broadband valuable. Some might say that the Government should not be involved in
stimulating demand, but ensuring that the availability and advantages of broadband are better
understood is something that the Government can take a role in. For example, telemedicine
could lead to huge cost savings to the NHS. There is a real interest in promoting that, but
we need the applications and availability so that we get increased take-up so that, for
example, older people can look at telemedicine as something to be enjoyed and welcomed,
rather than what happens now, when it is often presented as a replacement for people or
cost saving. If we had the right kind of studies or pilots, we could start to change people’s
attitudes.
Q270 Baroness Bakewell: Can we talk about your background with Ofcom? Since you
left, Ofcom has had the power to impose obligations on those without significant market
power. Suppose it decided to use that power; what effect would it have?
Chi Onwurah MP: In dealing with the issue of getting everybody on to superfast broadband,
it would have relatively little effect. For example, it means that it can impose remedies on
Virgin Media as well as BT, but remember that Virgin covers only 50% of the country.
Therefore, anything that it does to Virgin or other providers will not improve broadband
coverage for the final third. To roll back from this a little, it makes it easier for a new
entrant, such as Fujitsu, to come in and start competing across the country but, as we
discussed, it is almost too late for that. The procurement processes are going on now. We
need to do as much as we can now to encourage competition in procurement. Any
remedies that Ofcom could propose would take some time to come through.
Q271 Baroness Bakewell: In the light of what you were saying earlier about
competition, it is rather hard to hear you say that it almost too late. On the one hand you
want to extend, but on the other you are saying that we cannot do it.
Chi Onwurah MP: I am saying that it is almost too late for infrastructure competition but
you are right—it is not too late. However, speed so far has been glacial. It has taken two
years so far and we do not have one metre of fibre down.
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Q272 Baroness Bakewell: How do you put some energy into the system, then?
Chi Onwurah MP: I hope that your report will help to do that. You are absolutely right. If
there were to be dramatic change in, say, the next year—while these procurements are
going on and before we get to 2015, which is when the Government have said that we will
have the best broadband network—it could really make a difference. I suppose I am slightly
sceptical about there being dramatic change in the next year. Many of these networks are
ready to go now; they are ready to be procured and will be procured in the next couple of
years.
Baroness Bakewell: But the operation has been too sluggish.
Chi Onwurah MP: Yes, it has been too sluggish.
Q273 Lord Gordon of Strathblane: I am told that BT probably would not have the
staff to move much faster than it is at the moment. There is a grave shortage of people with
engineering qualifications in both the power industry and the telecommunications industry.
Chi Onwurah MP: That is absolutely true. BT is doing a fantastic job in rolling out Infinity. If
you look at its own figures, it is clear that there is a shortage. However, given the right
motivation, engineers in other areas can be trained up. We have quite a lot of slack in the
economy generally at the moment because we are in a double-dip recession, so if we want
seriously to speed up the investment in infrastructure—it has taken us two years to get to
where we are—we could train the necessary people to support that.
Baroness Bakewell: Through apprenticeships, perhaps.
Chi Onwurah MP: Exactly. There has been a reduction in engineering and technical
apprenticeships over the past 20 to 30 years, but we could look at reinstating them.
Q274 The Chairman: Before we move on, could you think back over your evidence? You
talked about active line access, with which you have been intimately involved at Ofcom.
What impact would it have had if BT had adopted it? Secondly, do you know why Fujitsu
agreed to adopt these standards but BT did not?
Chi Onwurah MP: BT says that it is moving towards adoption, so it is not ruling it out. If
BT had adopted it aggressively, it would mean quite a lot of things. For example, there would
be an easy standard for every village or community that had the resources and skills to lay its
own fibre. Once BT had put that in place, all its retail services would work across those
networks, as would all TalkTalk services. You would immediately get a choice of provision,
rather than ending up in the situation that we see in Digital Region in Yorkshire, where
there is quite a large network but no service provision across it.
The Chairman: Is this in Doncaster?
Chi Onwurah MP: It is in Yorkshire. Digital Region unbundled 1,500 cabinets and covers
80% of Yorkshire. However, it had very little take-up because you cannot get TalkTalk, Sky
or any of those that advertise nationally over the network. That is because it does not have
a standard interface. That was one thing. It would have encouraged companies such as
TalkTalk and Sky, which have spent the past few years developing their own internal systems
and processes to support superfast broadband, to do so in a standardised way.
As to why Fujitsu has put much more effort into it, that is clearly because it is the new
entrant. It has more of an incentive to offer a standard interface. The alternative would be to
copy exactly what BT did, but it cannot do that because not all BT’s processes and systems
are in the public domain. Fujitsu knows that if it wants to sell services to Sky, for example, if
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the product that it offers and its interface for ordering is very different from BT’s, Sky will be
less inclined to go with Fujitsu. Therefore, Fujitsu has been pursuing it aggressively because it
is in its interests as a second entrant. It is less in BT’s interests.
Q275 The Chairman: With the powers that Ofcom now has to impose obligations on
those without significant market power, could it mandate active line access generally? Would
that be desirable?
Chi Onwurah MP: That is a very interesting question, which I had not thought about. Given
that Ofcom has powers to impose on non-significant-market-power players, I would say—I
am not a lawyer but I have worked extensively with lawyers, so I know the dangers of taking
their place—that it would have the ability to impose a wholesale access product. That would
follow. Yes, it would be desirable if all providers offered the same interface. Standardisation
here would be a platform for innovation that anybody could access. I do not know that it is
desirable to force a company to do it. Clearly, it would be much better if they chose to do it
and the incentives were in place. I will not comment on whether it is desirable to force
them.
Q276 The Chairman: Is the point that you make about the interface very significant to
the successful rollout across the UK of high-speed and superfast broadband?
Chi Onwurah MP: If by “successful rollout” you mean the initial rate of take-up—if
everyone has the pipe and people can use it—it is incredibly important. Once we had local
loop unbundling, Sky, Carphone Warehouse and TalkTalk came into the market. That has
driven up take-up and driven down costs. We have one of the most competitive broadband
networks in the world. We have more choice. If that were not to happen with superfast
broadband, it would reduce take-up and innovation. It is incredibly important.
We could end up in a position whereby we have a monopoly network provider without
different services running across it. It would be the superfast broadband equivalent of “any
telephone colour as long as it’s black”. Does that strike you as the image that you want for
the United Kingdom in 2030 or 2040? That is not what it should be about. It is very
important that we have the standard on which all different kinds of companies can roll out
products and services.
Q277 Lord Bragg: How would you select the key issues that require intervention and
regulation? Could you give us an idea of where you think they are? You said to Baroness
Bakewell that you were hoping that maybe this Committee would be able to give you a
sense of them. That is very flattering but we do know our place. What do you think is going
to give it the dynamic that it needs?
Chi Onwurah MP: What would give the market or the provision the dynamic? We do not
make enough of the importance of communications technology and technology generally.
You might expect me to say that, given my background as an engineer in technology, but I do
not think that we recognise enough its importance as a driver for economic growth. To add
dynamism would be an unequivocal statement not that we want, say, the best superfast
broadband but that we want everybody to have broadband by a certain date, that we want
them to have a choice of services and that we are going to be a dynamic, vibrant, ICTliterate
society. We need to recognise the importance of that infrastructure to us.
On how you get there, I believe that that is through a mixture of making sure that there is
competition and also through the Government investing to get to that final third where
market competition cannot reach. The current amount of money—especially since it is
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salami-sliced among 500 local authorities—is not enough, so there is a need to increase the
resources of BDUK.
Q278 The Chairman: Can I stop you there? Bearing in mind your previous existence, do
you have any concept of how much money you think might be appropriate?
Chi Onwurah MP: If you want superfast broadband at 24 Mbps, this Government have put
in about £1 billion for the final third. I think that there was a report from the Broadband
Stakeholder Group that said that it is about double that for the final third. I can write to you
with the exact figure but there has been quite a lot of research into network costs. That is
one of the reasons why they say that local authorities will match that £1 billion, but local
authorities are being cut back to the bone, so it is very hard to see that happening
effectively. It is important to recognise what competition can do—and it is important to
enable competition through standardised access and through the right regulation—and to
make sure that we understand that a monopoly without competition is not acceptable. But
we also need to recognise what government needs to do, which is to provide investment
and resources at the centre to support that. I am very concerned that a lot of local
authorities are going to spend a lot of money on consultants and we are not going to benefit
from that.
Q279 Lord St John of Bletso: In your previous answer, you mentioned that the lack of
competition could result in the threat of reduced innovation. We have seen incredible
advances in technology, but what do you suggest can be done to promote more investment
in technologies? I am thinking about all the work that is going on in Ipswich with BT, which is
just one example. What can be done to promote them?
Chi Onwurah MP: That is one of the most important questions facing the country, but I
shall give you some ideas. I think that investment should be better recognised by the
Treasury—again, we are talking about tax—whereas this Government have abolished
manufacturing capital allowances. So investment in infrastructure and technology should be
better recognised. We have R&D tax credits, which are important, but they do not help
when it comes to commercialisation and innovation and renewing your ICT infrastructure.
Also, ubiquitous broadband take-up would help because it would mean that any small ISP
could have access to quite a large market. Models and pilots can be very useful. I support, for
example, superconnected cities, although, again, that project is taking a lot of time with state
aid rules, and it is already behind schedule. However, models and pilots can show this being
part of people’s lives. I believe that in 10 or 20 years it will transform people’s lives but, right
now, to stimulate demand we need to do more to show how that transformation will work.
The Chairman: We are getting close to our time for concluding, but is there anything else
that we have not touched on that you feel might be good for us to know about?
Q280 Lord Dubs: Can I just ask one question? Do you think that the British public are
less aware of these issues than the public in other countries? If the answer is yes, does that
hold us back?
Chi Onwurah MP: I think that there is less excitement about technology in this country
than in many other countries, but I am not sure why that is. The French are superproud of
their engineers and their engineering background. For example, I spent some time working
in Nigeria and the differences that technology could make to people’s lives there were
considered to be incredibly important. So I think that there is less potential excitement.
Perhaps we are just naturally more cynical about the options for progress. I also think that it
is badly represented in the media. We do not get great dramas about engineers or
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technologists or the joys of innovation. So I think that we are less excited about it and
possibly that can hold us back. I would look for a good strong signal about the importance of
technology and innovation and ICT.
Q281 The Chairman: Is there anything else that we have not touched on that you think
is important?
Chi Onwurah MP: One point that I would like to make is that it would be good to have
clarification on what this Government’s objective is. We talked initially about the best
superfast broadband. I do not know whether Ministers have been before the Committee but
recently Ed Vaizey has talked about having the “best” broadband network, so “superfast”
seems to have been dropped. That would be a very useful clarification. I think that I have
touched on my two main points. Competition is incredibly important. Whoever succeeds in
rolling out a monopoly network needs to understand that they will not be able to enjoy it as
a monopoly. Competition is in their interests as well, and the regulator—perhaps you will
get this more clearly from the regulator—should not allow a monopoly.
Q282 The Chairman: That means that whoever rolls out the network should not be
allowed to be a monopoly vertically linked supplier of services across the network. Is that
right?
Chi Onwurah MP: Yes, they should not be the only people allowed to enjoy that network.
The Chairman: It should be enjoyed by others on a fair, reasonable and nondiscriminatory
basis.
Chi Onwurah MP: Absolutely, yes. That is the only way to have real competition. Ubiquity
is also important. When we find ourselves with a network which everyone can use, it will be
the first time in human history that it has happened and we may well be amazed by the
results.
Lord Clement-Jones: But you have to have common standards to get to where you want
to be.
Chi Onwurah MP: Yes, you have to have common standards as well.
The Chairman: That seems to be a very good moment to conclude. We are extremely
grateful. Thank you very much.
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Chi Onwurah MP – supplementary written evidence
Chi Onwurah MP – supplementary written evidence
1. What are the significant points of difference between the GEA product (as it stands) and the
VULA regulatory standard which – as we understand - it is intended to implement?
2. What are the significant points of difference between VULA and ALA (and by extension
between GEA and ALA)?
3. How – if at all – would the universal adoption of ALA make it more likely that independent
local access networks built by communities or local SMEs could successfully a) connect to
other infrastructure providers’ networks and b) attract ISPs to offer services over their
infrastructure to end-users?
4. How feasible do you think it is for BT to define connection standards for independent
network builders (eg. communities/SMEs) that would enable them to offer ALA to ISPs with
a hand-over point inside BT’s network?
Questions 1 & 2
Firstly, to clarify each of the terms (VULA, GEA, ALA):
• Virtual Unbundled Local Access (VULA) is the term used by Ofcom (and adopted by
other European regulators) to describe a generic type of wholesale local access, which
provides competing providers with ‘virtual unbundled’ access to an incumbent operator’s
optical fibre-based access network (including Fibre-to-the-Cabinet (FTTC), and Fibre-tothe-Premises
(FTTP)) - analogous to the physical unbundling of copper networks
provided by Local Loop Unbundling (LLU). VULA is a generic concept – there is no
detailed specification of VULA though some ISPs such as Virgin Media have called on
Ofcom to be more specific.
• Generic Ethernet Access (GEA) is the name of a wholesale local access product provided
by BT Openreach, which provides access to BT Openreach’s FTTC/FTTP access
network. GEA is BT’s proprietary version of VULA.
• Active Line Access (ALA) is the name of a set of standards for wholesale local access,
defined by the UK’s Network Interoperability Consultative Committee (NICC). ALA is
an openly standardised version of VULA.
So ALA and GEA are both forms of VULA.
It is also important to understand that there are
• Competing operators using somebody else’s network to deliver broadband or internet
services as ISPs
• Infrastructure providers who own the network infrastructure and may also deliver
services. In about half the country both BT and Virgin are have infrastructure, in the rest
generally it is BT only but in some communities it could be an alternative provider.
For competing operator’s accessing an infrastructure provider’s optical fibre-based access
network, there are two main interfaces involved:
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i) the network interface presented by the infrastructure provider at one or more
handover points, giving local access to a number of customers’ premises to the
competing operator’s network, and
ii) a systems interface to a set of operational support systems (OSS) presented by the
infrastructure provider (sometimes referred to as a Business-to-Business (B2B)
gateway), which enables the competing operator to provision service to customers,
be alerted to any faults, and to restore service following fault repair.
The absolute number of network interface handover points the infrastructure provider
offers is important as the competing operator will have to purchase connectivity to that
point.
Both GEA and ALA have detailed specifications for their respective network and systems
interfaces and a more detailed analysis is attached. In summary, while there are many
similarities between the network and systems interfaces specifications for GEA and ALA,
there remain a number of important differences between them. The most obvious
difference is that GEA is a set of proprietary specifications defined by BT Openreach (the
infrastructure provider in most of the UK), while ALA is a set of openly standardised
specifications defined by industry consensus through NICC. Competing operators have to
interface to BT’s GEA to be able to access BT’s fibre-based local access network, but many
would prefer to use ALA as a common standard interface for accessing fibre-based local
access networks from alternative infrastructure providers. ALA also offers competing
operators a range of features that are not yet supported by GEA including
• wires-only interface at the customers’ premises (rather than having to use the
incumbent-provided customer premises equipment (CPE))
• more flexible support for multicast (for video streaming services) and broadband.
• more control for competing operators over the quality of service delivered to their
customers.
There are further detailed differences in how even the common features between GEA and
ALA are implemented in both the network and systems interfaces of GEA and ALA, which
prevent competing operators from being able to develop their own network and systems
just once to interface to both GEA and ALA.
With the prospect of alternative infrastructure providers building fibre-based local access
networks in some parts of the UK, it will be important for competing providers (and their
customers) that both alternative infrastructure providers, and BT, move towards adopting a
common specification for network and systems interfaces based on ALA.
Questions 3
Bearing in mind that Hull which has an alternative infrastructure provider for the 190,000
homes (KCOM) has not been able to attract any competing providers it is clear that small
fragmented community networks and even the larger local authority networks have little
chance of attracting ISPs to offer services. They might be able to physically connect to BT’s
network thanks to regulatory requirements, but they would not attract the innovative and
low cost services necessary to drive demand. The universal adoption of ALA including its
systems interface would make it infinitely more likely that ISPs would offer services as it
would reduce dramatically the ISP’s incremental cost of interfacing to alternative providers.
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Chi Onwurah MP – supplementary written evidence
Network connectivity and contracting costs would remain but the latter could be reduced
through standard contracts as already exist for mobile roaming. UK defined standards for
acceptable fibre deployment practise might reduce network connectivity costs.
Questions 4
It is entirely feasible for BT to define connection standards for independent network builders
which enable it to offer ALA, GEA is close as it is. There would be a cost associated with
adapting GEA but it would not in my opinion be disproportionate as BT have said they are
‘moving towards’ ALA, and it is therefore a matter of bringing forward that move and
providing investment certainty now for ISPs.
June 2012
593

Parliamentary Office of Science and Technology (POST) – written evidence
Parliamentary Office of Science and Technology (POST) – written
evidence
Is optical fibre future-proof?
Summary
The question posed was whether there is any discussion of potential technologies that could
supersede optical fibre in communications networks, in the same way that copper cable is
now becoming an obsolete technology for broadband internet access. The short answer is
‘no’. As Professor Will Stewart, Chair of the IET Communications Policy Panel, points out:
“the capacity of even a single fibre completely swamps that of the entire wireless
spectrum”. 209
While fibre will continue to be the only option for ‘core’ communications networks, there is
a range of options for the ‘access network’ or final link to the home. These include different
configurations for fibre-based access networks as well as a range of wireless technologies.
This short briefing considers only the technology behind these options and does not discuss
regulatory issues.
Comparing communications technologies
Different communications technologies carry data in different ways. An optical fibre is
essentially a tube made of glass along which light of different wavelengths (‘colours’) can
travel. Copper cables carry data through radio waves confined within the metal, while
wireless technologies are based on radio waves travelling freely through the air.
The choice of a communications technology is influenced by how fast it can transfer data and
over how long a distance. The copper network was designed for phone calls which do not
require very high data rates. Through the development of DSL technology, copper has been
able to transfer data at moderate speeds over short distances, but this capacity is now being
exceeded by demand for data-intensive applications such as streaming high-definition video.
Wireless technology also mainly operates at relatively short ranges and/or low speeds, while
fibre is capable of very high speeds over very long distances. This is because the data rate
depends on the range of wavelengths that can be used, and optical light covers a much
broader range than the spectrum of radio waves.
Data rates are usually measured in bits per second (bps). The latest installed version of DSL
technology (ADSL2+) has a maximum data rate of 24 Mbps (million bits per second), though
this is strongly affected by the length of the line and the quality of the copper. Wireless 3G
for mobile phones typically supports a data rate of up to 2 Mbps. The capacity of an optical
fibre can be trillions of bits per second (Tbps) or more. Prof Stewart points out that: “If the
capacity of a fibre is a football pitch, today’s broadband is a postcard, and the entire radio
frequency spectrum a large towel.” 1
209 Private communication
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Parliamentary Office of Science and Technology (POST) – written evidence
Core and access networks
It is important to distinguish between ‘core’ communications networks, which carry data
around the world, and access networks, which provide the ‘final drop’ into a home or
business. For the core network, there is no alternative to optical fibre for the high data rate
and long distances required. Currently the data rates achieved over fibre are limited more by
the equipment that processes the signal at the ends of the fibre than by the fibre itself.
Research is being carried out to develop higher-grade fibre that can support greater speeds
in the core network, such as in the “Transforming the Internet Infrastructure – The
Photonics Hyperhighway” project at the University of Southampton.
There are several options for the technologies used for the access network, and thus where
the ‘handover’ between the fibre core network and the access network occurs.
• Fibre to the Home (FTTH) delivers an optical fibre link all the way to the end user,
allowing the highest data rates.
• Fibre to the Cabinet (FTTC) runs an optical fibre to a street cabinet close to the end
user but uses existing copper for the final drop. Since the length of copper is shorter,
higher DSL speeds can be achieved, but data rates are still ultimately limited to a
considerably lower rate than is achievable with FTTH. BT’s ‘Infinity’ roll-out to
existing premises is FTTC.
• Wireless technologies can be used as an alternative to copper for the final drop. In
particular, there is growing use of broadband through the mobile network, where the
handover to the fibre network is at the local cellular base station.
Fibre network architecture
FTTH can achieve data rates many orders of magnitude greater than FTTC, but it is
expensive to install new fibre links to existing sites. In contrast, new-build sites can easily
have FTTH installed rather than a copper cable, such as at the Ebbsfleet development where
BT has piloted FTTH. Critics of FTTC, such as the FTTH Council, 210 suggest that while
FTTC is cheaper to install in the short term, it may prove more expensive in the long run to
upgrade FTTC to FTTH.
Even if FTTH is chosen, there are still various options for how the network is structured.
Point-to-point (PTP) fibre offers each user a dedicated fibre while ‘passive optical networks’
(PON, used at Ebbsfleet) allow typically 32-64 users to share one branched fibre. A report
by Analysys Mason 211 for Ofcom in 2010 concluded that both types of network will continue
to be widely used and supported by evolving technologies, “making the investment of FTTH
operators future proof”. The report also finds that PON networks are cheaper to deploy
than PTP, but that PTP will be easier to upgrade, “which in a way, makes PTP a less risky
technology to invest in”.
The two options also have different regulatory implications which are outside the scope of
this briefing. An OECD report 212 concludes:
210 Response to the UK House of Lords’ Select Committee on Communications Call for Evidence, FTTH Council Europe,
March 2012
211 Fibre capacity limitations in access networks, Analysys Mason, January 2010
212 Developments in fibre technologies and investments, OECD, April 2008
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Parliamentary Office of Science and Technology (POST) – written evidence
FTTH at present is the network that is most futureproof, because it can handle the most
new bandwidth-intensive applications. The choice between PTP and PON will be based on
various preferences and both technologies might be used to reach a large amount of users
and different kinds of users. Regulators will have to remain aware that the network topology
chosen may have an impact upon the regulatory options.
The Analysys Mason report also considered how demand for data over the next 30 years
will evolve and concluded that “if FTTH technologies follow the evolutionary paths
predicted, we believe that both upstream and downstream demand will be met comfortably
by FTTH systems.” Bottlenecks in capacity are likely to be the result of the technology at
the ends of fibres, particularly at the user’s end, not the fibre itself.
Wireless technologies
Wireless access networks provide a good solution where installing fibre would be
prohibitively expensive, for example in sparsely populated rural areas. Demand for mobile
broadband in densely-populated areas is already putting a strain on capacity, which is limited
by the amount of radio spectrum available. Developments in wireless technologies such as
4G mobile broadband will allow wireless to achieve greater data rates, but they will not
replace fibre in the core network, nor achieve faster data rates than fibre for the access
network.
One technology, ‘free space optics’ uses laser light, rather than radio waves, travelling
through the air. This could offer data rates similar to fibre, but suffers from the problems of
needing a direct line of sight between sender and receiver and being attenuated strongly by
the atmosphere.
An interesting case study is ongoing in Australia, where the government plans to roll out a
predominantly FTTH National Broadband Network. Opponents of the scheme have claimed
that it will be made obsolete by developments in wireless technology. However, an article by
Rodney Tucker of the University of Melbourne comments: 213
The capacity of wireless access is constrained by the very limited slice of the electromagnetic
spectrum that can be used by wireless communications. In addition, the radio frequency
spectrum in a cellular network is shared by all users in that cell. Therefore, to achieve
anything approaching 100 Mbps to the home would require almost one base station tower
for every user.
Tucker points out that wireless suffers by comparison to fibre in that the limited amount of
radio spectrum available for sending signals through the air must be shared by users. He
concludes that “fibre provides the ultimate future-proof solution for broadband access to
fixed locations such as homes” while wireless technologies are complementary to fibre,
providing mobile connectivity and being well-suited to sparsely populated areas.
213 Tucker, Rodney S. 2010. ‘Broadband facts, fiction and urban myths’. Telecommunications
Journal of Australia. 60 (3): pp. 43.1 to 43.15.
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Parliamentary Office of Science and Technology (POST) – written evidence
Conclusion
Investment in fibre is future-proof in the sense that fibre offers data rates far in excess of
current and predicted future demand, and in that there are no proposed technologies that
can offer comparable data rates over long distances. Upgrades to the technology used at the
ends of a fibre allow greater rates to be achieved without the fibre itself being replaced, and
research is underway on higher-grade fibre that can support still greater rates in the core
network.
There are several possible technologies for users to access the fibre core network, including
copper, fibre and wireless. Fibre to the home provides the greatest data rates while wireless
technologies have a complementary role, and ‘convergence’ between fibre and wireless
access networks (for example using shared public WiFi to access FTTH) will have a
significant impact.
Different choices for the fibre network architecture have different upgrade paths, and also
have varying implications for regulation which are not covered by this briefing.
May 2012
597

John Peart – written evidence
John Peart – written evidence
Rural Broadband – The Digital Divide
1. The request of this paper is that superfast broadband (and its successors
such as Gigabit broadband) should be made a universal service obligation
across the whole of the UK.
2. Broadband is of fundamental importance to everyone. This paper asserts that the
Government’s target of 90% of the population to be on superfast broadband by 2015
means that 6 million Britons will not be on superfast broadband by this date. Most of
these people live in rural areas and hence there will be a massive digital divide
between the country and the towns by 2015.This must not be allowed to happen.
Steps need to be taken now to prevent this from happening.
3. Currently commercial organisations (BT Race to Infinity) and the Government (Rural
Community Broadband Fund) have turned the availability of superfast rural
broadband into a game show. Raising the hopes of many but only satisfying the few.
At best this approach is window dressing to disguise the gross failure of the market
and of Government policy to deliver a superfast rural broadband service.
4. This submission is made on an individual basis though the author is a member of a
small group of local people who are concerned about the current state of rural
broadband and the lack of any published plans detailing how this will be addressed in
the future.
5. The author lives a village of approximately 400 people, situated in the South Downs
about five miles from Chichester and 60 miles from London.
6. The current situation regarding broadband is that the majority of properties in the
village use broadband, however speeds vary from 0.5Mbps to 1.8Mbps. Uses such as
e-mail and Internet browsing are slow but workable. Anything else such as watching a
video stream is impossible due to ‘stop-start stuttering’.
7. It has recently been announced that the local main exchange (Chichester) and our
local satellite exchange (Bosham) will be upgraded this year to support superfast
broadband. Good news for those living close to the Bosham Exchange but of no
benefit to villages such as ours which are further away (4 miles).
8. For anyone living further away than a few hundred yards from an Exchange then to
benefit from the Exchange having superfast broadband two further improvements
have to take place.
a. Firstly a fibre has to be laid to the local green cabinet. As matters currently
stand, due to commercial confidentiality, no information is available as to
which green cabinet(s) will be or might be upgraded to receive a fibre
connection. i.e. will the upgrades happen at all, will a commercial supplier
provide the connection, will BDUK money provide the money or will local
people be left having to pay via an increase to the Parish precept?
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John Peart – written evidence
b. Secondly because only a low percentage of the village lives near to the
village’s green cabinet then, to receive superfast broadband, the copper wires
running to each premise need to be replaced with fibre. Statements have
appeared in the press saying that it will cost between £500 and £1,500 per
premise for this to be put in place.
9. A couple of examples serve to illustrate the already evident impacts of this situation:
a. A local land owner has converted some barns into business units which now
stand idle because he is unable to get access to a reliable (let alone superfast)
broadband service.
b. Speaking personally, my own son has a business based from home, but moved
into Chichester because of the lack of speed on the local broadband service.
10. In summary the current situation is that it is impossible to find out what is being
planned. Even then it is highly likely that our village, typical of so many across the UK,
will be in the bottom 10% of places. As such it will not gain access to superfast
broadband without very costly investment by the whole community - something that
has been provided for free to 90% of the population. Hence:
The request of this paper is that superfast broadband (and its successors such as
Gigabit broadband) should be made a universal service obligation across the
whole of the UK.
17 February 2012
599

Mike Phillips – written evidence
Mike Phillips – written evidence
1) I submit as a citizen who has been trying for some time to improve broadband in a
part of rural West Sussex. My technical knowledge is marginal. I now serve on the
Broadband Programme Board at West Sussex County Council. I will choose to make general
comment rather than itemising your topic points.
2) My general summation is that, although I cannot of course prove it, I surmise that
massive and successful lobbying by BT has allowed the government to be persuaded to turn
a ‘Nelson’ Eye’ to the way business is being done by BT. The obstacles HMG have ‘allowed’
to be put in place and to continue in place, including PIA costs and Rating Valuations, all
weight the BT scales heavily. It appears that some sort of ‘knowledge’ of where demand
might be commercially sustainable is also reaching BT – Cable and Wireless and other major
competitors have experienced the ‘cherry-picking’ by BT in both the BDUK pilot areas and
others, which have made their involvement not commercially attractive. Those to whom I
speak in industry all admit that the universal acceptance is, grudgingly, that BT will sweep the
money off the table. At an INCA workshop I attended recently we discussed trying to put a
framework in place for BDUK for 2020 in the hope that they can then get it right, rather
than trying to fight the existing debacle.
3) The technology BT are deploying is anachronistic. The lack of any mandatory Service
Commitment for BT other than maintenance of lines for voice and fax was, in my opinion, a
failure of the privatisation process. Because they wish to maintain their virtual monopoly on
voice telecoms and to protect their investment in the ‘local loops’, the deployment of FTTC
via the ‘local loops’ means that HSB (24mb+) peters out at 12-1300m from cabinets, and that
is with good quality ‘local loops’ which are rare. Increasing the input speed as they are will
not result in any significant improvement. We will be left with large areas, especially in rural
parts, that are not served. Their acknowledged refusal to ‘revisit’ Infinity enabled consumers
to upgrade them to FTTP and their low rate of installation of HSB in any particular area
further degrades the product. The technology is a cul-de-sac. Only through the deployment
of fibre to these cabinets, providing a starting point for FTTP, can any significant benefit from
the potential spend of £830mill be envisioned.
4) The current government policy will not see fruition until 2016, when 24mb (which
will not have reached many areas) will be well below the Neilson Curve predictions for
need, and as you have surmised, we could be looking for 1gb in 2020.. The current roll-out
is totally unable to reach these speeds. It will require a spend of far greater magnitude than
the current to undo this structure and build new, rendering much of the £830mill wasted
money. The USC of 2mb is well outdated, and was when this party came to power
5) I still firmly believe that the idea floated by Hunt of ‘Digital Pumps’ in each community
is the best way forward. Communities can be left to develop their own networks from these
hubs, and should be able to generate sufficient commercial interest to make the greatly
reduced infrastructure investment required attractive to companies. We also drop neatly
into the cherished concept of the ‘Big Society’ this way.
6) In short, we must aim for FTTP, which is capable of providing the need for data
transfer well into the 21st century. Providing it is installed in suitable ducts, any as yet
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Mike Phillips – written evidence
undiscovered faster ‘wired’ system can be adopted. The most frightening aspect of all of this
is the lead time required for any movement – we need to be planning and installing NOW
for the needs of 2020 rather than for the needs of 2011. 8 years is not a long time in this
world.
7) Lastly, I would highlight the flaws I see in the way funds are allocated. I would
recommend you investigate many of the older RDPE applications and awards and some of
the current RCBF and BDUK applications in terms of whether an accurate picture of
existing broadband provision has been presented in the application process. I know
personally of two applications where existing significant wireless HSB has been ‘ignored’. All
these existing HSB networks have been developed as private ventures and it is not right that
state funding should be allowed to trample on the efforts of these people.
Thank you for the opportunity to comment.
13 March 2012
601

Simon Pike – written evidence
Simon Pike – written evidence
Summary
1. The Government’s proposals for “superfast broadband” seem broadly well-targeted and
proportionate, provided that “best” and “superfast” are defined appropriately.
2. Many calls for “superfast broadband” are promoted by the poor quality or nonavailability
of current broadband offerings, not by the benefit of increasingly high headline
speeds.
3. It is important that any policy for broadband distinguishes between the needs of small
companies, large companies, public facilities (like schools and hospitals) and consumers.
4. The Government needs to decide the extent to which provision of entertainment video
though broadband (in addition to existing delivery channels) is deserving of public
subsidy, because this is the main driver for consumer’s desire for “superfast broadband”.
5. In these times of austerity, public subsidy for deployment of very fast broadband needs
to be compared with other needs for investment, and often the case is weak.
6. Government support should be focussed on improving the minimum level of service
(especially in rural areas), rather than increasing broadband speeds in places that already
receive a good service.
Introduction
7. Throughout the world, Governments are seeking to encourage deployment of “superfast
broadband” (or a similar term), in order to promote economic development and bridge
the digital divide. However, the definition of “superfast broadband” is rather nebulous.
8. The European Commission has set three targets for broadband in Europe in its
Communication on Europe 2020 214 :
- broadband access for all by 2013.
- access for all to much higher internet speeds (30 Mbps215 or above) by 2020.
- 50% or more of European households subscribing to internet connections above 100 Mbps.
9. The Commission has estimated 216 that an investment across EU of 38 to 58 Billion Euros
would be needed to fulfil its target for 30Mbit/s 215 , and between 181 and 268 Billion
Euros for its target for 100Mbit/s. However, none of Commission papers developing this
policy 216 217 provide any credible case for the need for these bit rates (especially
100Mbit/s), and therefore for making this investment. It is also rather curious that the
214 Communication from the Commission; Europe 2020: A strategy for smart, sustainable and inclusive growth; 2
March 2010; COM(2010) 2020
215 A ‘bit’ is the smallest unit of information (i.e. one or zero, on or off). The rate of transfer of information is
measured in bits per second, written ‘bps’ or ‘bit/s’. M stands for ‘mega’ or one million, and G stands for ‘giga’ or
one billion. Hence, 30Mbps is a transfer of thirty million bits of information per second. The term ‘byte’,
frequently used in IT, represents a symbol or character, and equals eight bits (256 possible symbols, or two
multiplied by two, eight times).
216 Communication from the Commission to the European Parliament, the Council, the European Economic and
Social Committee and the Committee of the Regions; European Broadband: investing in digitally driven growth;
COM(2010) 472
217 A Digital Agenda for Europe; Communication from the Commission to the European Parliament, the Council, the
European Economic and Social Committee and the Committee of the Regions; COM(2010)245 final/2; 28 June
2010
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Simon Pike – written evidence
Commission has set a target based on consumer behaviour – i.e. the number of
subscriptions.
10. The UK Government has set out its objectives for broadband in the document “Britain’s
Superfast Broadband Future”, 218 in particular “to have the best superfast broadband
network in Europe by 2015”. The document does not provide explicit definitions of
“best” or “superfast broadband”, but describes it in terms of economic and social
benefit. If ‘best’ is interpreted as providing the greatest benefit to citizens and businesses,
this is a far better approach than setting numerical targets for one parameter, as adopted
by the Commission (and others).
What drives demand for superfast broadband?
11. Many business and consumer groups in UK are lobbying for increased availability of
“superfast broadband”. However, this seems generally to be to remedy the poor quality
(or total lack) of broadband in some areas, rather than for the benefits of
“superfastness”.
12. All significant current services that require a high bit rate (and credible future ones)
involve images in one form or another; the only service that requires a very high bit rate
is high definition video (HDTV). For images, the maximum amount of information that it
is useful to transmit (and therefore the broadband speed needed) is determined by the
size of the display and the resolution of the human eye – which is not likely to increase in
the next decade! On the other hand, the technologies for compressing the video
signals 219 continue to improve, which reduce the speed (i.e. the bit rate) needed for
pictures of a particular level of quality.
13. Therefore, the main driver for superfast consumer broadband is HDTV and larger
displays. The Government does not see the need to intervene in the market for large
screen televisions (for example on grounds of social exclusion of those that do not have
them); it is therefore unclear why it should do so for superfast broadband that would
only be needed to provide services for these televisions.
What speed of broadband do we need?
14. Many discussions of broadband speeds confuse the needs of consumers, businesses and
public bodies like schools and hospitals; it is not necessary to provide a particular bit rate
to every household in the country in order to make it available to schools and
businesses.
15. As mentioned above, many of the strongest calls for superfast broadband come from
parts of the country where the broadband service is currently poor or not available at
all; it is likely that many of these are in the hope of getting reasonable broadband, rather
than the perceived benefits of superfast broadband itself. It is important that the
Government does not follow a similar path, of setting overly ambitious targets in the
hope of achieving something less; in a complex field like broadband, this is likely to lead
to perverse incentives and misdirected investment.
16. The cost of providing broadband services does not increase smoothly with increasing bit
rate (and the other performance metrics described below). There will be steps in the
line, where the network architecture and/or technology need to change. The size and
218 Britain’s Superfast Broadband Future; Department for Culture, Media and Sport and Department for Business,
Information and Skills, December 2010.
219 For example, by not repeating the transmission of parts of the picture that have not changed.
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Simon Pike – written evidence
position of these steps will depend on many factors, but the largest step is likely to be
when the existing connection to individual premises needs to be replaced (i.e. where
fibre-to-the-home becomes necessary). Around these steps, the marginal cost of a small
improvement in broadband performance is very large 220 .
17. The call for evidence suggests that “speeds of 1Gb/s may be needed by 2020 and current
investment looks unlikely to be sufficient to deliver this”. However, there is no real
evidence to support this suggestion, beyond extrapolation of a historic curve to a decade
in the future.
Are there other targets the Government should set?
18. The government has taken the right approach in defining broadband in terms of
outcomes, rather than numeric values for technical parameters. However, some
understanding of these parameters is still necessary in order to set ‘smart’ targets.
19. Outside of the telecoms sector, the performance of broadband is almost always
described using a single parameter – “bit rate” or “speed” – in the downstream direction
(i.e. data delivered to the customer). However, this is only one of a number of
parameters needed to properly characterise a broadband connection:
Downstream 221 bit rate
20. This is the ‘headline’ figure that is normally discussed. However, for many broadband
technologies, the achievable bit rate reduces for fundamental technical reasons with
increasing distance from the exchange or radio base station, sometimes by a large
amount (a factor of more than 10). Often, the ‘headline’ figure that is quoted is the
maximum value when this distance is least (or sometimes when the distance is zero, only
possible in the laboratory!). It is therefore important, when defining policy, to understand
the conditions under which a claimed bit rate can be achieved. Otherwise, the policy
objectives might be fulfilled, but not the expectations of users.
Upstream 221 bit rate
21. For most broadband technologies, the peak upstream data rate is significantlly lower than
the downstream rate. This matches the needs of most broadband users, and is due to a
combination of trade-offs and fundamental technical factors for each broadband
technology.
22. The publicity stunts of broadband campaigners – often involving carrier pigeons – are
generally for uploading of data to the network, with files that are far larger than used in
the real world 222 .
Contention ratio
23. It is usually not cost-effective to provision a network for every user to receive the
maximum peak bit rate simultaneously, and in some cases it can be impossible (for
example, due to limited radio spectrum). The proportion of users who can
simultaneously obtain the expected service is known as the contention ratio. The tradeoffs
are different for each broadband technology, and the ‘pinch points’ occur at different
points within the network.
220 It is likely that the European Commission’s targets fall in the region of these steps, for 100Mbps in urban areas
and for 30Mbps in suburban and/or rural areas.
221 In mobile networks, these are known as downlink and uplink.
222 For example, see: “Pigeon flies past broadband in data speed race”. The 4Gbyte file that was used corresponds to
around 1000 MP3 tracks, documents or Powerpoint files, or one hour of high definition widescreen video (DVD
quality). http://www.bbc.co.uk/news/technology-11325452
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Simon Pike – written evidence
Latency and server speed
24. Latency is the time taken for download of a file to start to start, after it is requested by
the user or computer. The download of a web page can take a large number of
interactions between a computer and the network, and the total time taken can
therefore be many times the delay for a single interaction. Often, the taken for web
pages to appear is not limited at by the network, but by the response time of the server
providing the web page or the software running on the user’s computer.
What role could or should the different methods of delivery play in ensuring the
superfast broadband network is fit for purpose and is as widely available as
possible?
25. Different broadband technologies have different characteristics, and will therefore play
complementary roles in the delivery of broadband to different types of user and in
different types of location:
26. Fibre-to-the-home (FTTH, also called ‘passive optical network’) can provide an effectively
infinite bandwidth (though it might be constrained by the termination in the home or
elsewhere in the network); it requires a fibre to be laid to each premises, so is expensive
to deploy.
27. Fibre-to-the-cabinet (FTTC) uses a high bandwidth optical cable to a street cabinet, and
then the existing ‘twisted pair’ telephone cables for the final hundred metres or so to the
premises. The maximum bit rate is lower than fibre-to-the home, but in most cases is
more than adequate.
28. Cable TV networks use a variant of the technology for TV programme distribution for
their broadband services. Like FTTC, cable networks use high bandwidth optical fibres to
street cabinets, but unlike FTTC, the capacity from the cabinet to premises is shared by
many subscribers.
29. Mobile broadband uses a wireless link from a base station (or mast) to serve a number of
subscribers. The peak bit rate can be comparable to FTTC, but this is shared by all of the
users in a cell (i.e. the area served by a mast).
30. Satellite broadband services share a single radio link over a very large area (typically the
size of a country), and will typically have several such links to serve a substantial part of
Europe. Therefore, a typical satellite could only serve the population of one small town
with broadband services including video 223 .
223 For example, the Avanti Communications Hylas 1 satellite, which was launched last year, could only deliver the
30Mbit/s Commission target to at most the population of one small town in UK (4000 households). There are
only a handful of similar satellites serving the UK.
Assumptions for the calculation (using information from
http://www.avantiplc.com/sites/default/files/hylas1_amended_map_0.pdf ):
250MHz per transponder
two transponders serving UK (interpreted from the map)
spectrum efficiency 6 bits/sec/Hz (an optimistic value)
Polarisation diversity X2 (not stated, but likely)
Peak data rate per household - 30Mbit/s
Contention ratio - 20 (the 30Mbit/s data rate is only justified by HDTV, so this contention ratio is optimistic
because HDTV is a streaming service and a substantial fraction of households will want to watch at the same
time)
(250MHz X 2 X 6 X 2 X 20) / 30 = 4000 households (note that the assumptions are generally optimistic, so the
true figure is likely to be lower).
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Simon Pike – written evidence
31. It is difficult to compare these different broadband technologies, both because of their
different characteristics and the different ways that they support services:
- Cable TV networks transport broadcast TV channels and some video-on-demand
services separately from their broadband service.
- Some other broadband providers use Freeview to reduce the load on their network
from viewing of broadcast TV channels.
- Mobile networks may have separate wireless connections to many devices in a home
whereas, for the other broadband technologies, all of the devices in a home will be
connected to the network through a single ‘gateway’.
- Satellite broadband is available at any location where there is a clear view of the sky
to the south, but the cost of transferring large amounts of data is far higher than the
other technologies. It is therefore unlikely to be used widely for video-on-demand.
- For all broadband technologies apart from FTTH, the available bit rate depends on
the distance from the exchange/cabinet/mast (in some cases, quite substantially). This
is partly a fundamental property and partly a cost trade-off.
- For many configurations of network, the performance depends on the number of
customers trying to use the network at the same time.
32. For these reasons, it is extremely difficult to define benchmarks that reliably compare
user experience across different types of broadband network.
What network properties are required to enable efficient provision and use of
such services?
33. As discussed above, the only service that needs a very high bit rates is video. For
standard definition video 224 the bit rate is around 5Mbit/s, and for HDTV it is less than
20Mbit/s 225 . When a TV channel is being watched, this bit rate is needed continuously –
unlike web browsing or most other internet applications which only need the bit rate
intermittently 226 – and a large proportion of the population will be watching television
during peak viewing hours.
34. Higher bit rates therefore also imply a higher utilisation by consumers for video (i.e. a
lower contention ratio). These factors multiply together, so that the necessary capacity
of the network rises faster than the peak bit rate.
How will individuals and companies use cloud services for distributed storage
and computation?
35. As a concept, “cloud services” is even more nebulous than “superfast broadband”, but a
common theme is the storage and processing of data at a location that is remote from
the user. This converts what would today be the one-off purchase of hardware, software
and storage devices (e.g. hard disk drives) into an ongoing service. This is a fundamental
shift in the business model for IT, which would favour some players and disadvantage
others.
224 Comparable to Freeview, but using the more recent MPEG4 technology for video coding
225 Even the largest family, all watching different TV channels at the same time, would struggle to fully use the
European Commission target of 100Mbps.
226 For example, with a 10Mbit/s broadband speed it would take less than three seconds to download a 3MByte
(24Mbit) file; this is the typical size of an MP3 music track, or a document or Powerpoint file containing a number
of photographs.
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Simon Pike – written evidence
Will the Government’s targets be met and are they ambitious enough?
36. The Government has set the target “to have the best superfast broadband network in
Europe by 2015”. This is an ambitious target because it is less than three years away,
which is a very short timescale for substantial deployment of infrastructure.
Nevertheless, it should be possible to be well on the way to having a very good
broadband network throughout UK by that time.
37. The UK is not the only European country to have set targets to have “the best”
broadband network, so there is little doubt that this target is sufficiently ambitious.
Indeed, there is a risk that it could be too ambitious if it turns into an internet ‘arms
race’, with countries competing on the technical performance of the broadband
networks beyond the real needs of consumers. There will be a temptation to assess this
target by comparing the best broadband performance available within countries; this will
draw attention away from the parts of the UK where the broadband performance is not
so good, or not good enough.
38. The Government has set a second target of “ensuring virtually all homes will have access
to a minimum level of service of 2Mbps by 2015”, which is an important first step.
Increasing the level of this minimum level of service over time will produce greater social
benefit than improving the quality of broadband to those who already have a good
service.
Is the Government commitment of £530 million being effectively applied to
develop maximum social and economic benefit?
39. As Britain’s Superfast Broadband Future indicates, existing providers plan to cover 60%
or more of homes with high quality broadband in the UK on a commercial basis, mainly
using fibre-to-the-cabinet. This will meet the broadband needs of the vast majority of
these customers (although a few might question whether it meets a literal definition of
“superfast”). The social and economic benefit of providing a reasonable broadband
service to the remainder of the population is far greater than improving the quality of
broadband to the 60%.
40. The speed of broadband in urban areas is driven to a significant degree by competition
and advances in technology, and the great majority of the economic and social benefit
can be delivered by substantially lower bit rates. The Government policy therefore does
not need to replicate the same speed in the remaining areas of the country in order to
deliver the full social and economic benefit throughout the UK.
41. Provided that the Government commitment of £530 million is well targeted to areas
where good broadband cannot be delivered on a commercial basis, it seems sufficient to
meet the Governments stated objectives.
42. Many countries, and indeed the European Commission, envisage far greater funding for
broadband, but often the justification is very weak, and below what would be required
for public funding of other sectors of industry. Even if this funding comes from private
sources (though with Government encouragement), it will draw investment away from
other sectors where it would produce a greater economic and social benefit.
March 2012
607

Pitchup.com – written evidence
Pitchup.com – written evidence
1. My company Pitchup.com is a start-up that allows users to book online for campsites
and caravan parks, a sector that accounts for £2bn of domestic holiday spend, nearly
all in rural areas.
2. According to recent data from the OECD, the UK is the most advanced developed
economy for ecommerce in the world. Yet figures from VisitEngland in 2010 showed
that only 28% of campsites and caravan parks were bookable online, compared to
79% of the more urban hotel sector. Research by VisitEngland suggests that
around 70% of domestic holiday bookings were made online in 2011, and based on
VisitEngland's findings we estimate that £1.7bn of domestic holidays will be
booked online this year. During 2011, sites available to book on Pitchup.com
received up to 250 online bookings.
3. Slow and unreliable internet connections mean that many caravan park and campsite
owners are unable or reluctant to offer pitches for sale online, with speeds as low as
200kbps reported as well as outages of a week or more. As a result, while larger
groups such as Center Parcs are achieving online booking rates of more than 70%,
many smaller sites or those in remote locations face a shrinking market for 'offline'
bookings. In addition, with smartphone penetration reaching 50% in some
demographic groups and growth in bandwidth-hungry devices such as the iPad,
owners are unable to meet the surging demand for wifi while on holiday, with a
growing expectation that it should be free, as in urban retail outlets. Plainly,
numerous other aspects of running a rural business are also affected, from
procurement to submission of VAT returns.
4. Serious doubts have been expressed by the ISP industry and telecommunications
experts that the government's broadband subsidy will allow the UK to meet its
ambition to provide the best superfast broadband in Europe.
The 'scorecard' for assessment of this aim, the initial version of which was due in
early 2011, is not yet available. However, in its December 2011 ranking of fibre to
the home (FTTH) penetration submitted to the Committee, the UK is ranked last
among G7 countries by the FTTH Council, and does not feature among the top 20
countries. This is partly because BT Infinity's fibre roll-out is largely of the inferior
'fibre to the cabinet' (FTTC) variety, and we note from the FTTH Council's evidence
that UK is forecast to remain last after 2020.
According to Akamai's State of the Internet report, the UK's global ranking for
internet speed has fallen from 17th to 27th in the year to Q3 2011, achieving speeds
more than three times slower than South Korea. For upload speeds - important for
cloud computing among other applications - our ranking is 59th. BT's Infinity roll out
has also been subject to widespread delay even in urban areas, with as many as 60%
of cabinets passed over and delays of over a year between the activation of
exchanges and cabinets at my local exchange in London.
Industry experts Enders Analysis were quoted in the FT in 2010 as follows:
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Pitchup.com – written evidence
'Broadband expert Ian Watt at Enders Analysis believes the government funds will only get
broadband to three-quarters of homes. "It's more likely that high-speed broadband will be
available to the centre of the village, for example to a school, library or post office. We don't
see the subsidy being enough to get it to everyone."'
Similar schemes such as Australia's national broadband roll-out are benefiting from a
multi-billion-pound subsidy, a sum discussed in the UK in the context of HS2 but not a
21st-century information infrastructure which would ease the strain on our transport
network and let Britain capitalise on its leadership position in this sector.
5. The government has already deferred the universal service commitment from 2012
to 2015 by which time, on current trends, fewer than 20% of domestic holiday
bookings will be made 'offline'. The CLA's Can't Get Online Week campaign called
for an enhanced broadband commitment by that date, which we support, but we
would like to see a commitment that genuinely places the UK among the leading
nations for broadband coverage, bandwidth and speed. 4G coverage has been
proposed as a stop-gap solution, but mobile internet coverage outside and indeed
within urban areas can be extremely poor. It is plainly absurd, and a huge opportunity
for growth, that UK consumers lead the world in propensity to book online when
our broadband infrastructure ranks so lamentably. In the meantime, rural tourism
businesses - the dominant sector in many parts of the UK - will continue to lose
share to their better-connected competitors, some potentially irretrievably.
6. This submission is an edited version of an email to the chairman of the House of
Commons Culture Committee on 3rd November, to which no reply has been
received.
27 March 2012
609

Prospect – written evidence
Prospect – written evidence
EXECUTIVE SUMMARY
It is essential for the growth and resilience of the UK economy that high-speed (superfast)
broadband is rolled out across the nations and regions that make up the country. However,
we have a number of concerns about the current regulatory model and we also believe that
the government’s laudable ambition to have the ‘best superfast broadband network in
Europe’ will require greater injections of public support if it is to be realised in practice.
Our submission to this extremely timely, interesting and wide-embracing inquiry by the
House of Lords Select Committee on Communications argues the following main points:
- the government’s targeting of £530m to Broadband Delivery UK compares unfavourably
with the public resources previously identified as being required to deliver the aims of
Digital Britain and is simply insufficient to meet in the scale of the current government’s
ambitions
- the ambition is itself laudable but, in the context of international comparison, it will look
very out-of-date by 2015
- Ofcom needs a statutory duty to promote investment if the UK is to overcome the
problems caused by the ‘ever faster for ever cheaper’ broadband model that we
currently have
- uncertain private demand for superfast broadband, in the context of the key role played
by superfast broadband in economic regeneration and the public pressures on network
operators to roll out networks, substantially complicates the investment case especially
when current generation broadband is so cheap
- the looming mobile spectrum crunch needs to be tackled if mobile is to play its role in
superfast broadband deployment. Similar regulatory conditions militating against
investment in fixed-line superfast broadband also apply in this segment, too
- there is a need for a public re-commitment to a universal service obligation reflecting a
minimum broadband speed as a means of assisting social cohesion and, indeed, the
cohesion and growth of all the nations and regions of the UK.
We thus address in our response those aspects of the Commission’s inquiry that are
connected with the scale of public resources devoted to assisting the private sector; the
level of ambition of the government’s targets for superfast broadband; investment and the
regulatory environment applying to superfast broadband; and the need to bridge the digital
divide. We also refer to the demand drivers for superfast broadband – or, more particularly,
to their absence – as well as to superfast broadband speeds in the context of the universal
service obligation.
INTRODUCTION
1. Prospect is an independent trade union representing over 120,000 managers, specialists
and professionals in both the private and the public sectors in a range of industries and
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organisations from telecoms and IT to aviation, agriculture, defence, energy,
environment, heritage, industry, scientific research and children’s services.
2. Our members working in the information and communications technology area work
extremely hard for network operators and service suppliers to deliver timely and costeffective
network upgrades and high-speed services. It is clearly in their interest, in terms
both of the health of the companies that they work for and the ability of such companies
to deliver good jobs characterised by decent working conditions, that the regulation of
their industries is fair and takes account of the positions of the companies for which they
work.
3. Prospect welcomes the opportunity to provide this written evidence to the Select
Committee and would be happy to supplement this evidence orally.
PUBLIC INVESTMENT IN SUPERFAST BROADBAND
4. Digital Britain, the wide-ranging report by Lord Carter on the state of digitalisation of this
country, contained a number of useful policy conclusions and suggestions. One of them
was for the ‘landline levy’ which, via a 50p/month contribution imposed on all fixed
landlines, was intended to raise an additional sum of up to £1.4bn by 2017 as a ‘next
generation fund’ to help fund the roll-out of superfast broadband into the ‘final third’ and
to a figure of ‘at least’ 90% of homes and businesses. On top of that, there was the
intention to use the £175m or so under-spend in the Digital Switchover Help Scheme (a
budget line in the BBC licence fee) to roll out a universal broadband commitment based
on a minimum speed of 2 Mbps. In contrast, the current government is providing £530m
by 2015, not in new money but drawn from a continuation of the same BBC licence fee
budget line in the new licence fee period from 2013, plus an additional £300m during the
remaining two years of this period after 2015 (a sum which it seems currently nonminded
to bring forward). Subsequently, however, it has announced £100m for a project
of up to ten ‘super connected cities’ (and a further £150m to improve mobile ‘not spot’
coverage in the UK, although this is a separate issue) bringing the total spend within this
parliament to c. £630m.
5. Thus, the current government’s envisaged public support for superfast broadband
operates at about 60% of the level identified in Digital Britain. The commitment to a 2
Mbps universal broadband service (originally scheduled for 2012) was quite quickly
postponed to 2015 but, in other respects, the new government is being, if anything,
more ambitious than the last in terms of its superfast broadband aims, since it is
intending to achieve this within the lifetime of the current parliament (i.e. two years
earlier).
6. It is not at all clear to us that a generally more ambitious aim can be achieved with a
commitment of public resources which stands at only 60% of that previously identified as
being required. We understand that the current government was not supportive of the
concept of the Next Generation Fund, but our point here is that, if those aims are to be
met, the level of commitment of public resources needs to be greater.
7. How much higher is the interesting question. The concept of public-private partnerships
in the area of superfast broadband roll-out is well-established: for example in Cornwall,
where BT has been partnered by local agencies, in conjunction with investment from the
European Regional Development Fund which is contributing 44% of the total £132m
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Prospect – written evidence
investment required (with BT contributing the remainder), to roll out a superfast
broadband network covering 90% of the county. Here, the contribution of fibre-to-thepremises
solutions, delivering the fastest speeds, is higher than envisaged elsewhere in
BT’s roll-out plans.
8. We can contrast this example of Cornwall with the need for local authorities to match
from their own sources, or via grants, loans, etc., the levels of public investment
obtained for their projects from the £530m BDUK fund. Evidently not all such additional
finance comes ‘free’ and at least some will need to be either repaid or else utilised at the
expense of other authority budget items. It is also clear that local authorities do not
always have the required numbers and levels of experts at hand to advise them on
dealing with companies of national-level scale and that this is also expensive to provide.
Criticisms have already been levelled at the slow pace of progress of public
procurement 227 although DCMS insists that good progress is being made. 228
9. We further note in this context the comments of Steve Robertson, then chief executive
of Openreach, that the achievement of the government’s ambitions for broadband would
require public investment of £2bn. 229 We do need to recognise that Openreach evidently
has a commercial interest here. Interestingly, however, the per capita ERDF contribution
to the Cornwall project (£100) almost exactly matches this £2bn figure if applied across
the UK as a whole.
10. BT’s current (and recently accelerated) plans are to roll-out superfast broadband to twothirds
of the UK work by the end of 2014 in an investment costing a total of £2.5bn.
Already, 7m homes have been passed. The company believes that, with the alreadyannounced
government support, there is the potential for fibre-based services to reach
‘more than 90% of the UK within a few years thereafter’. 230 This strongly seems to
indicate that rolling out fibre beyond where BT would go of its own volition is not going
to take place until after 2014 – and, in fact, to a timetable more in accordance with that
set out in Digital Britain.
11. Other organisations than us are better placed to calculate how much it would cost to
achieve the government’s aims, but it is clear that further injections of cash from public
resources would assist greatly both with the timing and with ensuring that the roll-out of
superfast broadband takes place on a basis which is socially equitable.
THE GOVERNMENT’S AMBITION IN INTERNATIONAL CONTEXT
12. One of the difficulties with the government’s ambition to have ‘the best superfast
broadband network in Europe’ is that this is so loosely-defined that it represents a very
movable target. We would recognise that there are more things than speed alone in
having the ‘best superfast broadband in Europe’ – the dashboard which Ofcom has
developed for the purpose of its regular infrastructure report clearly states as such.
Nevertheless, speed is a fundamental component and, in international comparison,
access speeds form a much more integral part of the targets to which governments have
publicly committed themselves.
227 http://www.bbc.co.uk/news/technology-16085823.
228 http://www.dcms.gov.uk/news/news_stories/8809.aspx.
229 http://www.bbc.co.uk/news/technology-10628273.
230 Quote taken from BT’s 2011-12 second quarter results news release:
http://www.btplc.com/news/articles/showarticle.cfm?ArticleID=b4d54086-8d06-45c5-bf8e-99f6536ef094.
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13. Ofcom seems to regard superfast broadband speeds as meaning anything which starts at
as low as 30 Mbps, but there are continued difficulties with definitions since a household
which is receiving, for example, a speed of, on average, 12 Mbps may nevertheless be
classed as receiving a superfast service if the line is capable of delivering in excess of 30
Mbps, whether or not it does so on a regular basis. This definitional problem undermines
and renders unclear the government’s ambition.
14. Information on in international comparisons is easy to come by. Among other EU
countries, each of Germany, Italy and Spain seem to us to have set themselves more
challenging targets as do, more broadly, the US and Japan. 231 Here, the US plans are
notable in that they set ‘actual’ speeds of ‘at least’, which compares favourably with
practice in the UK both in terms of achievement and in terms of clarity.
15. It is worth reminding ourselves here, too, as we pointed out above, that it seems that we
are not currently on track to achieve a roll-out of superfast broadband to even the
current level of aims by a timetable of 2015, let alone to achieve network provision
which – on the basis of access speeds – is on a par with those of our comparators. The
aim needs – even now – to be more ambitious and, should our international
counterparts achieve their aims, that of the UK will, in 2015, look very poor indeed.
THE PROMOTION OF INVESTMENT
16. Since 2003, when the Communications Act established Ofcom as a regulator for all the
UK’s communications industries, Ofcom’s sole statutory duty has been to promote
competition. In carrying out this duty, it is obliged to ‘have regard to’ investment in the
industry – but this is very secondary in comparison. As far as the telecoms industry is
concerned, the effect of this sole statutory duty and the promotion of competition to
the exclusion of everything else has been a solitary focus on price competition.
17. This has led to what we see as the ‘ever faster for ever cheaper’ model of fixed
broadband, illustrated by the following chart drawn from data published by Ofcom which
compares average fixed-line broadband speed to average monthly prices: 232
231 From Ofcom’s International Communications Market Report 2011 Figure 6.8 (and drawing on OECD data from June
2011): http://stakeholders.ofcom.org.uk/binaries/research/cmr/cmr11/icmr/6_-_telecoms.pdf. The countries listed
here is not necessarily an exhaustive list of the countries which have more ambitious plans than those of the UK:
a quick glance at the OECD data confirms that Luxembourg and Sweden, at least, also need to be added to the
list: http://www.oecd.org/dataoecd/22/41/48459395.pdf
232 Ofcom’s Communications Market Review 2011, Figure 5.79.
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£
£30
£25
£20
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£15
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1.6
The ‘ever faster for ever cheaper’ model
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The 'ever faster for ever cheaper' model
3.6
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5.3
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6.9
£16.04
2005 2006 2007 2008 2009 2010
Monthly cost Headline speed
18. Such falling prices might well be the way a highly mature market looks, but it is certainly
not how a young market – and a high-tech one at that, involving substantial amounts of
investment in building and maintaining an advanced communications network – ought to
look. Worse, it has provided operators with an incentive to limit the growth of
broadband usage rather than to deliver network investment. This is an economically
rational response – but, from a public policy perspective, it is an extremely unfortunate
one.
19. Charles Dunstone, Chair of Carphone Warehouse and Talk Talk Group, put this point
succinctly at the 2012 Annual Conference of Enders Analysis when he said, with
reference to the level of competition in network investment in the UK compared to
France and Spain:
After the LLU legislation was passed there was no incentive for the telecoms companies to
upgrade to ADSL2+. 233
20. The overall effect of this price competition – thus far – is that Tesco has very recently
been able to launch an up to 20 Mbps broadband product for a headline of just £2.50 per
month (plus line rental). This takes broadband – which should be a valuable service –
almost into Gerald Ratner territory.
21. A very similar situation applies in the mobile segment of the industry. The focus of the
regulatory regime has been to reduce mobile prices, but the massive growth in the usage
of smartphones, and the concomitant mobile data explosion which this has encouraged,
233 Available on subscription only.
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Prospect – written evidence
has occurred at a time when mobile revenues have grown but which, in comparison to
the scale of the growth in data, are doing little more than bumping along the bottom.
Again, Ofcom’s data is powerfully illustrative of the problem: 234
4100
3600
3100
2600
2100
1600
1100
600
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Index of revenue and volume growth: mobile data (Q4 2007 = 100)
Index of revenue and volume growth: mobile data (Q4 2007 = 100)
380
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1106
1290
220
100 105 113 121 124 133 129 137 140 140 145 153 146
Q4 2007 Q1 2008 Q2 Q3 Q4 Q1 2009 Q2 Q3 Q4 Q1 2010 Q2 Q3 Q4
Volume Revenues
22. There is a looming mobile spectrum crunch given the demand for mobile data and it will
only be partially resolved by the forthcoming ‘4G’ spectrum auctions – ‘true’ 4G (i.e. in
line with the technological standard of the International Telecommunications Union) is
still some years away, and what is currently being called ‘4G’ is likely only to allow the
mobile industry to play catch-up with demand. Technically, further solutions will be
necessary – such as the use of ‘white spaces’ (the unused spaces in broadcast
frequencies) but mobile operators are clearly struggling to build an investment case
based on the existing model and, it seems, are in a poor position financially to make the
required investment in spectrum and network upgrades. At the recent Mobile World
Congress in Barcelona, chief executives from Vodafone, Telecom Italia and Telefónica –
with a range of market share positions in the different countries in which they all operate
– all mounted the rostrum to complain of the impact of regulatory regimes on their
ability to finance investment.
23. It is perhaps unhelpful, as Neelie Kroes, Vice-President of the EU and the Commissioner
for the Digital Agenda sought to do, to ‘call the bluff’ of the operators by planting herself
so firmly ‘on the side of the consumer’. Operators too have an interest in promoting
mobile growth and, in that context, want to see consumers benefit, but a more
sophisticated approach is called for: consumers will lose out if the promises of
234 ibid. Figure 5.21.
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smartphone and mobile data availability are frustrated by a shortage of network capacity.
At the same time, research suggests that mobile revenues are unlikely to grow until at
least 2014 235 – for reasons to do with the economic environment, competitive forces in
mature markets and a slower adoption of mobile broadband than anticipated – and the
conjunction of this with the urgent need for investment is an unfortunate one.
24. Price competition – and these price reductions – whether in the mobile or the fixed-line
market segment has been quite clearly in the short-term interests of consumers: but it is
not helpful to companies seeking to source investment finance, and neither, in a very
young market with highly uncertain levels of demand, is it helpful to the proper
operation of markets. We would also argue that it is also not in the long-term interests
of consumers, either: it does not set proper value on the product and an industry which
does not have the resource power (or the incentive) to invest in network upgrades at
such price levels as this will simply not be able to deliver or maintain a reliable network
service.
25. Broadband pricing must, clearly, be affordable – but it must also be set at sustainable
levels which facilitate a coherent and reliable rate of return to network operators.
26. Ofcom figures showing a marked disparity between the availability and the take-up by
consumers of superfast fixed-line fibre access products 236 are an important illustrator of
the uncertainty resulting from the political pressures to roll out a network for which
there is not a great deal of demand based on the unavailability of a ‘killer app’ for having
such high speeds. Analysys Mason has also recently pointed to a similar problem in
France, while pointing out that such demand will rise in the medium- to long-term as
suitable products utilising superfast broadband speeds become available. 237 In our view,
the ‘build it and they will come’ argument applies. But we do need to recognise from a
public policy point of view that, if ‘they’ will only come in the medium- to long-term, the
companies charged with the responsibility of building such networks in anticipation, and
under significant political pressure to do so to meet political goals, will, in the shortterm,
require greater levels of understanding.
27. The cost of introducing high-speed fixed broadband into the UK depends on a number of
different assumptions and models. In 2008, Analysys Mason estimated in a report for the
Broadband Stakeholder Group 238 that the cost of high-speed broadband right across the
UK would be anywhere between £5bn (for an architecture based solely on fibre to the
cabinet) to £29bn (for one based on having dedicated fibre links all the way to individual
premises, delivering the very highest speeds). 239 Civil engineering works account for the
235 Analysys Mason (2012): Western Europe’s mobile retail revenue will not grow again until 2014, available at:
http://www.analysysmason.com/About-Us/News/Insight/Insight-Mobile-retail-forecasts-Mar2012/. The research on
which this article is based draws on forecasted compound annual growth rates of mobile revenues in sixteen
western European countries in two periods: 2010-2013 and 2013-2016: it is worth pointing out from a UK
perspective that the UK is the only country in which the CAGR is predicted to be negative in both – thus
extending the period in which the UK mobile industry is facing declining revenues.
236 For its sixth International Communications Market Report. See: http://media.ofcom.org.uk/2011/12/14/uk-consumersare-a-nation-of-online-shoppers/.
237 Analysys Mason (2012) Le très haut debit : nouveaux services, nouveaux usages et leur effet sur la chaîne de la valeur
(Ultra-fast broadband in France: new services, new uses and its impacts on the value chain). Available at:
http://www.analysysmason.com/About-Us/News/Press-releases1/Services-that-would-justify-the-need-for-ultrafast-broadband-in-France-are-yet-to-emerge/?bp=%252fNews%252f.
238 Analysys Mason (2008) The costs of deploying fibre-based next-generation broadband infrastructure available at:
http://www.broadbanduk.org/component/option,com_docman/task,doc_view/gid,1036/Itemid,63/
239 It is interesting to compare such a level of cost, and subsequent utility, with those of other public infrastructure
projects announced in recent months, such as the HS2 rail line.
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Prospect – written evidence
vast majority of these costs, but it is not evident that the limited amount of progress in
this area that has been made is likely to have reduced these costs dramatically.
28. BT is currently engaged on a £2.5bn programme of investment in rolling out fibre –
which is a considerable amount of investment for a private company, and which will also
generate additional funding from other private and public sources, including that being
delivered through BDUK. The projects in which BT is engaged are a mix of fibre to the
cabinet and fibre to the premises, predominantly the former. Nevertheless, that indicates
the level of investment in superfast broadband towards which the UK is currently
oriented, and provides a suitable point of comparison both with the reliance on the
private sector to provide and with the scale of the government’s ambition. Such a figure
might also – and for a number of reasons – usefully be compared with the £12bn that
the cable industry spent on building out its network to one-half of the country 240 and
which, we should not forget, nearly bankrupted it in the process and which eventually
resulted in the consolidation of the cable industry into a single operator as one of the
primary acts in saving it.
29. We should remember that, as a private company, BT is responsible only to its
shareholders for the investments that it chooses to make – and that its investments must
always not only earn a rate of return with which its shareholders are content, but which
must also be financed from its own sources. In this context, we should note that,
currently, BT revenues appear to be on the decline, as the following chart indicates (and
which appear to show an even greater fall-off in 2012 if the results for the first nine
months are extrapolated to the full year 241 ); and that capital expenditure, despite a
recent uptick resulting from its investment in fibre, has also been under strong control.
Partly, this is a result of the recession and BT’s resulting strong control of its costs.
240 Quoted in Analysys Mason (2007) Pipe Dreams? Prospects for next generation broadband deployment in the UK p. 22.
Available at: http://www.broadbanduk.org/content/view/236/7/. Of course, the network only exists in the most
profitable areas and, therefore, is unlikely to be a solution to the need to extend superfast broadband outside
urban areas where the costs of connection to the network are substantially higher.
241 To a figure which, on this scale, would actually be off the chart.
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Prospect – written evidence
£22,000
£21,500
£21,000
£20,500
£20,000
£19,500
£19,000
£18,500
BT revenues and capital expenditure, 2006-2011
BT revenues and capital expenditure, 2006‐2011
2006 2007 2008 2009 2010 2011
BT revenue (LHS) BT Cap. Exp. % of revenue (RHS)
30. This is not to suggest that BT is unable to afford its capital expenditure programme. It
quite clearly is able to do so, and it may well be that investment has been held back in
recent years in view of the fibre challenge. But what it does suggest is that the company
is probably not in a position to be able to do very much more. This is unfortunate given
the political ambition for the UK to have the best superfast broadband network in
Europe by 2015, since BT – as the operator of the only network covering the whole of
the UK – would, if the conditions were right, be in a prime position to deliver that aim.
31. Neelie Kroes strongly defends the argument of the beneficial effects on investment of
competition, most recently citing the cable sector in comparison, where investment has
been made to increase speeds (and which may well have acted as something of a spur to
fibre deployments). Nevertheless, in the UK, Virgin Media – which is the cable industry
in this country – is held not to have significant market power and, consequently, is
unregulated, in terms of the prices it may charge, while there are no ‘unbundling’
demands placed on it as there are on BT and Kingston Communications, which do have
SMP. Consequently, Virgin Media can make a much clearer investment case for upgrading
its networks, and can make a predictable amount of return on its investment. That
opportunity is absolutely denied to major fibre operators.
32. Our policy solution here is not regulatory forbearance. Like Ms Kroes, we do not believe
in specific regimes exempting operators from aspects of regulation. We do, however,
believe in the absolute need for the regulatory framework to recognise the key role of
former fixed line incumbents in delivering the political ambitions (and, indeed, economic
ones, since network investment is likely to play a significant role in moving the UK out of
618
14%
12%
10%
8%
6%
4%
2%
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Prospect – written evidence
the growth woes of the last few years 242 ). Consequently, we concur whole-heartedly
with the conclusions of Analysys Mason’s recent report into superfast broadband in
Europe – i.e. that:
In the short term, deployment to provide significant national coverage (e.g. above 50–60%
of population) needs to be supply- and not demand-driven. This addresses the ‘chicken-andegg’
question about whether services or infrastructure should come first: if governments want
national coverage, they need to accept that supply will lead demand. 243
33. In practice, this requirement for governments to recognise that supply will lead demand
has a number of potential implications. In our view, it means that regulatory authorities,
including Ofcom in the UK, must have a statutory duty to promote investment – and,
quite simply, it also implies that a greater level of public resources will be required.
Giving Ofcom a statutory duty to promote investment would have made a strong
contribution to inhibiting the emergence of the ‘ever faster for ever cheaper’ model
from which fixed line broadband investment is now suffering – and should, therefore,
prevent the superfast broadband network from going the same way. Here, we need to
recognise that investment in fibre on the current scale or the programme is only the
start of what is likely to be a continuing investment challenge over the next twenty years
based on extending faster access speeds to more households: this is absolutely not a
one-off, short-term period of investment.
34. If the goal is to encourage network investment, then providing Ofcom with a statutory
duty to promote investment is, it seems to us, the only way in which such a goal can be
made to come about. We have already referred above to the view of Charles Dunstone
that the regulatory model as currently defined actively inhibits network investment.
35. We also believe that Ofcom having a statutory duty to promote investment would allow
operators a degree of important breathing space given the demand uncertainties of
investing in fibre, and would encourage investment since it would allow the rate of
return to be pitched at more appropriate levels than would be facilitated by the prices
for current generation broadband. It is, in this context, extremely worrying that Ofcom
views the current lack of take-up as evidence of prices being too high. 244 This is inevitably
a product of its existing sole statutory focus on promoting competition but, ultimately,
we need that focus to change if the regulatory regime is not to repeat the same pricebased
mistakes as have marred the market for current generation broadband, and if the
UK as a collective of nations and regions is to benefit from a programme of sustained
investment in fibre. Charging Ofcom with a statutory duty to promote investment
would, in our view, change that focus fundamentally.
BRIDGING THE DIGITAL DIVIDE
36. Much of the analysis in our submission here stems on the need for investment to be
cohesive. It is, in our view, vital for the economic and social development of all the
nations and regions of the UK that the rolling out of superfast broadband focuses on all
242 See the report produced by Frontier Economics (2011) for the DCMS’s communications framework review:
Contribution of the digital communications sector to economic growth and productivity in the UK available at:
http://www.dcms.gov.uk/images/publications/FE-Full-Report_digitalcomms_economicgrowth.pdf.
243 Analysis Mason (2012) Will we ever see a superfast Europe? available at: http://www.analysysmason.com/About-
Us/News/Newsletter/Will-we-ever-see-a-superfast-Europe.
244 In its sixth International Communications Market Report. See footnote 10.
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Prospect – written evidence
areas equally, regardless of the economic, location or social position of their inhabitants.
There are clear, and very real, dangers that an over-reliance on the market will not
provide an equitable roll-out of superfast broadband since, if the market is left to itself, it
will focus initially – if not exclusively – on the more profitable urban areas, leaving behind
– or out altogether – those areas which are more ‘difficult’. There are clear analogies
with how the cable network has been rolled out – and the point at which (for a large
number of years until very recently) it has been more or less stopped.
37. The problem of the over-supply of superfast broadband in more profitable areas goes
hand-in-hand with the obverse problem – under-supply in unprofitable areas. Both of
these are equally as problematic. An approach to network deployment and investment
based firmly within a policy of industrial activism would prevent such problems occurring,
but that is not at all where we are in political-economic terms, or indeed in regulatory
ones.
38. To its credit, the government has recognised the problem of a reliance on the market –
it has been quite specific that it believes that the market alone will not provide. 245 In spite
of this recognition – as we have argued above – it is, disappointingly, nowhere near the
policy steps that need to be undertaken and which flow from such a perspective.
39. In order further to ensure that access to superfast broadband is rolled out on a cohesive
basis to where the market will not provide, we believe that there is a strong role for the
existing universal service obligation to be extended to cover a minimum broadband
service to all homes and businesses of 2Mbps. This was set down in Digital Britain as a
goal for 2012, but was postponed to 2015 by the current government before being
apparently subsumed within its overall broadband ambition. Furthermore – in line with
the approach being adopted in the US – we believe that such a speed needs not to be ‘up
to’ or ‘average’, but a minimum. This would assist social and economic cohesion
throughout the nations and regions of the UK and, as the UK moves out of recession,
would also have a part to play in ensuring that economic growth is fairly shared and that
generally more prosperous urban areas which are already well supplied with superfast
broadband potential do not then suffer from economic ‘overheating’.
40. One of the reasons for the dissonance in average broadband speeds between urban and
rural areas – most recent data suggests that the average speed in rural areas is some way
under half the average speed in urban ones 246 – is the percentage of households with
very slow speeds. A minimum universal service obligation would, in conjunction with
regulatory reform to provide Ofcom with a statutory duty to promote investment, also
substantially assist with breaking down this dissonance.
March 2012
245 Such a view runs throughout the DCMS strategy document Britain’s Superfast Broadband Future, available at:
http://www.culture.gov.uk/images/publications/10-1320-britains-superfast-broadband-future.pdf.
246 Ofcom (2011) UK fixed-line broadband performance, November 2011, produced in conjunction with SamKnows.
Available at: http://stakeholders.ofcom.org.uk/binaries/research/broadbandresearch/Fixed_bb_speeds_Nov_2011.pdf.
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The Publishers Association – written evidence
The Publishers Association – written evidence
Introduction
1. The Publishers Association (‘the PA’) is the representative body for the book,
journal, audio and electronic publishers in the UK. Our membership of 120
companies spans the academic, education and trade sectors, comprising small and
medium enterprises through to global companies. The PA’s members annually
account for around £4.6bn of revenue, with £3.1bn derived from the sales of books
and £1.5bn from the sales of learned journals.
Digital Innovation, E-commerce and the Publishing sector
2. The internet – and in particular the advent of superfast broadband - has provided
opportunities for the development and delivery of innovative content for consumers
to enjoy in a myriad of ways and on a number of platforms.
3. Consumers are presented with a range of options for the purchase of content, all of
which contribute to a vibrant e-commerce publishing market. These include online
purchase of physical books; online purchase of ebooks; and evolving services such as
e-lending and online streaming of content. These platforms play host to innovations
in content and delivery, which extend from the trade publishing sector, through to
academic and scholarly publishing market.
4. Publishers of learned journals and other academic content have led the field in
making their work available online. For example, the Wiley Online Library allows
access to over 4 million articles from 1500 journals as well as 9000 ebooks, and
hundreds of encyclopaedias, laboratory protocols and databases. It supports a
variety of monetisation models, including subscription, online advertising, individual
article sales (PayPerView or pre-bought tokens) and author-funded open access.
5. Elsevier’s ScienceDirect is the world’s largest database of full text peer reviewed
scientific journal articles and holds around 10 million articles in digital format, some
dating back to the 1820s. Around 250,000 new articles are added each year.
ScienceDirect provides extensive online functionality to 10 million users globally, such
as live links to cited articles, RSS feeds and email alerts. ScienceDirect delivered over
600 million full text article downloads in 2010 i.e. over one and a half million article
downloads per day and has delivered over 3 billion downloads since 1999.
6. Trade publishers are also innovating, both in terms of the content they offer and in
their delivery methods. Faber and Faber has collaborated with the technology firm
Touch Press on the publication Solar System for the iPad. The publication fuses
Faber’s literary experience with Touch Press’s brilliance in interactive design.
7. Adult titles are seeing the transformation too. Random House’s “Nigella Quick
Collection” has reinvented the way in which people can interact with recipes and
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The Publishers Association – written evidence
cookery advice. Produced as an app, it features functionality such as voice control –
leading it to go straight to number one in the iTunes chart.
8. The impact of digital on innovation is extending beyond publishers to authors
themselves. The prospect of “chunking” whereby writers create shorter stand-alone
works, or with works being sold chapters at a time, will soon become a reality.
Writers are also looking to emulate the narrative structures of computer games,
using digital technology to lead readers into “hidden” areas of the story, or diverting
the plot according to the reader’s choice.
9. The continued development of the digital marketplace plainly gives rise to the
opportunity to change the whole nature of what people read as well as how they
read it. And as the ebook market continues to thrive, new online services are
springing up to match consumer expectations. For example, ebook purchases are
stored online, in ‘the cloud’, to automatically back up ebooks and allow consumers to
access them wherever they are.
Superfast broadband: a spur to growth
10. The products and services described above rely on the availability of superfast
broadband so that content can be delivered to consumers in a timely manner. This
in turn fosters further innovation, as publishers seek to match consumer demand and
continue to develop new products and services suitable to the internet age.
11. There is a symbiotic relationship here: one of the key drivers of demand for superfast
broadband is creative content. Consumers increasingly expect to be able to access
their favourite content online. The expansion of superfast broadband will greatly
expand the opportunity for consumers to easily access a broad range of books,
journals and other literary content on a variety of platforms.
12. A testament to the flourishing e-commerce publishing market, UK consumer ebook
sales have seen a four-fold increase between 2009 and 2010. In the first half of 2011
sales have grown by 600%. Books are one of the top five apps that are paid for by
consumers in the UK.
Challenges and barriers
13. In a high speed broadband world, the countries that create content will create value for their
economies. The UK is currently one of the few truly global powers in creative content and in
the development and launch of digital services. However, the capacity of the UK’s
infrastructure to provide effective, affordable access to the “internet of things” is undermined
by an insecure copyright framework and rampant copyright infringement in the online space.
14. Copyright infringement stifles creativity, innovation and commercialisation as there can be no
return on investment when legitimate businesses are forced to compete with “illegal free‟.
The creative sector in the UK is fundamentally strong, and it is one in which the UK has
comparative advantage. Its only weakness is competition from illegal activity. Whilst the
publishing sector is yet to encounter online infringement on quite the same scale as other
creative industries, already there is evidence that ebooks from the Amazon Kindle are being
stripped on their Digital Rights Management and made available for free on torrent sites.
Given the relatively small size of publishing files it is possible to get around 2,500 books into
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The Publishers Association – written evidence
one torrent (3.4GB), which takes a matter of minutes to download. The speed at which
small files can be downloaded will only increase as broadband speeds improve.
15. Further, there is evidence from the UK that online infringement is growing in our sector. In
December 2010 The PA conducted research with DetecNet to investigate the size and
scope of the online infringement threat. Over a two week period, and across eleven titles,
there were 2,218 infringing links found and 32,744 incidents of infringement on peer-to-peer
networks.
16. Online copyright infringement harms the economy. A report by TERA estimated that in
2008 the UK lost €1.4 billion and 39,000 jobs in the film, TV, music and software industries
from digital copyright infringement. It also harms the continuing development of a thriving
internet economy, not least because consumers are being duped, often signposted to inferior
and/or harmful content, for example malware. As consumer confidence in e-commerce is
undermined, the opportunities for online growth are compromised as are the Government’s
ambitions for superfast broadband; as noted above, one of the key drivers of demand for
superfast broadband is creative content. And businesses are reluctant to sell goods online
and invest in innovative content and online delivery models when the return on investment is
compromised by illegal activity.
17. Whilst ebooks currently account for only 7-10% of all book revenues, growth in the ebook
market continues apace and we can expect this proportion to rise. However, growth
innovation and reinvestment will be compromised, as the expense of consumers and the
ecommerce market, if online copyright infringement is not dealt with.
18. In 2009 research by Oxford Economics into film piracy found that a series of legislative
changes would increase economic output by £614 million, protected the jobs of many
thousands of people employed in the film industry, as well as create some 7,900 jobs in the
wider economy. Unless the Government takes action to address the growing threat of
copyright infringement, online growth and revenue generation will be compromised and the
development of a thriving ecommerce market – made possible though superfast broadband -
will be impeded.
Solutions
19. The Government is committing £530m of public money to stimulate the roll out of
superfast broadband, which will offer considerable benefit to internet service
providers (ISPs). This significant public subsidy should be conditional on a strong
commitment from ISPs to live up to their responsibilities to help ensure a fair and
sustainable online environment.
20. The PA is committed to finding self-and co-regulatory solutions to IP protection as well as
seeking legislative solutions when appropriate. It is for this reason that the PA operates a
Copyright Infringement Portal (CIP) which serves notices of infringing material to sites and
ISPs, allowing them to take action to remove the infringing content from their domain. In
2011, the CIP has so far served notices on just over 53,500 web pages. In the vast majority
of cases, those who own the domains or ISPs are responsive and remove infringing content
quickly, ensuring that the internet is safer for consumers and continues to bring benefits to
UK Plc.
21. The Publishers Association has consistently called on the Government to implement the
provisions of the Digital Economy Act (DEA) designed to deal with peer to peer copyright
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The Publishers Association – written evidence
infringement. It is regrettable that the Government has not yet done so, despite Labour’s
passing of the Act in 2010. We were similarly disappointed with the Government’s decision
not to proceed with sections 17 and 18 of the DEA. We urge the Government to redouble
efforts to implement the Digital Economy Act under a clear and swift timetable, for example
by urgently publishing the code of practice, notwithstanding any ongoing Judicial Review
process.
22. Most Government targets currently focus on the reach of broadband infrastructure.
However, an environment where criminals are able to make other people’s content
available for free for their own profit is not a healthy or sustainable situation. Under
the provisions of the Digital Economy Act, Ofcom is required to monitor the levels
of online copyright infringement. Implementation of the Act has so far been delayed
but once Ofcom commences this function it should be used as one of the key
indicators of the health of the digital economy.
23. We are grateful for the support offered by Ministers at the Department for Culture, Media
and Sport who have facilitated a series of roundtables between rights holders, ISPs, search
engines and other intermediaries to encourage collaborative action to tackle online copyright
infringement.
24. The PA has had a central role in these discussions, in which we have worked to develop a
pre-action protocol for site blocking actions. This would enable a much speedier application
to be made to the Courts when a seriously infringing site has been identified and brought to
an ISPs attention.
25. Similarly, we have worked with other rights holders to present a reasonable process by
which search engines could signpost consumers to legitimate content. When over 40% of
first page search results direct consumers to illegal sites, the purchasing often inferior
content that does nothing to support innovation or the online ecosystem, not to mention
contributes nothing to UK Plc in terms of VAT returns.
26. Having been in discussion with search engines and with Government for some months now
the time has come for action, and we have asked the Secretary of State, Jeremy Hunt, to
bring the discussions to a successful conclusion by May 2012. The Government should
include clear language in the Communications Green Paper that legislative steps will be taken
by Government to require responsible action by intermediaries against illegal sites, if
agreement fails. Rapid progress is needed in all these areas to sustain and encourage UK
creative sector investment levels over the next three years with all the implications for
growth, employment and tax revenues that these represent.
13 March 2012
624

Steve Robertson – oral evidence (QQ 320-353)
Steve Robertson – oral evidence (QQ 320-353)
Evidence Session No. 5. Heard in Public. Questions 250 - 353
TUESDAY 22 MAY 2012
Members present
Lord Inglewood (Chairman)
Baroness Bakewell
Lord Bragg
Lord Clement-Jones
Baroness Deech
Lord Dubs
Baroness Fookes
Lord Gordon of Strathblane
Bishop of Norwich
Lord St John of Bletso
Earl of Selborne
________________
Examination of Witness
Steve Robertson, former Head of Openreach and current Chief Executive Officer of Tru
Q320 The Chairman: I am afraid that we are running late but I would like to welcome
Steve Robertson, who is the chief operating officer of Tru, a young company primarily
specialising in services that help customers avoid inflated roaming and international calling
rates. But perhaps more relevant to our inquiry, you have previously been CEO of
Openreach. It is very good of you to come. Thank you very much. Is there anything you
would like to say to expand on how I have described you? Would you also like to make a
short opening statement?
Steve Robertson: I will make a short opening statement. I am actually the CEO of
Truphone, which is a very small company. One of the things that was not clear from the
introduction is that our company is very innovative and its success depends on getting access
to infrastructure provided by other mobile network operators around the world. In my
previous job, I led the creation of Openreach, which launched in 2006. Openreach really had
the opposite task, which was to make the UK fixed-line telecom infrastructure available to
service providers on an equal basis. My key observation about the five years that I spent
doing that was that, if one gets the right combination of a clear objective for the marketplace
and good regulation with the right incentives and unleashes the power of the market,
massive transformation can happen much more quickly than anyone might have expected. If
we look at the position today in the UK broadband market, in many respects it is one of the
most competitive, vibrant and innovative broadband markets in the world. I do not believe
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Steve Robertson – oral evidence (QQ 320-353)
Q321 The Chairman: Good. We shall no doubt explore some of the points that you
have raised in a bit more detail as we go along, but that is an interesting starting point. To
get the ball rolling, I would like to ask the first question. As you know, it is the
Government’s expressed intention for the UK to “have the best superfast broadband
network in Europe by 2015”. In order to achieve that, what should the characteristics of the
network be?
Steve Robertson: The first thing, and the most important characteristic of the network, is
that it has to be used. I think that is sometimes forgotten. There is an obsession about speed
and how many homes are being passed. One of the key things is that the network is going to
be used. The second thing is that the way that the network is used should have primed a
market that will sustain the expansion of broadband beyond the boundaries that will be
reached in 2015. By 2015, one would hope that 18 million homes may have been passed, but
that should not be the end of the story because, by that point, the market engine would have
been primed.
The other characteristic of the network on which we must be clear is that it is an holistic
system. There has been an obsession with access speeds. The technologies that we are
talking about are much broader than that, so my definition of the network is the storage
devices and the smart boxes that live in people’s homes. The vast majority of the content
that people consume is not live content and is available for storage. Therefore, from a
content consumption point of view, storage is very important. Compression technology is
very important. What you get in terms of each megabit of access capacity is an incredibly
important parameter. What happens in back-haul and what happens in core networks is
equally important because one of the characteristics of this network is that, hopefully, it
breaks the mould whereby we say that, fundamentally, high-bandwidth applications are about
push and they become interactive. This is a network that will be used for interactive
applications, which will be consumed by an increasing proportion of the market, and that has
established a market model that will take us to the far boundaries, hopefully, so that the “not
spots”, if you like, will be as small as possible.
Finally, the last environmental point about this network is that it is delivered in a way that
allows the broader social community to look at the places where this network will not reach
and take specific action in deciding that we as a country will support those places. However,
that can be a relatively small proportion, I believe.
Q322 The Chairman: Do you think that we will get there?
Steve Robertson: Yes, I believe that we absolutely can get there.
The Chairman: I am sure that we can, but do you think that we will?
Steve Robertson: Yes, I absolutely believe that we will. I remember when broadband was
originally being rolled out—I worked in BT in those days—and some fantastic technologists
and economists in BT worked out that the lowest price that we would ever see for
broadband would be £48 per month, so it would be for the special people. That has been
the history of telecommunications from when I was a child, when we had to go down to the
telephone box because only rich people had telephones. This will be no different. The
demand is there and the technologies are there. The market model is largely there, and I
believe that it will happen. The question is how quickly and how comprehensively.
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Steve Robertson – oral evidence (QQ 320-353)
Q323 Lord St John of Bletso: You started by saying that it is most important that the
network should be used. Many would argue that too little of policy-makers’ attention has
been focused on stimulating demand for superfast broadband. What do you think can be
done to stimulate more demand?
Steve Robertson: One of the first things is to look at the way in which the content
providers—that part of the ecosystem—and the innovative applications developers can be
engaged in the process. To do that, though, superfast broadband needs to be made attractive
to service providers. If you look at the broad consumer market—there is probably a
different discussion to be had about businesses—that means that service providers such as
BT Retail, TalkTalk and Sky must feel the economic benefit of moving to that next phase.
If you look at the market as it is beginning to be primed, it is not an accident that BT Retail
has been very aggressive in the way that it has promoted superfast broadband. With BT
Infinity, BT was the first to use the Openreach infrastructure for superfast broadband. Some
people might say, “Of course, they would—Openreach was part of BT and BT Retail was
part of BT, so of course they would be the first”. I hold a different view. BT Retail had been
losing market share to Sky and TalkTalk for the entire five years that I ran Openreach. Part
of BT’s market response was to do something special and different for its customers.
Therefore, that appetite to consume superfast broadband was there inside the BT Retail
organisation. As that becomes successful, I believe that the natural response to that will be
that TalkTalk and Sky and potentially others will also come along.
Therefore, I think that it is about creating a competitive market, where all these businesses
can continue to develop very innovative commercial models. Seven or eight years ago, who
would have thought of BT as being a television provider? That sort of commercial drive
towards innovation will, I believe, also bring the usage of superfast broadband to the fore.
However, the consumption of public services can potentially play a strong role. If the
Government could also think creatively about how they can be a user of these services—
whether in the delivery of medical care or of education—that could also be an extremely
powerful way of encouraging usage.
Q324 Baroness Bakewell: From the way that you express it, we are at the apex of a
very exciting time and you see the dawn of a golden future. As a consumer and member of
the public, do you think that a saturation point could be reached at which all this wonderful
rollout of potential will take a dip because the human body cannot consume, use, watch and
listen at a perpetually increasing rate as we go on?
Steve Robertson: That is a really good point, but I actually believe that that sort of
bombardment that we experience has to be managed, and such management has become
ever more innovative in its own right. For instance, the way in which you manage the stuff
that is interesting to you goes to the heart of some very interesting debates about privacy.
We have the push and pull that says, “The more that I as a service provider know about you
as an individual, the more that I can tailor this bombardment.” Therefore, instead of
experiencing a cacophony, you have something that partly is managed on your behalf and
partly you can manage yourself.
Q325 Baroness Bakewell: Will you have to go on inventing new ways in order to keep
up the market trajectory?
Steve Robertson: For a long time when broadband was coming to the fore, there was a
huge debate in our industry about what would be the applications—the killer app—that
would make this all worth while. In fact, we know what those are, and they are the same
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Steve Robertson – oral evidence (QQ 320-353)
things that they have always been: how we communicate together; how we interact as a
community; how we are amused; how we are educated; and how we get access to and share
information. The tools and techniques that we have as human beings, in combination with
this technology, are not something that goes up to an apex and then we get saturated; I
think that we learn new ways of doing things all the time. For instance, if you look at the way
that I share my videos with my family, on the one hand you could say that this is just a
cacophony but on the other hand we have learned how to do it. I believe that the bandwidth
that is being made available and all the uses to which this great new technology is being put
are actually expanding our ability to meet basic human needs and desires.
Q326 Baroness Fookes: Looking back to your time with BT Openreach, can you say
whether the organisation kept a full inventory of all the fibre, whether lit or dark?
Steve Robertson: That is very interesting. Telecoms businesses, especially those like BT that
are enormous and have a very long history, have been known to lose some of their
infrastructure. Certainly while I was in charge of Openreach, the control of inventory
became very important, but it was far from perfect. While I was there we improved the
inventory by introducing a brand new system under which, each time that we did work on
the network, we recorded where the infrastructure was. In the patches where we rolled
that out, it was not abnormal for us to find possibly 20% of a variance between what we
thought was there and what was actually there. I am sure that, since I have left, that situation
has been largely remedied—
The Chairman: Was that 20% more or 20% less?
Steve Robertson: It was quite often more.
I am sure that the situation has got much better since I left. Of course, the important thing
about the inventory of the infrastructure is that it is not just about fibre, whether lit or unlit,
but the ducts and the poles and their condition, which is very important as well. The whole
question around managing infrastructure and inventory is difficult. Of course, once upon a
time, that probably did not matter as much as it does now. In my time at Openreach, we
looked at making this infrastructure available on a commercial basis and, as each piece of
infrastructure that we had to make available on a commercial basis came within scope, the
focus on the control of inventory increased dramatically.
Q327 Baroness Fookes: Do you imagine that Openreach will have continued to do that
after your departure?
Steve Robertson: I am sure that it has. There is also a big commercial prerogative to do so.
Q328 Baroness Fookes: It has been suggested that it might be useful if every
organisation kept such an inventory, which could then be amalgamated, perhaps by Ofcom,
so that there was a comprehensive picture of where the fibre is over the whole country.
Would that be difficult in terms of confidentiality?
Steve Robertson: I do not think that confidentiality is the issue, actually. It would be
theoretically possible, but it would be a huge undertaking. My guess is that the cost of the
survey work—for instance, checking the condition of each duct, which is a critical piece of
infrastructure—would probably outweigh the benefit, except in specific areas where we
could say, “Yes, there is going to be a lot of interest in the infrastructure here, so let us
proactively survey it to make sure that it is available.” However, in terms of fibre availability,
the issue is a lot simpler and that would be quite practical to achieve.
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Q329 Baroness Fookes: Would you know whether other organisations are undertaking
such an inventory or keeping their details up to date?
Steve Robertson: Having worked in quite a few telecoms companies, I would say that, in
terms of the detail of the equipment, cables and wires in all the different companies that I
have had contact with, on average about 30% of the time things were not exactly as you
would expect. That is an issue for all those businesses—we are all trying to take steps to
improve that—so my guess is that any telecoms infrastructure provider would know the
condition of the vast majority of its infrastructure but there would be places where it would
not be right.
Q330 Lord Clement-Jones: I have a small subsidiary question before I go on to my main
question. How much dark fibre do you think BT, for instance, has?
Steve Robertson: I think that there is probably quite a significant amount of dark fibre. If
you look at the way that fibre infrastructure is deployed not just by BT but by Colt or
anyone else who deploys fibre, the economics are such that, whenever you put a cable in the
ground, the incremental cost of making that a big cable with lots of fibres in it—versus a very
small cable with very few fibres—means that it makes economic sense to put in larger
cables. That will be the case for large parts of the network, so there could be quite a
significant amount—
Lord Clement-Jones: So it is sensible to have laid dark fibre in anticipation.
Steve Robertson: Yes.
Q331 Lord Clement-Jones: You have been quite upbeat about the power of
competition—you talked earlier about unleashing the power of the market—so you
probably do not agree with the evidence that we received from Prospect, which says that
Ofcom has put too much emphasis on price competition and not enough on investment. Do
you understand where Prospect is coming from on that?
Steve Robertson: I have a degree of sympathy for that, but I would also say that Ofcom
manages the economics of Openreach on the basis of return on capital employed. The prices
are a calculation, but the foundation of the calculation is return on capital employed. My
belief is that, the deeper that you go into the infrastructure—starting off with pieces of
electronics and pieces of equipment and perhaps ending up with the duct itself—the more
important it is to ensure that you are using a return-on-capital model, because the moneyto-money
cycle is much longer. I think that there is a place to have a market model that says,
at the service provider layer where the money-to-money cycle is much shorter, the
investment is in pieces of equipment that probably become redundant in a relatively small
period of time and you have one economic model that you apply to pricing; the deeper that
you go into the infrastructure, the more emphasis that you need to place on the longer life
of that infrastructure. The reason that that is important, and the reason that it needs to be
regulated, is to make sure that those bits of deep infrastructure that are natural economic
bottlenecks are made available to the market at the right sort of price that allows people to
exploit them. Therefore, you assume a long life, a relatively low risk and a decent return on
capital, but you also manage to get a low price to those who want to consume it.
Q332 Lord Clement-Jones: What we have is competition between wholesalers, or
between networks anyway, and then competition between retailers. Does what you have
said predicate the need for a single wholesale network? For instance, should Virgin open up
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its trunk network as well as Openreach? Could you not argue that, in a sense, we have had
too much investment?
Steve Robertson: The telecoms industry has had a few examples where the same type of
infrastructure has been duplicated, which has led to some fairly disastrous moments for
some infrastructure players. If you look at the history of fibre deployment, for instance,
there were moments in the dim and distant past—in the early 2000s, for instance—where
that happened. I do not necessarily believe that there needs to be one single fundamental
infrastructure provider. However, there are many places where it would be difficult to justify
having more than one provider and, in fact, where it is quite difficult to justify having one. If
you think about “not spots” for superfast broadband, such spots are places where even
creating an investment role for one provider does not work unless you give some economic
incentive. That is at one extreme. If you look at places where there is an infrastructurefriendly
environment with lots of people who are willing to pay lots of money—people who
are packed together in multi-dwelling units or whatever—it is much easier to see cases
where, as has happened in the USA, the cable monopoly and the telco monopoly have
actually provided effective infrastructure competition. But there are limits to that. If that was
the only model that was sustainable, there would inevitably be places where the investment
would not be justified.
Q333 The Chairman: Is it the case then that, where you have networks of this kind—
wherever the economics of rollout appears to make it likely that you will have a single
network provider—the crucial thing is that, at least for as long as that set of circumstances
pertain, there must be fair, reasonable and non-discriminatory access to that network not
only by service providers but also by other network providers?
Steve Robertson: I absolutely believe that. It is also worth thinking about what lies behind
that statement. The issue is not simply about making the inventory known and knowing what
you have got so that you can make it available but about the process whereby that is
consumed. This is a massively under-thought-about issue, but the likes of Sky, TalkTalk, BT
Retail and others who consumer infrastructure need processes that they can use to create
their products. For example, they need to be able to order the stuff and have repairs
systems. When I was working in Openreach, one of the big issues in the market when we
were setting up was that end-users often had a rubbish experience because, given the
combination of an infrastructure provider and a service provider and all the technologies
between them, it was difficult to make that work in a seamless way that gave the endcustomer
a great experience. I used to pick up a lot of complaints about that and it did get
better as we got used to working within that model, but those processes are a very
important part. It is not just the physical infrastructure but the systems and the processes
that allow it to be made available in a way that gives customers a really good experience. If
that does not happen, there will not be a market for the product. All those things have to be
in place.
Q334 Bishop of Norwich: It has been put to us that Government subsidies are being
awarded much more to owners of the middle mile extending their networks out rather than
communities in the final mile wanting to build and connect a new network back in. Is that
accurate? Whether or not it is, where do you think that such Government subsidies would
be best targeted and focused?
Steve Robertson: First, I think that that is accurate and there are reasons for that. If I was
giving out public money, some of the criteria that I would like to see are very difficult for
small local organisations to provide. For instance, we know they will need continuing
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investment, so you need to have an economic model that can be sustainable. In many local
communities, people will want to have access to a choice of service provider. That is not
always the case, but you may want to have a choice of service providers. Take the case of
Hull, which is a pretty big place. You are experts, so I am sure that you know that it is a
strange anomaly in the UK market that—guess what—in Hull people do not have access to
broadband by Sky, TalkTalk and all those others because it was not worth their toil to build
the systems and processes to link into the infrastructure in Hull. If that is the case in a place
like Hull, imagine what it is like for a little village.
However, I believe that there is a way round this. At the level of physical infrastructure, to
give access to superfast broadband, you need to have fibre et cetera. That needs to be
delivered to a specification, but I believe that there is a place for local communities to work
with the Openreach-type of organisations to say, “We can do something that you cannot do.
It is so important to us that we can put some of this infrastructure in place, but we need to
be able to connect to your network and systems”. I believe that an economic model could
be made and a template could be produced to allow those local communities to participate
legitimately at that layer of the infrastructure.
Q335 Bishop of Norwich: Why has that not been done already? Is it just too
complicated?
Steve Robertson: It is a model that requires a degree of care and attention and
interworking between huge organisations, regulators and tiny organisations. It is difficult to
make that mixture work. If you do not have very clear incentives, the mismatch is difficult. In
my current role, it is really interesting having gone from running a business that has 30,000
people to a business with 300. Trying to get the attention of really big organisations can
sometimes be hard even for a professional telecoms business. For small local groups it is a
tremendous challenge. I think they would need help in the way to structure the economics
and the technicalities to allow that to happen. I do not think that the will to create that has
been there.
Q336 Bishop of Norwich: So who is going to do that? The 10 people in BDUK are not
going to do it, are they? So whose responsibility would it be?
Steve Robertson: Let us be clear about our social objective here. Where this would be
most valuable would be to say, “Okay, all you big guys, there are places where we
understand you will not go, but the people there do not want to be left behind, and we need
to create a vehicle that will allow them to participate”. It starts off with political will and is
followed up by regulation. Having a focus on this from a regulatory point of view is
important. Adjacent to regulation, there needs to be something set up where there is a
responsibility to make that type of model work, that says, “Yes, we can do the technical
specifications; yes, we can build a funding model; and yes, it is in everybody's interests”. If
such a thing was to happen where BT or whoever, was going to roll out anyway, it would be
harder to do, but in the places where that is not going to happen, why not?
Q337 Baroness Fookes: Some of us were able to go to the BT Openreach Judd Street
headquarters recently and we raised the issue of the small organisation, perhaps at village
level, that badly wants to be in on the act but is finding it difficult and needed BT's
infrastructure to link in. One of the points that was put to us was that BT executives were
not unwilling to do this, but small organisations did not always appreciate fully the technical
need to have infrastructure which would marry up with BT's. They gave an example of
blowing the fibre into the tubes and that unless it was a particular group of fibres, the
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blower—if that is the right expression—would not work. Therefore you ran into all these
technical problems which the small organisations did not really appreciate. Is that a fair
description?
Steve Robertson: However, I remember, a long time ago—some of you may remember—
when Mercury was invented as competition to BT, the book written with the technical
specification and where you would be privileged to interconnect with the BT network. It
was an enormous book. The point is valid; however, there is a solution. If the problem is
that there needs to be a technical specification, the solution is staring us in the face. Let us
agree the technical specifications, let us understand the economic circumstances in which it
is the correct approach to take and, if necessary, let us provide an organisation that will
support those small communities to meet those standards and specifications. At the end of
the day, it is not rocket science, but there needs to be a degree of technical expertise et
cetera.
Q338 Baroness Fookes: Would you need an intermediary?
Steve Robertson: An intermediary is important, but fundamentally there needs to be the
will. I have huge sympathy for Openreach; it has a huge task and it is doing a great job. I am
really proud of what it has done since I left. It has kept going and it is covering large parts of
the country very quickly, but it is a huge organisation with a huge agenda. If lots of local
organisations want to connect, let us do something that helps those organisations to meet
those standards. I honestly do not think that that is Openreach’s job. There are ways of
dealing with this by setting up an organisation that would facilitate that and provide, perhaps,
help with the equipment and so on, because a lot of the equipment would be reusable and
you could use it in multiple places.
Q339 Baroness Fookes: So you think there is a need for an independent organisation,
not a pup of BT itself or Openreach?
Steve Robertson: I think it could be an independent organisation. It could be part of
Openreach. One of the lessons from Openreach, the reason why the market developments
in the UK happened in the way that they happened, is that there was a really clear objective
for Openreach. It was really simple: make the infrastructure available to all players in the
market on an equal basis. Why not set something up that says, “Your mission is to help small
communities interface with this big national rollout in a way that allows them to participate”?
Q340 The Chairman: Was BDUK not intended to do that?
Steve Robertson: I think that BDUK had a more complicated role. What I have just
described would be the tail of the tail, if you like. Part of the problem is that we all prioritise
from the big revenue generator and the large scale to the small, and the danger is that you
never get to the small guys until it is all over. Fundamentally, it is a social issue and we need
clear policy that says that we are not going to accept that it is okay for people to be
excluded. Having made that decision, it could be addressed.
Q341 Baroness Bakewell: An idea is emerging here that is very interesting. We heard a
call earlier today for leadership—which was quite hard to define. You use the term social
responsibility. Who is going to be the lead mover on this?
Steve Robertson: I think that this is fundamentally a political decision.
Baroness Bakewell: Local government?
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Steve Robertson: No, although I think that local government has a big part to play. There is
a national question to be asked. In our society, if this wonderful new technology is going to
be central to the way that we live our lives, is it acceptable for parts of our nation to be
structurally excluded or not? If the answer is no, there are a number of remedies. The
market is a huge part of it. Getting the right regulation and incentivisation and some of the
other issues that we have spoken about this afternoon is a huge part of it. At the edge of this
is to say, where those things are not applicable, we need to be imaginative to address it. One
of the characteristics of the particular little avenue that we have just gone down is that, as a
model, it would be consistent with the way that the rest of the country was being addressed.
It would fundamentally use the same commercial model but would be giving a bit of a
technical and commercial leg-up to those places that would not otherwise get it.
It might be that the answer on a national basis is no: it may be that we say no, that is not the
case. Personally, I think that in the long run, that will not be acceptable.
Q342 Lord Gordon of Strathblane: Staying with BT Openreach, but looking at its
relationship with BT Retail, do you think it is satisfactory?
Steve Robertson: When we created Openreach, there was huge worry among BT’s
customers that somehow, behind the scenes, shenanigans were going on.
Q343 Lord Gordon of Strathblane: Favourable treatment for BT?
Steve Robertson: Yes. I can honestly promise, hand on heart, that did not happen in my
time at Openreach. However, I would say that there needs to be a clear-sighted view of the
commercial incentivisation and structures of BT. BT is a business; it has a duty to its
shareholders. Openreach had a clear ring-fence around it and lots of regulatory safeguards,
although I think that the biggest safeguard was that the people who ran Openreach—I can
speak for my team—passionately believed in what we were doing. That helps, but the
regulatory safeguards were there.
Remember what Openreach was to do. There was an existing economic bottleneck that had
been created over the past 100 years. Its job was to take an existing economic bottleneck
and make it available to the whole market. The situation that we have now is different
because we need to create the incentives for new investment, and that is a different
regulatory challenge from an existing economic bottleneck. If you think about the business
case for that investment, it is more complicated, because the economic benefit that accrues
to BT from Openreach’s investment, when Openreach was just looking after an existing
economic bottleneck, was pretty straightforward: it was the money that Openreach made.
We needed to regulate to ensure that the infrastructure was made available. When
Openreach does incremental investment into new fibre infrastructure, that economic case is
made up partly by what Openreach is doing and partly by BT Retail’s ability to exploit it.
That is a fundamental difference in the relationship between BT Retail and Openreach, not in
subterfuge but in the economic model.
Q344 Lord Gordon of Strathblane: Arising out of the arm’s-length relationship
between BT Retail and Openreach, BT must make an investment in Openreach with no
guarantee that it will get any payback through its retail arm, because it might be undercut
commercially by another player.
Steve Robertson: Yes, and that is another part of the picture. It is no coincidence that BT
Retail has aggressively exploited Openreach’s superfast fibre product. When Sky came into
the broadband market, you could say, “This is unfair”, because it was offering free broadband
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attached to the television service. That made Sky’s television service more sticky and it could
make the money there—I am not saying it does not charge for higher speeds but it could
offer the basic product for free. BT moved into the television market. Effectively to deliver a
television service over the fixed line infrastructure without investment in superfast
broadband is much more difficult, so there is a natural commercial imperative for BT Retail
to use that.
Q345 Lord Gordon of Strathblane: Do you think that that has held back the rollout of
broadband in that BT Retail has been competing—quite naturally, in a commercial sense—
with the threat of competition from the others, which is largely in urban areas?
Steve Robertson: Actually, in a funny way, it has had the opposite effect. From my
experience of being inside Openreach, we were ring-fenced, we had to get a return on
capital, we were making a profit, and all the good business things that one does, and creating
the investment case for the future. When, as the CEO of Openreach, I spoke to the people
in BT Retail as my customer, there was huge demand from them: “When are you going to
get this superfast fibre out? We need the superfast fibre. How fast can you get it? We need
it because we have our Infinity programme and our television needs. Get on with it”. So the
model worked to the opposite effect.
Q346 Lord Gordon of Strathblane: I have one final question. Some people have told
me that the rate at which you can convert cabinets to fibre is held back by the lack of skilled
engineering staff—that you, like a lot of other bodies, including the power industry, have run
down staff and have a lot of people due to retire very shortly.
Steve Robertson: That is certainly the case. The average length of service when I was in
Openreach, which I do not think will have changed, was about 25 years. However, there is a
balance here when you are running your core business as efficiently as possible but making
sure that you have the capacity to roll out aggressively. The fibre rollout and the cabinet
conversion rate that BT has achieved is probably the fastest in the world. The bottleneck for
me, when I was in Openreach, was, funnily enough, in the adjacent areas: construction, all
the work that needs to be done in preparing the sites for the new cabinets, getting the
power there, working with the electricity companies and digging trenches. That was the stuff
that was quite difficult to get the right level of resources in place for.
Q347 Earl of Selborne: From the discussion that we have had over the last 10 minutes
or quarter of an hour, we must have some sympathy for BT when it is asked to engage with
self-help groups and to be flexible to meet those social requirements. We hear that it is
stretched and that it is moving at great speed. If it can keep control of the operation itself,
that will make life much simpler.
Unfortunately, I did not get to Judd Street but the story that they cannot really trust anyone
else but themselves to install a fibre-optic cable rings true, but it is the sort of thing that one
might say. Nevertheless, unless BT can be incentivised, required or regulated in order to
meet those legitimate needs where they will otherwise be market failure, we are going to
have whole stretches of the rural community or the remoter communities who are
effectively disfranchised. What is the answer? Do we have to make it a requirement from
Ofcom on BT that it simply must be flexible enough to deal with these awkward potential
consumers, or can we rely on market forces?
Steve Robertson: I think that it is probably a mixture of both, to be honest. I think that we
can rely on market forces to reach 75%, 80% or 85% of the country. Beyond a certain point,
it takes something else. The question then is: what is that something else? The ability of local
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communities to participate and contribute to get something that they would not otherwise
have available to them is a good principle. I do not think that having a patchwork of
miniature service providers is the way forward. Local communities will have their fibre and
equipment. It is not about just interconnecting with Openreach; it is about being a conduit
for the service providers that that local community could have, and the variety and
innovation that these guys are bringing all the time. We can think about 3D coming along
and all the other great stuff that communities will want to have.
The answer to this cannot be, “We are going to have a local monopoly”. I believe that the
answer to this has to be that we create a model that allows local participation at small-scale
but within a market model that will give those local people in those small communities the
same choice and richness that people in central London will have. I believe that such a model
could be developed. It has not been top of people's priority lists for two reasons: first, we
have not identified those places. There is a lot of vague talk about it being the last third, the
last 10%, or whatever. I do not think that we have got down to identifying where those
places are in a way that is friendly for local communities to engage with and say, “Hey, now
we know: we are one of those guys. We are not going to get this. What can we do about
it?” Then we can say, “Actually, there is something you can do about it. Here is a model that
you can use that will work”. I do not think that we have done the work; I am not necessarily
being hypercritical about it, but there is no reason why we cannot get on with it now.
Q348 Baroness Deech: Do you think that the ownership of the infrastructure should be
completely separated from the provision of the services that run over it?
Steve Robertson: I do not think that is necessary but if, as in the case of BT, the ownership
of the infrastructure is in the same commercial construct as other parts of the business that
act as a service provider, the regulatory framework and the economic incentives need to be
scrupulously applied and monitored. Otherwise, my answer would be that they should be
separated. However, where there is monitoring, I believe that it is feasible.
The basis for my answer is that I believe that the model that we created when we created
Openreach achieved the best of both worlds. As the CEO of Openreach, I was accountable
to the CEO of BT. Some might argue that that is ridiculous because that the CEO of BT also
has at heart the interests of the company’s retail business and, if you are accountable to that
person, you will inevitably by influenced by that. However, within the structure as I
experienced it, that was not the case. Rather, I felt enormous heat from BT Retail if we were
not delivering a good service. When we were not delivering a good service, sitting down
with Charles Dunstone or Jeremy Darroch or any of my other customers was extremely
unpleasant and difficult—and quite rightly so—but being part of BT meant that part of my
line management had a stake in my delivering a really great service, which was not unhelpful
in ensuring that our feet were kept to the fire.
Where you have a big monopoly infrastructure business, whether or not it is attached to a
retail business at the end of the day, keeping control of things is really important. Therefore,
in any case you need to have effective regulation. I never felt that effective regulation was a
bad thing. At its best, it was an enabling thing. Sometimes there was ineffective regulation,
which usually came about because of a lack of a clear strategic goal at an industry level.
However, if we have those things in place, that can work. That is not a guarantee that it will
work; it needs to be carefully managed.
Q349 Baroness Deech: Are there perhaps lessons to be learned from the railways?
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Steve Robertson: That is an interesting question. I am not an expert on railways, but I think
that the breaking up or fracturing of the relationship—and perhaps of the incentivisation—
between fundamental infrastructure and what is required to provide a really good service
might take us in the opposite direction, actually.
Q350 The Chairman: Thinking about regulation from the perspective of the
infrastructure, which in the BT context means Openreach, now that European law allows
Ofcom to impose regulation on those who do not have significant market power, do you
think that there is any aspect of regulation that might be imposed vis-à-vis the infrastructure
to make the overall network as a whole work better and more in the public interest?
Steve Robertson: I think that any infrastructure provider who can contribute to or
participate in the deployment of superfast broadband infrastructure and services should be
subject to the same regulation, whether or not they have significant market power.
However, I would like to emphasise that that only works in the context of a market model
that is effective. There can be an emotional barrier, in that if you are sitting inside BT and
are being required to make your infrastructure available whereas that requirement is not
imposed on someone else who has a very similar infrastructure—that is not just Virgin but
could be other companies—there is a certain emotional dissonance, for which I have quite a
lot of sympathy. However, in practical terms, such regulation only becomes useful if there is
a workable market model that allows the infrastructure to be made available in a way that is
attractive to consume.
In places where there are dense populations and where it is possible to make a business case
for competition in fundamental levels of infrastructure, that is probably great. To be frank,
however, those places are going to do okay anyway, so in a way they are the least of our
worries in terms of breadth of availability. In the places where such competition does not
make economic sense, regulation will not really help too much. In principle, I think that it is
the right thing to do, but I would not get overexcited about that being some sort of panacea
that will really unlock the fundamental issues that we have been talking about this afternoon.
Q351 The Chairman: I think that you came into the room when Andrew Barron of
Virgin Media was saying that it appeared that BT Openreach was getting most of the rollout
support from BDUK. He thought that that was likely to happen, and he explained his
concerns. Do you think that he was right in the way that he was analysing the underlying
economic and technological characteristics of what he claimed was going on?
Steve Robertson: I think that I may have come in just a few moments afterwards. However,
I think that I understand the general thrust of his point.
The Chairman: His complaint—I think that I am paraphrasing him fairly—was that public
money was being provided to enable a network to be rolled out that Openreach was
probably going to roll out anyway. The inference was that it was part of Openreach’s
medium-term economic plans to roll out such a network, so it was getting a lot of public
money to do something that it would do anyway. Against that background, BT could then
bid lower than any other infrastructure provider, which means that it is likely to get the
contract most of the time. Is that a proper use of public money? Is it not unfair on the other
bidders?
Steve Robertson: I do not think that that is happening. I was quite intimately involved in the
development of the economic models around BDUK, which were built on the basis of what
is economically unviable and what level of subsidy is required. What I would say is that you
need to look at the economies of scale that Openreach has and, given the overall investment
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Q352 Lord St John of Bletso: Just wrapping things up, looking at the bigger picture, we
have had a number of recommended areas of policy intervention, from redesigning the
franchise areas, creating new local internet exchanges and opening up middle mile and backhaul
networks. Do you have any other policy-specific recommendations that you think
should be put forward?
Steve Robertson: Going back to some of my earlier points, first, let us be clear about our
social objective here. The social objective is very important because at that point you can
build the most efficient economic model to make it happen. I think that the regulatory model
can be improved. I do not believe that the regulator feels that it has the ability to make that
sort of social decision. It is about making the market work as well as it possibly can and
regulating the market. If you really want the regulator to take on a more adventurous role,
being clear about what the end-game is helps.
On that basis, I think that there can be improvements in the regulatory environment to
incentivise investment. We should all understand that there is a degree of risk in investing in
fundamental infrastructure and telecoms, and companies have had their fingers burnt
historically. To the degree that the risk can be reduced, in return for that certainty, a
regulatory environment where prices for the infrastructure are as competitive as possible
would be of benefit. I think that that could be improved. I think that the business case for
Openreach could be made more secure with a quid pro quo that says, “If we make your
business more secure, will you go to more places? Will you be willing to accept that this
reduced level of risk means that you will invest more aggressively and, maybe, extend the
footprint and take a longer return on that investment?” That discussion could be had, and I
do not think that it has been up to this point. I do not think that that is a problem because,
to be honest, there has been plenty to get on with.
I suppose that the other point for me is that we need to ensure that the power of
competition and the power of the market are encouraged to the greatest extent possible,
because the greater the success of the market, the less that the public purse has to deal
with. To that end, we have touched on some of the things that the Government can do in
encouraging take-up of these services. Aligning economic incentives through the value chain
will result in an accelerated deployment and use of this stuff.
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Steve Robertson – oral evidence (QQ 320-353)
Overall, I think that we should encourage and magnify the things that are working in terms
of using the market, but perhaps we should take more seriously the places where there is a
deficit and be more aggressive in the way that that we attack them.
Q353 The Chairman: Just before we close, can I just ask you one particular question?
We would be interested to know, if you know the answer. You explained to us that you
were involved and intimately concerned in the development of economic models by BDUK.
Do you know which came first: did BT say that it would serve the first two-thirds, or did
BDUK say that it should fund the final third?
Steve Robertson: Once upon a time, BT was not going to do any of this stuff. One of my
ambitions when I took on Openreach was to invest in a fibre future. I remember knocking
on Ben Verwaayen’s door and being told to get lost and get on with running our business
and, once we had fixed all the things that were wrong with the existing network, we could
discuss it.
After three-and-a-half years, we made a business case, which was to cover 40% of the UK.
At that time, the whole broadband Britain discussion was kicking off. I believe that that 40%
was the benchmark from which everything sprang forth. The models in BT evolved from
that. We believed that 40% was maybe the high-water mark. The minute that we started
doing that and understood the economics better, that moved towards two-thirds. The twothirds
number was always going to be within the grasp of Openreach, and if you speak to
people within BT I think that they would take that as the least that they wanted to achieve
now and believe that they could achieve more. It was definitely not provoked by BDUK.
The Chairman: It was basically infrastructure development led in that respect.
Steve Robertson: Yes.
The Chairman: That seems a suitable conclusion, thank you. It was upbeat and positive.
We started a quarter of an hour late and we have finished nearly half an hour late, so
apologies but congratulations for keeping us here. We are extremely grateful to you.
Steve Robertson: Good luck with your work; it is very important.
638

Les Savill – written evidence
Les Savill – written evidence
I am a retired IT professional living in a small valley in South Wales.
BT have published some details of the plans for superfast broadband via fibre to the cabinet
(FTTC) in my area but appear to not be planning to do all of the cabinets connected to the
exchange in the first round and we may need to wait until 2015.
I fully understand that BT (Openreach) need to see a return on their investment and they
have stated that when considering which cabinets to do they take commercial and technical
details into their plans.
I have seen a large number of submissions to various web site forums reporting that it
appears mostly the cabinets nearest to the exchanges appear to be on BT lists for upgrade
for a large number of exchanges.
As the speed of a broadband connection using only copper wires is greatly affected by its
length, those living closest to the exchange will already be receiving a higher speed than
those of us living further away, so I am not surprised to read a Ofcom report that the
average take up of FTTC is only 4%.
I appreciate that it is probable that there are more users per cabinet towards the centre of
the towns, usually where the exchange are located, but particularly in the current financial
climate those currently receiving the national average, or above, of around 8 megabytes (Mb)
are less likely to be prepared to spend an additional £10.00 per month for speeds in excess
of 30 Mb than those of us currently receiving only 1.5 Mb.
I would not expect the distance from the exchange to affect the cost of upgrading the
cabinet, other than the greater length of fibre needed, and I would expect a greater up take
from those like myself currently on a very slow connection.
I understand that governments have made funds available and open to bids from the private
sector to upgrade broadband locally but the private nature of this excludes local councils
from biding based on a greater number of users than I could hope to contact.
It looks as though BT are not doing the cabinets farthest from the exchange first because
they know that those very slow users will make the most noise and they (BT) will get funds
from others to complete the task rather than their own money!
Hope this has been of some interest.
5 March 2012
639

South West Internet CIC – written evidence
South West Internet CIC – written evidence
• Introduction
This response focuses on what is needed by the market. This is very different from the
supplier centric approach which is the approach that is being and has been taken by this and
the previous Government.
This response covers three items:
1) The economic and social justification.
2) The goals.
3) The strategy for meeting the goals.
• 1. Economic and Social Justification
The beauty of the Internet is that it allows for the creation of relatively low cost
communication infrastructure at local, regional and national level.
The state subsidy allocated by the Government, and the subject of this House of Lords
investigation, is a tiny amount of money compared to the economic and social uplift that
could arise if the money was spent wisely.
Unfortunately this investment is not being spent wisely, and the affect is likely to be the
opposite of that intended. The marketplace is being undermined and damaged, the
Government will not reach its delivery goals and as a consequence, the UK economy will
suffer.
The reason for this is because the policy makers within BDUK lack the qualifications,
experience and industry knowledge to make the correct decisions. The advisers they are
using are partisan in the advice they are giving.
Instead of improving Internet delivery in the UK, the current BDUK roll-out is going to
result in an increase in the division between the digital haves and have nots. Under the
current proposals where public investment is made, it is likely to result in solutions in
remote areas that do not meet the requirements of the market, and in built-up areas is likely
to damage the commercial viability of the market.
In short, I believe the current BDUK roll-out will fail to deliver where infrastructure is
needed most and will interfere with the market in areas where the market is currently
operating well.
• 2. The Goals
The goals are wrong. The headline 24 Mbps download speed is an inappropriate goal. There
are 5 important parameters when considering broadband performance:
1) Download speed (maximum and minimum).
2) Upload speed (maximum and minimum).
3) Latency (how long it takes for data to arrive at its destination), this is sometimes referred
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South West Internet CIC – written evidence
to as timeliness.
4) Jitter (the variability of speeds and latencies).
5) Reliability of service and the length of time required to resolve problems.
The current Government goal is 24 Mbps maximum download speed. This is meaningless if
the majority of users only experience 1 Mbps when they want to use the Internet. i.e. what
use is 24 Mbps download speeds if one can only ever achieve this speed at 3:00 am in the
morning.
Any goal should be premised on what the market actually receives, not on what a single user
might receive if no one else at all is using the service in the same area at the same time.
The current Government goal does not specify what any of the other parameters should be.
These are all important to the customer, and much more important than the maximum
speed possible. i.e. Telephony and Cloud services require data to flow in both directions, so
upload broadband speeds are important for these applications.
The single goal is insufficient. The measures used should be representative of what the
consumer actually requires and any monitoring of the 5 suggested goals should use
statistically rigorous indicators.
Recommendation
The goals should specify measurements that better reflect the requirements of the
customer.
The goals should focus on minimum levels, and indicate what the customer is actually
receiving. They should not claim maximum levels that are rarely, if ever, achieved.
• 3. The Strategy
The current BDUK roll-out strategy is wrong and potentially in breach of state-aid treaty
obligations.
The current roll-out is being controlled centrally by BDUK but delivery is abrogated to Local
Authority (County Council) level.
Like BDUK, the County Councils lack the requisite knowledge to procure and manage major
telecommunications projects of this sort. Their experience is only in procuring for their
own, internal networking requirements.
The Local Authority procurement processes are designed to maximise economic value and
to meet the 90% NGA delivery goals. But when considering broadband infrastructure this
means that the County Councils will focus efforts in the main population centres.
Unfortunately these are the areas where the broadband supply market is already working.
It is inappropriate for the County Councils to be targeting conurbations as it is damaging to
competition in these areas and it leaves the other more marginal locations unprofitable and
unserved.
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South West Internet CIC – written evidence
Recommendations
State subsidy should not be used where there is already a functioning market. The BDUK
funding should not be used to compete with existing providers as this damages competition
in the marketplace.
The focus should be to ensure that 100% of the UK population has access to broadband
communications infrastructure. State Aid subsidy should be targeted at locations where
there is a need.
• Background of Respondent
Tim Snape is the founder of South West Internet CIC which has been providing Internet
into rural communities across the South West since 2003.
This company started as West Dorset Internet Ltd in 1990 and has expanded ever since
giving users fast broadband in rural areas from Bournemouth to Ilfracombe.
SWI is an example of a small rural community provider that has demonstrated long term
sustainability; it operates at minimal cost with a total annual income of £90,000 (most of
which goes to Western Power for antennae on their high masts and the Internet link
through EasyNet).
Despite its size, the company has approximately 220 business customers operating across
Devon, Somerset and Dorset, who are estimated to have a total economic value between
them of £90 million per annum.
The principal, Tim Snape, is a technological engineer who, in addition to running SWI also
provides technical consultancy services which are his main income. His consultatancy
customers include BT, Vodafone, T-Mobile, and C&W.
Tim is currently engaged on new project work for Vodafone and BT running technical trials
of new mobile phone technology. This work utilises the SWI rural broadband network as a
test bed.
Tim has been very active in the wider Internet Industry, particularly in the security and
regularity fields; recommending policies to Governments in the UK, Europe and
internationally; this work has included being:
Director & Council member of ISPA 1997 - 2008 (the UK ISP Trade Association),
Director & Council member of EuroISPA 2001 - 2007 (the European ISP Trade Association),
Chairman of the ISP Crime Committee 2001 – 2004,
Founder Member of the ACPO Cybercrime Committee 2000 – 2007,
Member of the Lyons Group (Representing Industry at the Tokyo G8 Crime meeting).
Tim and the companies he runs have won many awards, for technical, social and industry
activities within the Internet Industry.
March 2012
642

SSE plc – written evidence
SSE plc – written evidence
Introduction
1. SSE (formerly Scottish and Southern Energy plc) is a major energy company with
interests throughout the supply chain of activity from power stations; through ownership
of regulated network infrastructure in electricity and gas; to the retail supply of energyrelated
products to a customer base of around 9 million. SSE is also active in the
communications markets, offering retail telephony and broadband products to residential
customers as well as capacity and bandwidth services using our own commercial
communications network to other communications providers and to large business
customers.
2. SSE believes there is a clear and urgent need for the development of a market
framework that recognises the “utility” nature of the services supported by
communications infrastructure. That market framework should reflect the possibilities
for competition both in the services that can be provided over different communication
infrastructures and in the contestable provision of extensions to infrastructure –
including for the new fibre technology “superfast” infrastructure. In this way, innovation
can be stimulated and, in the context of public support for superfast broadband
infrastructure in certain areas, value for money obtained from public funding.
Summary
3. We have responded to three of the questions in the Call for Evidence in the section
below and our key points are:
• As in other markets where utility services are provided over network infrastructure,
the role of communications infrastructure providers should be clearly separated from
that of retail service providers, and the requirements on each clearly distinguished.
• Prospective providers of superfast broadband infrastructure should be able to “plug
in” their network to a logical national access network that provides a platform
whereby any retail service provider can supply their services to end customers on
the new superfast network.
• An important function of the platform would be to coordinate retail switching so that
this happens in a streamlined, efficient and consistent manner across all
communication infrastructures.
• This type of market organisation will not happen without Government and regulatory
intervention. We recommend that a modest proportion of the funds set aside for
superfast broadband support is used by the Government to procure a “roadmap” or
central design to cover the above features so that prospective market participants
can see how the market will work. This should provide greater confidence for
further private sector investment.
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SSE plc – written evidence
Responses to specific questions
How does the UK communications market vary regionally and what is the best
way to connect the areas that the market alone cannot reach?
4. It seems clear that there are well-populated areas of the country where several vertically
integrated communications providers (CPs) are competing to provide a superfast
broadband network capability (along with services using those networks) and areas
where it is less likely that such infrastructure would be provided by these CPs on a
commercial basis. SSE believes that the best way for the Government to support the
roll-out of superfast capability infrastructure in the second type of area is to establish a
fit-for purpose market framework.
5. With all the uses planned for superfast broadband infrastructure – not least telemedicine
and the strategically important business services mentioned in the Call for Evidence –
communications infrastructure is increasingly being looked on as a network based utility
for the modern age. We do not believe that it will continue to be acceptable for
communications services to be unavailable for a period at an end user’s premises while
they change supplier, as happens currently in some situations 247 . Similarly, if
communications networks are being used to support life and health through
telemedicine, continuity for that service needs to be arranged even if other
communications services are terminated due, for example, to payment issues. Market
arrangements to achieve specific outcomes for the best interests of consumers and
citizens are a natural feature of utility markets and need a “regulated utility” framework
to coordinate and support them.
6. Other examples of such network based utilities in the UK economy include energy,
water and some transport services. Where these industries are open to competition, the
separate role and identity of infrastructure providers compared to the role and identity
of suppliers of services using the infrastructure is well established and reflected in the
regulatory frameworks. Another feature – particularly of the energy markets – but also
in the emerging water retail markets, is the existence of coordinated mechanisms across
infrastructure providers for end customers to switch their retail services between
different suppliers using the same underlying infrastructure.
7. This distinction between infrastructure provision and the activity of providing services
across the infrastructure is less clearly made in the communications market and a
contributory factor may well be that the largest retail service providers operating in the
market are also involved in various types of infrastructure provision – in other words,
the larger players in the market are vertically integrated across both types of activity. SSE
believes that, with the Government’s focus on delivery of competition and innovation in
services using superfast infrastructure (and in the provision of local access
infrastructure), it is vitally important to support that prospective competition and
innovation with fit-for-purpose market mechanisms that provide for 3 outcomes:
• A wide range of choices for end users connected to superfast infrastructure in the
retail services they can use over those infrastructure;
247 Loss of service when switching retail providers is discussed at paragraphs 4.68 to 4.85 of the Ofcom consultation
on consumer switching published on 9 February 2012
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SSE plc – written evidence
• Ability of local infrastructure providers to rent out their superfast infrastructure to
other CPs who wish to provide services over it – thereby “plugging in” to a logical
“public communications access network” of national reach so that their end users
can make the choices mentioned above; and
• A coordinated retail switching mechanism that can be used by service providers to
enable the choices mentioned above to be made by any end customer on any
superfast network infrastructure in a streamlined and efficient manner.
8. In chapter 4 of the Government’s December 2010 superfast broadband document
mentioned in the Call for Evidence, intentions are stated which align with the above
outcomes. Paragraph 4.10 mentions allowing CPs ‘to offer services to end users in a
consistent way regardless of the access network provider … that the end user is connected to’
and providing ‘a single transport network solution for smaller community broadband networks
that will enable them to connect their individual end users to any CP.’
9. The communications industry supply chain of basic infrastructure provision, different
levels of wholesale services, retail provision of basic communications access such as
“telephony” and “broadband” to consumers and finally the different types of content and
services that consumers can then access via that retail service provision is a complex
one. Since public funds are available to assist with the delivery of desirable superfast
broadband outcomes, SSE recommends that some of the funds are spent on systems and
market design to establish a clearly understood “roadmap” or central design of how the
above outcomes will be delivered in information system and market structural terms.
10. SSE has some ideas to contribute on how the central design could be drawn up and
some of these are briefly discussed in the Appendix to this memorandum. However, it
does appear to us that it needs dedicated information systems project resource to
address the question that the Committee is asking about “what is the best way to
connect the areas” where public subsidy is likely to be needed. It would seem logical to
invest in establishing this design before any more of the public funds are spent on
supporting actual projects. Once the market framework is clear, we expect that a
greater range of businesses would have the confidence to invest in delivering elements of
what is needed.
11. There is also clearly an opportunity, with the plans for a new Communications Act, for
any legislative measures necessary for the success of the roadmap to be addressed for
the longer term.
The Government have committed £530million to help stimulate private
investment – is this enough and is it being effectively applied to develop
maximum social and economic benefit?
12. Our response to the question above sets out SSE’s view of the importance of
determining how the communications market in areas supported by public funds will
actually work to allow competition and innovation in both local superfast infrastructure
provision and at the level of retail services available to end users connected to the new
networks.
13. We are not aware of any part of the £530m being invested to develop such a central
design.
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SSE plc – written evidence
14. This does not seem an effective use of the available funds. If the funds are only spent on
subsidising specific infrastructure roll-out projects without a clear view of how the
market will operate across a “patchwork” of different infrastructure owners, SSE
believes that the opportunity to safeguard the required competition and innovation will
be lost. Although some players with innovative business models have already invested in
local superfast broadband networks, we are aware from discussions held under the
auspices of the Broadband Stakeholder Group, that issues remain on how to establish
access for end customers to a range of different retail service providers over these
networks.
15. If the market framework for local infrastructure roll-out is clarified, we expect that a
greater number of innovative infrastructure provision projects would come forward,
bringing greater competitive pressure to bear on the sums that would eventually be
needed from public subsidy. As it stands, it is likely that only the vertically integrated CPs
with national business models will have confidence to put forward projects for subsidy in
these areas. It is also not clear how choice, competition and innovation in retail service
provision on these supported infrastructure projects would be ensured if the market
framework itself is not clear.
Does the UK, for example, have a properly competitive market in wholesale
fibre connectivity? What benefits could such a market provide, and what actions
could the Government take to ensure such a market?
16. Wholesale fibre connectivity is one element of the supply chain necessary to enable a
healthy competitive ecosystem of different derived wholesale and retail services to
become established based on further roll-out of superfast infrastructure. We believe
there could be a number of different players interested in providing fibre connectivity
provided it is clear to them how their investment can be remunerated and how endusers
on their prospective networks can be provided with a choice of retail service
providers. These players would not necessarily have an ability to arrange for
communications services at an active level on their networks; they may be content to
receive a rental income – potentially at regulated rates – from other parties who can use
the infrastructure they have provided to do this.
17. As discussed in the paragraphs above, we believe that the single most important
contribution that the Government can make is to ensure that a fit-for-purpose market
framework is developed so that both potential infrastructure providers and the existing
range of retail suppliers of communications services can see what their obligations and
market interactions would be and how retail service choice for end users would be
managed. Providing this certainty in statutory and market codes as well as in regulatory
arrangements (as is being considered for the developing market arrangements in the
water industry in England and Wales) would, we believe, do much to build confidence for
orderly market development and investment by a variety of types of business. This may
be particularly pressing for superfast broadband roll-out in areas where public subsidy is
contemplated but the general framework should also have application throughout the
rest of the country for any technologies in use for communications. This is likely to
provide benefits for end customers in establishing a consistent interface for choosing
services, giving them confidence to switch and to reward the innovative service offerings
that best meet their needs.
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SSE plc – written evidence
Appendix
Diagrammatic representation of the use of capacity on a superfast broadband
link
A “multi-channel” access approach
As mentioned in our response at paragraph 10.
Browsing
YouTube video
VPN
Notes
Room for any
new services
IPTV
Telephony
Internet
Video-on-demand
Public services (indirect
customer relationship with
service provider)
• Each of the channels could potentially be used by different suppliers, each using a
proportion of the overall capacity of the link and paying a proportionate rental charge to
the infrastructure provider for that use.
• Multiple service providers or suppliers can use the link without affecting the service
provided by other suppliers. The more services provided over the infrastructure, the
more revenue to the infrastructure provider, boosting his commercial case for
investment.
• For “direct” services that the customer arranges on his own behalf, he would pay the
service provider who in turn pays the infrastructure provider for the capacity use.
• For “indirect” services – labelled above as “public services” and which could include
telemedicine, as discussed in the response – the service is provided for the benefit of the
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SSE plc – written evidence
end customer by a third party such as a Health Authority. The third party would pay the
service provider who in turn pays the infrastructure provider for the capacity use.
March 2012
648

SSE plc - oral evidence (QQ 379-407)
SSE plc - oral evidence (QQ 379-407)
Evidence Session No. 6. Heard in Public. Questions 354 - 429
TUESDAY 29 MAY 2012
Members present
Lord Inglewood (Chairman)
Baroness Bakewell
Lord Clement-Jones
Baroness Deech
Lord Dubs
Baroness Fookes
Lord Gordon of Strathblane
Bishop of Norwich
Lord Razzall
Lord St John of Bletso
Earl of Selborne
Lord Skelmersdale
________________
Examination of Witnesses
Itret Latif, Telecoms and Gas Business Manager, SSE
Q379 The Chairman: I welcome Itret Latif, who is the telecoms and gas business
manager for SSE, or Scottish and Southern Energy. You have kindly produced some evidence
for the Committee already, and I take it that we have read that. You heard the format of the
previous witness session, so that will be the format we will follow this time. If you have an
initial statement that you would like to make, please do so.
Itret Latif: My name is, as you say, is Itret Latif. I am SSE’s telecoms business manager and a
director of two industry trade bodies, the Federation of Communication Services and the
UK Competitive Telecommunications Association, where I represent the interests of all
members but particularly the smaller retail companies. I have been involved in a series of
discussions under the auspices of the Broadband Stakeholder Group on the difficulties facing
the providers of small-fibre networks. I have been heavily involved in that. My role at SSE
over the past decade has been to develop its retail communication business; I have also
performed a similar role in the gas market. We offer retail telephony and broadband
products to around 250,000 customers. They are mainly residential, and we use high-level
wholesale products. In our view, while the Government’s broadband strategy is well
intentioned, it does not address the market framework, which I believe in its current form is
not fit for purpose and requires urgent rethought.
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SSE plc - oral evidence (QQ 379-407)
Q380 The Chairman: We look forward to hearing about that in a bit more detail. Easily
evolving from that, as I said to previous witnesses, the Government’s plan is that the country
should have the best superfast broadband network by 2015. To achieve that, what do you
think they should do, and what should be the characteristics of the network that they put in
place?
Itret Latif: We believe that we need to have a framework first and we have submitted as
evidence what we think that framework looks like. If I can give you the essential
characteristics of the framework in the first instance, we can go further. We would like to
see a separation between supply, the retail competition and infrastructure or distribution.
That is an essential part where we would like to see distribution businesses concentrating on
providing a very efficient network for suppliers to compete on. There needs to be coordination
by the market for the benefit of the customer and at the moment we feel that
there is not much co-ordination between infrastructure providers or suppliers. Consumers
need to be able to choose their service provider; it is an essential part of innovation and
competition that the customer can choose the service provider. We support contestability
of infrastructure where it is feasible. I do not think that we are looking for vertically
integrated competition; we are looking for extension networks where it is economically
feasible and for those networks to be in a logical national network. We believe that we need
to create market bodies to which all stakeholders belong, managing the day-to-day running
of those interactions. Ofcom does not need to be involved in day-to-day business but needs
to view what is going on and make sure that the participants are behaving properly and
following regulation. Those are the essential characteristics that we need to develop in the
framework.
Q381 The Chairman: Ofcom should, for want of a better way of putting it, be a
regulator with a pretty light touch. Is that it?
Itret Latif: It is a regulator but it is not operationally gifted. The expertise lies with the
industry itself. Ofcom can rule in terms of direction on consumer harm, but it needs the
market bodies to rectify it. It should not go down to describing the solution; it is up to the
market to decide that.
The Chairman: It should confine itself to principles.
Itret Latif: Yes. The model that I am using is the utility model. We have that in energy in the
gas and electricity market, where the regulator sits outside and there are structures for the
MRA, the governance structure that looks after the electricity distribution and supply
businesses.
Q382 Baroness Fookes: Could you tell us what kind of inventory you have for fibre
assets, whether the lit or the dark variety?
Itret Latif: I work on the retail not the infrastructure side, but I have done some of my
homework here. We are really a carrier’s carrier; SSE Telecoms has the big pipes. It is lit
and it is dark as well, but I cannot give you what proportion that is; it carries large traffic
rather than access to individual houses and it is not the access network but the big trunk
networks.
Baroness Fookes: Is there some kind of inventory, even if you do not know yourself?
Itret Latif: Absolutely, we have a full inventory of the infrastructure.
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SSE plc - oral evidence (QQ 379-407)
Q383 Baroness Fookes: You also have a representative role, as you described earlier.
Would you know what other organisations do in terms of an inventory?
Itret Latif: Everyone should have their own inventory. In the utility network business, you
should know where your networks are, or how do you fix problems? The majority of the
newest entrants will have a very good inventory, although the legacy systems may have some
issues.
Q384 Baroness Fookes: A suggestion has been made, not by me, that Ofcom should
compile a comprehensive inventory of all the fibre assets. I do not think Ofcom does that at
the moment. Is there any merit in such an idea?
Itret Latif: At access level, yes. We have been advocating that. For the pro-competition
stance that we have taken, we believe that you have to describe the connectivity of each
household. In this current world where you have copper, Virgin networks and BT rolling out
fibre—fibre to the cabinet and to the home—you have to describe what the connectivity is
at that premise. Otherwise, how do you bring services to the customer?
Baroness Fookes: Presumably that would be particularly important where you have what
one might call remote communities. We have this terrible problem of non-access at the
moment.
Itret Latif: The model that we advocate is that you should not have to wire; it could be
wireless as well. It is up to those areas what technology you use to get to that customer, but
we need to know what that is.
Baroness Fookes: So it does not matter what it is, so long as you know what it is.
Itret Latif: Absolutely.
Q385 The Chairman: Do you think that as part of this that it would be appropriate to
mandate standards of interconnection into the access network?
Itret Latif: Yes.
The Chairman: Do you think there are problems with not having that now?
Itret Latif: Yes.
The Chairman: Could you elaborate a little?
Itret Latif: If you know what the standards are and you know where you can interconnect,
you know where you can make commercial decisions about how to create networks. We
find that players who should be interested are not interested at this stage because they do
not really understand how to connect to the national network. If you standardise that, you
will probably find that other players with other assets and other ways of leveraging their
business models could come into the market. At the moment, because there is no
standardisation in that respect, it becomes a very difficult situation.
Baroness Fookes: And presumably they would know what the costs were likely to be.
Itret Latif: Absolutely. The economics become more transparent and you can make the
business justification. Otherwise, you can build a network and find that afterwards it requires
10 years of negotiation. I am exaggerating here, but there would be uncertainty about
whether it would pay. The other thing I would say is that from our perspective the
connection needs to be standard, as does the end connection for the customer. You want to
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SSE plc - oral evidence (QQ 379-407)
plug those customers into the national network. Otherwise, you will get a vertically
integrated competition model rather than a service competition model.
Q386 Lord St John of Bletso: It appears that the government subsidies are mostly being
promoted to the middle mile, with those companies that are looking to extend their fibreoptic
infrastructure—here I am referring to BT, really—rather than to the communities and
SMEs in the final mile that have an interest in building and connecting a new network back in.
You mention in your written evidence that you recommended that the Government support
a fit-for-purpose market framework. Do you agree that the incentives have predominantly
been given to the larger companies?
Itret Latif: It may have happened that way, but I think it is because of the way the funding
has been spent. We support local communities having connectivity. They need it, and they
can do it efficiently because they may have clubbed together, built the trenches and so on.
The issue they normally face is how to bring other service providers to service those
communities over their network. The funding has followed the larger service providers
because they have a central mechanism for distributing services over their networks. I
suspect that that is what is happening at this stage. I have no real evidence on how the
subsidies have been spent in that respect, but I can see that subsidies are following people
who can bring a larger service community to the end point.
Lord St John of Bletso: But with the huge technological advances—here I am referring to
new fibre technology—surely the Government should be giving more support and incentives
to innovation.
Itret Latif: They should be. It depends upon what you mean by innovation. I think innovation
is at the service level rather than at the infrastructure level. Infrastructure as a utility
characteristic, where you dig the road up and put your fibres in, is very basic in that respect.
The innovation in the new-generation networks is the applications that are put on top of
that. That is where the innovation is. The difficulty is how you extend the network because
it is a utility-type structure. You have to spend large amounts of money digging up roads and
extending your network. That is not innovative, unfortunately, but it is required to get the
innovation, which is the services.
The Chairman: Is it the case that the physical configuration of the network can make quite
a big difference in practice to what an internet service provider can or cannot use that piece
of the infrastructure for?
Itret Latif: Yes.
Q387 The Chairman: Do you think what is going on at present is too random?
Itret Latif: I would say yes. I was involved in the Ofcom ALA discussion—I know that Chi
Onwurah came and gave evidence to you earlier—and we were very supportive. We were
quite excited because that standardisation is happening. This is the first time that the
telecom industry can standardise. The legacy networks had their own ways of working, but
this ethernet connectivity ALA standard can be adopted by all infrastructure providers when
they roll out their fibre. That allows interconnectivity and exciting competition to happen on
the infrastructure. In theory, the infrastructure can plug into the national infrastructure. You
can have lots of infrastructures with several owners, but in effect it becomes a logical UK
infrastructure.
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Q388 Lord Gordon of Strathblane: Going back to your original core business, I think
that virtually every home in the land has electricity. Is there a case for regarding broadband
as a utility and requiring its provision to every home in the land?
Itret Latif: Yes. I firmly believe that it is a fundamental part of modern life, and I think it will
become even more important. The model that we have advocated would provide the ability
for new services to exist, which have an indirect relationship 248 . For example, the NHS could
start offering telemedicine, but it cannot use the current model because the relationship is
slightly different. If, for instance, consumers have a problem with paying a particular bill, they
will sever the whole relationship there. In the new world, you will allow only the service that
the service provider is providing to be severed, so you could have an indirect relationship
that the NHS paid for, for the benefit of the customer, so the relationship would be
different. There is great potential for it to become a utility and in fact to help other
organisations and entities to provide very cost-effective treatments or services.
Q389 Lord Razzall: Changing the subject slightly, I want to look at the question of BT
Retail and BT Openreach. We have had evidence that the relationship between BT Retail
and BT Openreach is not entirely satisfactory. Could you describe what you think that
relationship is? In particular, what is the impact of BT Retail’s commercial strategy on the
rollout of superfast broadband more widely?
Itret Latif: We think that there is a problem.
Lord Razzall: We are privileged here, by the way.
Itret Latif: How can I say this? We have a relationship with BT, because it provides us with
our services. We piggyback on BT’s network: we use BT Wholesale to provide our
broadband and we use BT Openreach to provide our connectivity. In a way that works, but
in other ways we find that there needs to be separation between the distribution side and
the retail side. We have had conversations with our colleagues in BT, but whenever a new
innovation comes, BT Retail seems to get first stab at using that innovation. That seems to
be its natural way of developing these services—
The Chairman: You are talking about innovation on the network, are you?
Itret Latif: Yes. We believe that there should be a legal separation between the
infrastructure entity and the retail supply entity. We do not mean divesture—I do not think
that is what we are talking about. Ofcom should be able to view the BT Openreach accounts
and can be certain that all the moneys are attributed properly. There is evidence that, in this
new NGA world where BT is rolling out fibre, BT seems to have already taken the vast
majority of the connections. I have heard that BT has something like 500,000 connections
and the rest of the community has around 10,000 connections.
The Chairman: Is that the infrastructure network positively favouring its retail brother or
sister, or is that a result of the rules that have been put in place about the access to the fibre
network under the auspices of Ofcom?
248 The “indirect relationship” discussed in this paragraph is explained in the Appendix to SSE’s written evidence
provided in March. This shows a multi-channel access approach to using the capacity of a superfast broadband
link. In this model, customers can have a number of different services delivered over the same link by different
suppliers. In this context, an “indirect relationship” is one where the end customer does not pay directly for
the service but instead, a third party such as a Health Authority does. Then it can be seen that if the customer
gets into payment difficulty with some services provided over the link such that these are commercially
withdrawn, the indirect services, paid for by other parties, are unaffected.
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Itret Latif: I think that it is more to do with the commercial relationships internally.
Q390 Lord Razzall: How does that equate to the traditional telephone structure, under
which if you have a Virgin phone and you have a problem with it, BT Openreach will deal
with it?
Itret Latif: Sorry, I think that a Virgin phone involves a different infrastructure.
Lord Razzall: If you have a Virgin phone and something goes wrong with it, I think that BT
Openreach will come to fix it.
Itret Latif: It depends on the network. If it is a Virgin network, Virgin engineers will come to
fix it; if it is a BT Openreach network involving a BT Openreach line rental—
Lord Razzall: Sorry, I should not have said Virgin; I meant Sky. How does that equate with
what is happening with fibre broadband?
Itret Latif: BT Openreach does a grand job of doing the technical bit, and I have no
problems with that. The perception in the industry is that the engineers still favour the BT
Retail arm, but I do not think that is—
Lord Razzall: Do you think that it is a financial issue?
Itret Latif: Yes, I think that it is a financial issue. It is wooden dollars between the
organisations—I think that is the main issue. If you had clear auditable accounts for each of
those entities, you would see where the money moves. That is very difficult at this stage, and
you would need to be a forensic accountant to work out what it all means.
Q391 Bishop of Norwich: In your written evidence and in your evidence today, if I have
understood you correctly, you have said that you believe that the ownership of the
infrastructure should be separated from the provision of the services that run over it. What
would be the key measures that would bring that about, given the present situation?
Itret Latif: I think that you create a legal entity, which would have its own accounts. Let us
call it Openreach Limited. This entity would have its ring-fenced accounts, which would have
their own audit and so on. That would provide clarity, and Ofcom could quickly view those
accounts. At the moment, money seems to be moved from one organisation to the other
and it is very difficult to trace how it all hangs together.
That would also allow Openreach to concentrate on its core efforts, which are to provide a
network for all its customers rather than just for its retail arm. In our new world,
Openreach would be looking at how to maximise the profitability, or maximise the revenue,
from each pipe that it puts in. At the moment, Openreach seems to allow the whole pipe to
be taken either by one service provider or by another service provider. As an infrastructure
provider, if you were just looking for the income or revenues from the infrastructure, you
would be looking to maximise those revenues. Under the multi-channel pipe model that we
have proposed, a stand-alone business would be encouraged to ask how it maximised its
profits.
Q392 The Chairman: Do you have any evidence, as opposed to the perception that you
talk about, of positive favouritism by Openreach towards BT Retail?
Itret Latif: No. I could not give you evidence—it is all hearsay.
The Chairman: It is very much a perception thing.
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Itret Latif: There are statistics that show that the engineers seem to visit more, but I do not
think that statistically it can be proved one way or the other.
Q393 Bishop of Norwich: Is there more to the national access network than what you
have just described? You talked about providers plugging into this network.
Itret Latif: We believe you need to create a market body that governs all this. In my past life
I was The Gas Forum Chairman , and we created the Governance structures to create
competition on the metering side, so we had to go through this pain ourselves. It requires us
to allow co-ordination between infrastructure and service providers.
Bishop of Norwich: This would be a co-ordinating rather than ownership body, would it?
Itret Latif: Yes, the market participants would belong to the body.
Bishop of Norwich: Compulsorily belonging to the body?
Itret Latif: Yes
Bishop of Norwich: That does not sound like a market solution.
Itret Latif: It is a market solution. The thing is that infrastructure is limited and is a utility, so
it requires aspects of co-operation between the players; otherwise, you are duplicating
infrastructure. As we found in the past when we carried out cabling for 28 franchises—
which have now been hoovered up by Virgin—there are only so many customers that you
can connect up to. If you have multiple connections into a customer’s house, there is only
one connection that will be sustained. We have that issue in Yorkshire, where a very nice
new network has been built, but the question is how you connect customers to that
network. You need the co-operation of the rest of the community because, if you build this
network, it should be used and it should be sustainable.
Bishop of Norwich: Do you recognise willingness among the owners of the infrastructure
to do that?
Itret Latif: No, there is partial willingness, but that compulsion needs to be made.
Q394 Baroness Deech: We have heard for weeks about the merits of the competitive
market, and competition on the open market, but I am not convinced. What are the benefits
to the consumer in competition here? All I see is fragmentation, with everyone in it to make
a bit of money and whole great swathes of the country being covered.
Itret Latif: I agree. That is why I want logical connections between networks. If you don’t
take the utility nature of what we are describing, you will get all these networks fragmented.
If they are not co-ordinated and stuck together in this fashion, you are going to get market
failure. But if you have critical services going across it, such as the health service, you cannot
just switch it off. It is no longer that kind of a network. So that network needs to be
sustained in a way that perhaps allows the market participants to take it over through a
controlled resale, but you cannot let it fail any more. You have to have those structures in
place to allow that.
Q395 Bishop of Norwich: We used to call this nationalisation, did we not?
Itret Latif: It is not nationalisation—it is industry looking after the networks and making
sure that they do not fail. It is the networks that I am talking about rather than the services,
because services can fail on top of it, but you would not let certain services fail. For example,
if the NHS is paying for a connection, that connection cannot fail, so you need a support
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mechanism to allow for that. The market is looking after it and it is the market’s
responsibility to look after it, but it is given a structure to operate in. That is what we are
saying.
Q396 Lord Gordon of Strathblane: On the same theme, I was wondering how you
might bring this about. Granted that we are where we are, with duplication of networks,
which is perhaps a waste of money—but we have it—would one way forward be that when
public money is being used, there is an insistence that the network can be used by all
providers?
Itret Latif: I think that has already been done. It is part of a condition of any public money
going into it that the network has to be open to competition. The issue we have is
interoperability of the network. An island of networks is created and you can go and trade
on that, but the issue there is that you have to create your own migration systems for each
of those networks to switch customers. When I was in the gas arena, we had the same issue.
We had the independent gas pipeline networks; competition did not really happen on those
networks, because the larger service providers traded on the Transco network, which was
the bigger one. They had automated systems and did not want to send faxes, and so on. That
was recognised by the IGT, so the members got together and said that they had to create a
standardised way of communicating and creating switching mechanisms. They got together,
but there was no compulsion in getting together. They came up with a solution but only one
organisation implemented it and the others ignored it—so it did not work.
Q397 The Chairman: Is the point about this body that co-ordinates not that, first, you
are saying that membership must be compulsory but, secondly, that its rulings in turn must
be compulsory?
Itret Latif: Absolutely right. It has to be binding on the regulatory requirements, otherwise
it becomes meaningless and people will not behave.
Q398 Lord Skelmersdale: I rather think that you have answered my question. However,
you said earlier that you spent large amounts of money digging up roads. Do you get any
return for this money from other customers?
Itret Latif: I think you might have misconstrued what I said.
Lord Skelmersdale: I am talking about access by outsiders to your ducts and fibre lines.
Itret Latif: I am not in the distribution area so if customers want access to our assets,
whether they are ducts or other things, I think we have conversations with them but they
have that conversation with the distribution businesses.
Q399 Lord Skelmersdale: So you cannot tell me whether the new regime that the
European Parliament in its wisdom has granted to Ofcom, to direct yourselves—or rather,
your distribution arm—to allow connections to your infrastructure is good or bad?
Itret Latif: No. I do not think we have seen it, whether it is in our distribution business or
in other people’s.
Lord Skelmersdale: No, but you are here and they are not.
Itret Latif: I have no knowledge of us being directed to do that. That is all.
Lord Skelmersdale: Fair enough.
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Q400 The Chairman: What has interested me about some of your comments has been
that you have drawn on your experience in another utility area, the gas industry. Are there
any lessons that you feel have a direct bearing on the general debate we are having this
afternoon which are drawn from your activities elsewhere, particularly in the gas industry?
Itret Latif: The majority of my thought processes have been through my experiences in the
gas business.
Q401 The Chairman: Do you think it might also be fair to say that one characteristic of
the way in which the regulation of this particular sector has been carried out is that it does
not perhaps draw sufficiently from the lessons that have been learnt in the other utilities?
Itret Latif: I would have to agree with that. When we moved into this marketplace, I was
quite surprised that it is easy to move in but that there seems to be no real co-ordination,
so everybody is trying to work out how to do business here. This lack of co-ordination 249
causes a lot of confusion. In our experience of the market, we are quite fortunate to be a
reasonably large player but the characteristics are very similar to that of energy so we
thought “We can make a go of this”. We moved in as a calls-only service provider. Then
there was the development of the access—the line rental bit. Then there have been further
developments of line rental, which is becoming equivalent to BT Retail’s services, and now
we have this next-generation access service. But it has never been co-ordinated and has
always been: “Right—stop now. We are going to do something else”. That has always been a
shock to the system. If we had this governance structure, it would be more controlled and
there would be more understanding of how consumer experiences are going to be dealt
with and how customers are going to switch and benefit from this competition. It seems that
we find that the harm is done first, then Ofcom does a review and says that there is harm
and that we need to go off and rectify it.
Q402 The Chairman: Is there any particular sector of which you have knowledge that
you would particularly draw our attention to, which has done a particularly good job or is a
useful exemplar?
Itret Latif: One that is useful is the electricity sector. It has the same characteristics.
Electricity is moving towards the telecoms characteristics in terms of billing because of smart
metering, while the telco structure is moving towards an electricity or utility type structure.
This is the period where there is convergence in that respect.
Q403 The Chairman: I have a technical question that has been drawn to my attention.
This one is very relevant to us. A lot of what you have been involved with is the sort of
middle-mile and back-haul stuff, rather than direct access. However, talking about publicly
funded access networks, do you have anything that you feel relates, for example, to the
GPON technology, which I gather some people think is a kind of bottleneck to people using
the BT Openreach network?
Itret Latif: This was the debate in earlier stages in terms of how you roll that out. Again, I
have to say that I am not technically gifted—
The Chairman: Nor am I, I hasten to add.
Itret Latif: But I understand the principles. GPON is where you have—
249 For example the progression from CPS, WLR1, WLR2, WLR3.
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The Chairman: Can I stop you for a minute? Do people understand? Now the next thing
is: who is the best person to explain this? Perhaps Alan Morrison or Michael Fourman could
say something in simple terms.
Professor Fourman (Specialist Adviser to the Committee): GPON is where you take a
single fibre from the exchange to the cabinet and then split that fibre so that the same signal
goes to 32 houses, or sometimes more than that. When it goes out, it is encoded so that
you can decode the signal for your house but your neighbours cannot, and vice versa. When
it comes back, there have to be some very clever electronics because the signals cannot all
come back at once. They would get very confused when they came down the one fibre, so
you get a slice of time for each house and there are clever electronics to make sure that
your house signals at the correct time.
Itret Latif: Absolutely.
The Chairman: This is important because it is the way that the BT Openreach network
distributes information at the cabinet. Is that not right?
Professor Fourman: If I could add one final point, those clever electronics mean that the
person who sets it up in the exchange also has to have their electronics in each of these
houses, so you cannot take one of these houses and have somebody else put their own
electronics in it.
Itret Latif: The way it is described to me is that it goes and knocks on each door, saying,
“Am I in the right place?”. They say that GPON is the most efficient way of developing a
network. It is like a ring main for electricity, effectively, while the other one is point to point,
where you literally have just your own dedicated connection. The dedicated connection will
of course give you faster speeds and bigger capacity.
Q404 The Chairman: Does that have a better ability for reverse-pathing?
Itret Latif: Again, you can do this with clever applications and electronics, but the point-topoint
technology probably has more ability to put more applications on it with, I suspect, less
computing. That is the only thing I know; there is point to point and there is the ring main.
Q405 The Chairman: Perhaps you do not know the answer to this, but is GPON a
technology of the future or really a sort of temporary phenomenon, which we will eventually
had to get rid of?
Itret Latif: The technology exists now, and point to point exists now. The determination is:
what is the most efficient way of rolling out fibre? I think BT has made the determination
that is going to be GPON.
The Chairman: At least for now?
Itret Latif: I would be surprised if BT revisited that decision, because the civil costs of doing
point to point are very expensive.
Q406 The Chairman: Does that then preclude you having a certain amount of superfast
broadband?
Itret Latif: I have to say this is now going beyond my knowledge.
The Chairman: Well, I am on the edge of my brief.
Itret Latif: I was always led to believe that point to point is the fastest and the best—that it
is the premium network.
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Baroness Fookes: But probably unaffordable.
Itret Latif: Yes, commercially unaffordable, unfortunately.
Q407 The Chairman: That is probably as good a moment as any to draw the discussion
to a close, unless there is anything else that you would like to tell us. Does anybody else
have any questions?
Itret Latif: I think I have summarised why we need a market model. We would have
advocated that a market model should exist first, because the tendering process went before
it and it does not lend itself to joined-up thinking. We may create too many patchworks and
lots of failures. It may not work as we intend it to work.
The Chairman: Fine—thank you very much indeed. We are very grateful to you.
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SSE plc – supplementary written evidence
SSE plc – supplementary written evidence
Introduction
1. SSE’s previous written and oral evidence to the Committee has emphasised the view that
a robust market framework is needed for the communications market in order to
support competition and a high quality experience for customers. In this context, this
additional information considers:
• The need for separation of roles in utility markets;
• Comparable markets: the electricity market structure and obligations;
• Examples of issues faced by SSE as a new entrant in the communications retail
market; and
• Regulatory and legislative changes required to take this model forward.
The need for separation of roles in utility markets
2. In a market where competing services are provided over network infrastructure, there is
a need for greater coordination between market participants to ensure a high quality
experience for a customer exercising competitive choice than exists in other markets for
goods and services – such as foodstuffs or insurance services, where a customer just
chooses a new brand at will, on their own initiative. The existence of a network
infrastructure, as a pre-requisite for obtaining services, is often associated with a basic
service people cannot do without, known as a “utility” and this term has been applied,
for example, to electricity, gas, water and rail services. The coordination needed often
relates to the network part of the market in order to prevent customer detriment
through, for example, loss of service on change of supplier or house-move.
3. If there is to be competition in the services provided over the utility infrastructure, then
steps have to be taken to ensure that all potential service providers (also known as
suppliers) have access to the utility network services they need, on a non-discriminatory
basis, otherwise some service providers will not flourish and competition will be
undermined. In all the utility markets mentioned 250 , independent economic regulators
have overseen a regulatory framework of rules whereby requirements are clearly set out
for the regulated network in terms of its behaviour both towards end customers and
towards the range of suppliers that form its direct customer base. There are also,
typically, periodic “price reviews” where the overall allowable revenue for the network
business is determined for a period of several years at a time, following open
consultation with all its stakeholders on, for example, the capital expenditure plans and
services that will be funded by wholesale network charges paid by its supplier customers.
4. Since the nature of utility services is a basic need for many people, the requirements on
service providers are also set out in the regulatory frameworks – often in supply licences
– and these typically include such customer-facing obligations as establishing customer
codes of practice and complaint handling functions.
250 In the water industry in England and Wales, support for competition is being developed following the Cave
Review of competition and innovation in water markets and the recent White Paper.
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5. Over time, the understanding has developed that network and service provision are
different but complementary functions in the supply chain for network-based utility
services that are ultimately paid for by customers. In rail, train service companies are
separate legal entities from the main infrastructure provider Network Rail. In electricity
and gas, legal separation and separate licences exist for the network activities of
transmission (high voltage/pressure) and distribution (lower voltage/pressure) as distinct
from those for retail supply to customers. In water in Scotland, a retail market exists for
the supply of water and sewerage services to non-household premises and this is
characterised by separation of the statutory wholesale provision of these services by
Scottish Water from the licensed retail suppliers. In England and Wales, the water
regulator Ofwat is beginning to determine accounting separation rules and separate price
control treatment for retail activities compared with wholesale network activities carried
out by the appointed water companies, who undertake all activities in the supply chain in
their appointed areas.
6. In the communications market, following a period of infrastructure-based competition
alone, the access network infrastructure owned by BT has been opened, through
regulatory intervention, for use by other communications providers (CPs) at different
levels of wholesale access. The BT division operating this access infrastructure is known
as Openreach and access is made available at both ‘low level’ (or passive) access and
‘high level’ (or active) access, the latter being mainly used by a class of CPs known as
“resellers”. There are hundreds of recent entrants to the market using active wholesale
products on a reseller basis without needing to have their own communications
engineering capability: SSE is amongst these but still finds issues in operating in the retail
market as discussed in the next section. There are no individual licences for any of this
communications market activity, which instead is subject to “General Conditions” (GCs)
set and amended from time to time by Ofcom 251 . These GCs apply to specific types of
CP depending on the subject matter of the condition.
7. In SSE’s view, the communications market is a network-based utility with
similar characteristics to the others mentioned above. As in other utility
markets, we believe that customers will benefit if access infrastructure
providers have clear obligations to facilitate and serve competition in retail
supply (at the different wholesale levels mentioned above) as well as
preventing customer detriment in technical aspects of the service. Obligations
on customer handling and provision of relevant retail information sit best with CPs
providing mass-market retail services. We also believe that there needs to be
more formalised coordination – such as exists in other utility markets –
between separated infrastructure providers and suppliers around the
competitive market processes such as change of supplier. The sort of
coordination and separation of roles that we have in mind is based on our experience in
the electricity market and the next section looks in more detail at arrangements in this
market.
251 Ofcom also has the ability, under the Communications Act 2003, to set other types of Condition, including for
those companies who have been established as having Significant Market Power.
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Comparable markets: the electricity market structure and obligations
8. At privatisation of the electricity industry in Great Britain, 14 different entities, each
carrying out both supply and distribution (low voltage networks near to customer
premises and therefore logically similar to communications access networks) activities
within their own “authorised areas” became private companies. There has been legal
separation of distribution and supply activity and some consolidation in the market since
then but the 14 areas, now known as “distribution services areas”, remain and affect the
licences discussed in the appendix to this note. The appendix lists the headings for the
different sections of the electricity distribution and supply licences, together with some
commentary on the detailed content and forms a brief summary of the licence content
for both distribution and supply companies in the electricity market.
9. It can be seen from this summary that the majority of detailed obligations fall
on distribution entities. While suppliers have obligations around provision of
information to customers and contractual provisions, distributors have a range of further
obligations both to customers – including those parties interested in providing
infrastructure on a competitive basis – and to support the operation of the competitive
retail market. It is worth noting that special administration arrangements in electricity
market legislation protect the ongoing operation of distribution companies while
“supplier of last resort” arrangements administered by Ofgem exist to allow orderly
transition for customers of a failing supplier to other suppliers interested in taking on
that customer portfolio.
10. Examples of customer-related requirements on electricity distribution licensees are: to
run safety and security of supply enquiry helpline services so that any person can report
or receive information about network incidents that may be dangerous or require
attention; and to establish a priority services register for those vulnerable customers
who particularly depend on their electricity supply such that these customers receive
tailored advice on what to do in the case of supply interruptions and, in the event of
planned or unplanned interruptions, receive prompt advice and information relevant to
the circumstances of the interruption. It can be seen that these particular requirements
are more practicably provided by the distributors than by suppliers. It is possible to
identify technical requirements in the communications market that should similarly be set
as network provider responsibilities e.g. battery back-up for fixed line telephone service
provision over fibre.
11. Examples of competition-related requirements on electricity distribution licensees are: to
offer non-discriminatory terms for connection by any party (including other competing
network providers) to their network and for using their network to supply to or receive
electricity from it; to have charging methodology statements approved and changecontrolled;
to adhere to technical and performance standards; and to abide by industry
codes and agreements. They are also required to maintain and run the systems that,
amongst other things, allow end customers on their networks to change suppliers. This
very important part of the framework is explained in more detail in the next section.
12. SSE wishes to highlight how the separate requirements on distributors and
suppliers underpin the successful operation of the competitive retail market
in electricity. The structure of obligations leads to the existence of an
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independent market body that provides transparent and inclusive governance
of the main competitive market systems with all parties having the ability to
propose a change to the existing documented systems and processes. The key
elements of the control structure leading to this outcome are:
• All distributors are required, through Part A of the distribution licence, to be a party
to and comply with the Master Registration Agreement (MRA), which provides
governance for the competitive retail electricity market in Great Britain;
• The incumbent distribution services providers are required, through part B of the
distribution licence, to provide specific IT systems to support the MRA-related
activities in the market;
• All suppliers are required to be a party to and comply with the MRA through part A
of the supply licence;
• The MRA parties have developed a joint venture company – the MRA Service
Company (MRASCo) 252 – to administer the MRA and undertake any development
activities required by the electricity retail market under the scope of the agreement;
• Since a key term of the MRA is to allow for the agreement to be varied and
developed in order to continue to facilitate an efficient, co-ordinated, and economical
system for the supply of electricity and for the purpose of facilitating competition in
electricity supply, the constitution of MRASCo allows any party to suggest
amendments to the MRA itself and for these to be considered against the relevant
objectives and voted upon in a representative manner by other parties. In this way,
the MRA evolves in an orderly manner to cater for market developments and
innovations.
13. In SSE’s opinion, there is a clear need for a governed utility market arrangement for the
retail communications market. Market developments that proceed without
orderly governance have significant potential to cause harm to retail
customers. An example of this has been the introduction of low level, passive
‘unbundling’ wholesale access products 253 which allowed customers to be switched away
from BT wholesale based products with no thought, at the time, of how such customers
could readily be switched back. This led to broadband switching problems and a peak of
complaints on the subject to Ofcom in the middle part of the last decade. Ofcom
stepped in and GC22 was established in order to attempt to deal with the issue in
December 2006.
14. We believe that the market governance arrangements in electricity are a useful starting
point for considering how such a body could be developed for the communications
market. It is worth noting that a significant market development project is happening in
energy with the Department of Energy and Climate Change’s Green Deal initiative and
that MRASCo has a clear role in establishing a new database to facilitate this while also
coordinating other necessary changes to the MRA. Further details are available at the
MRASCo website reference given earlier. When significant change projects such as this
can be facilitated via a market governance body, we would like to think that a similar
arrangement set up in the communications market could have played a
useful role in the orderly introduction of the present technology shift from
252 More information on this organisation is available at http://www.mrasco.com/
253 This is the family of Local loop unbundling (LLU) wholesale products, able to used by larger retailers with the
communications engineering capability to design their own retail products but not able to be used by resellers.
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SSE plc – supplementary written evidence
copper to fibre in the BT Openreach access network without affecting
services available to end customers. The next section sets out two examples where
the lack of utility market arrangements has led to problems for SSE’s development in the
retail communications market.
Examples of issues faced by SSE as a new entrant in the communications retail
market
15. The two examples SSE sets out concern firstly, the continued availability of a current
wholesale product when fibre is rolled out to the premises (FTTP) in the Openreach
access network and secondly, the process for requesting a variation to the features of
that wholesale product.
16. As noted earlier, SSE uses high level “active” wholesale access products – chief amongst
these being a regulated one called “wholesale line rental” or WLR, whereby Openreach
provides an active exchange line to which can readily be added a calls wholesale service
and/or a broadband wholesale service, in order to provide a retail service for end
customers. Country-wide, a similar number of competitive services are provided to end
customers using WLR as are provided using the passive level LLU products 254 .
17. When BT’s plans for rolling out fibre into the access network were first publicised a few
years ago, a follow-on wholesale product to provide similar functionality to WLR was
proposed and this was termed “Voice over Next Generation Access” or VoNGA.
However, in the summer of 2010, Openreach announced that it would no longer be
developing this product. This announcement was naturally of concern to SSE and other
WLR users as there would then be no clear means for the business to continue in areas
where fibre was to be rolled out to the premises and our existing customers moving to
such FTTP areas would no longer be able to be provided with a retail product by us.
Since then, SSE and others have been working with Ofcom and various parts of BT about
the need for this wholesale product, but ultimately this has been without success. It is
only recently, as Openreach considers practical arrangements for a “fibre-only exchange”
area trial that BT, as a group, has shown signs of addressing the provision of suitable
wholesale arrangements for WLR-based suppliers operating in that area. The provision
of such a product more widely, as SSE requires, has not been offered.
18. WLR is an important wholesale product supporting a large number of smaller suppliers
in the market. It is also used by Virgin in areas outside its infrastructure footprint and by
other larger suppliers who generally use the passive LLU-based wholesale products but
also have customers in areas where it is not economic for them to unbundle the local BT
exchange. As the new fibre technology is introduced, a fibre-based WLR product is
therefore one that all suppliers could use while the larger suppliers will also be looking
to use LLU-equivalent passive wholesale fibre access products as soon as they can
develop the geographic reach and necessary engineering of their own communications
infrastructure.
19. In SSE’s view, the fact that a follow-on wholesale product to WLR is not
being developed for fibre access areas illustrates our concern about the lack
254 These figures are regularly reported in the monthly updates of the Office of the Telecommunications Adjudicator
– see, for example, that at htttp://www.offta.org.uk/updates/otaupdate20120501.htm
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SSE plc – supplementary written evidence
of: separation of infrastructure obligations from retail considerations; market
governance; and orderly development of the communications market to
accommodate changes in technology.
20. The second example is less fundamental to SSE’s continuing operation in the retail
communications market but it does illustrate how simple amendments can become a
battle to pursue in the absence of transparent arrangements whereby wholesale
customers can call on the necessary resource within infrastructure providers to maintain
and develop existing wholesale products.
21. The WLR product allows various options for barring different types of outbound
customer calls, which is a useful feature for retail customers in managing their bills. SSE
identified in 2007 that it would like to be able to offer its customers a variation on the
standard WLR call barring options – a new option that would allow end customers to
bar premium rate calls as well as those to international and mobile numbers rather than
having to choose between barring the former or the latter two types of call bundled also
with barring national calls. This request was presented through the industry “commercial
group” – one of the many ad-hoc groups that characterise the landscape in the
communications market – and had widespread support amongst other suppliers present
but, after a number of meetings, was rejected by Openreach on the grounds of cost and
SSE could not pursue the matter any further.
22. The above experience of trying to promote development of the features of a
wholesale product in the interests of customers illustrates, in our view, a lack
of transparency and accountability to wholesale customers in this regulated
area of the market. The periodic price control processes that characterise other
utility markets appear to allow greater emphasis on “stakeholder engagement” whereby
the regulated network provider seeks to identify and address developments favoured by
its customers in its proposed business plans for the next control period. There is no
such transparency on how Openreach allocates its development resource and a
perception exists that, although WLR users contribute significantly to Openreach
revenues, the lion’s share of Openreach development work is targeted at fibre wholesale
products rather than in maintaining and developing the WLR product and providing the
fibre-based successor to this (VoNGA) that we discuss above.
Regulatory and legislative changes required to take this model forward
23. SSE has proposed the development of coordinated, transparent and inclusive market
governance for the communications market, based on our experience of how this has
developed, since 1998, in the electricity market. SSE fully realises that, if set on a path
towards this goal, it would take time to achieve and that the interests of customers and
the stability of the market would be best served by “evolution rather than revolution”.
However, as noted in SSE’s written evidence to the Committee, it believes there is an
opportunity at present, with the sums of public money that have been committed to
support superfast broadband, for some of that money to be used to progress this aim in
the best interests of:
• end customers;
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SSE plc – supplementary written evidence
• the health of the competition that exists in the communications market at present;
and
• the industry’s ability to deal with future technology and market changes that will
inevitably come to pass in this fast-moving sector.
24. In terms of the legislative and regulatory next steps that SSE would propose:
• The Government must show leadership in establishing and funding a project to
determine, with the help of organisations who have developed market governance in
other utility areas, a vision for a new structure of the communications retail
market that recognises the separate role and requirements on: suppliers; incumbent
access network providers; competitive access infrastructure providers; and inclusive
market bodies to coordinate how the competitive market will be run and how it will
adapt to change;
• Once a vision has been established, a team should be established to hold a central
design for the new market and a road-map of the steps towards realising it;
• If any legislative measures are required, including changes to the powers and duties of
Ofcom, these can be incorporated in the plans for the new Communications Act that has
already been announced;
• If any changes to the regulatory framework are required, these can be progressed
by Ofcom, in step with any necessary changes to their powers in legislation.
25. In conclusion, SSE would like to highlight the unique opportunity that currently
exists to bring some market governance to the communications retail market, building
on the technical ethernet-based standards that Ofcom has developed to assist procompetitive
interconnection standards between infrastructure providers. If the right selfsustaining
market structure and adaptable utility-based governance can be created, a
unified, logical, critical infrastructure for retail communications should
emerge, allowing creativity and innovation to thrive in the provision of the
communications services of the future.
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SSE plc – supplementary written evidence
Appendix
Summary of electricity distribution and supply
Standard licence conditions
Consolidated versions of the standard conditions in electricity distribution and supply
licences are available on the energy regulator Ofgem’s website at:
http://www.ofgem.gov.uk/Licensing/Work/Pages/licence-conditions-consolidated.aspx
The following tables show the headings for groups of licence conditions within each licence,
together with some commentary on the content.
The distribution licence is divided into 2 main sections, with the part B obligations only
applying to successor companies to the pre-privatisation distribution entities which have an
authorised area in which they are the incumbent providers of distribution infrastructure.
These companies are known as “distribution services providers”. However, other electricity
distribution infrastructure providers have since entered the market and they, together with
any of the distribution services providers acting outside their authorised areas, are only
subject to the part A obligations.
Similarly, the supply licence is divided into 2 main sections, with the part B obligations only
applying to those suppliers who are subject to a domestic supply direction. This applies to all
successor companies to pre-privatisation electricity supply entities but a framework exists
for new directions to be issued and existing ones to be withdrawn. Only companies subject
to part B obligations are allowed to supply domestic customers.
Note that complaint handling requirements for both suppliers and distributors are now set
on a statutory basis, following the provisions introduced by the Consumers Estate Agents
and Redress Act 2007.
ELECTRICITY DISTRIBUTION LICENCE
SECTION A: STANDARD CONDITIONS FOR ALL ELECTRICITY
DISTRIBUTORS
Chapter Headings Commentary
Chapter 1: Interpretation
and application
Chapter 2: General
obligations and
arrangements
Chapter 3: Public service
requirements
This encompasses obligations not to restrict,
distort or prevent competition in any
competitive electricity market activity.
Also listed are all the areas where Ofgem may
determine a dispute between a distributor and
any party looking for terms from that distributor
These include arrangements to deal with
information from and provide information to
members of the public about network-related
incidents; requirements for services to
vulnerable users of electricity and protocols for
access to premises – similar requirements might
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SSE plc – supplementary written evidence
have a place in a communications access
framework
Chapter 4: Arrangements for This is a key section covering:
the provision of services - terms for access and provision of services;
- approval of charging methodology
- standards for provision of non-contestable
connection information to other network
providers
- non-discrimination in provision and pricing
of services
Chapter 5: Industry codes This is also a key section, whereby the
and agreements
maintenance of and adherence to various
industry codes is required. This includes the
Master Registration Agreement, which is
discussed further in the main text.
Chapter 6: Integrity and Adherence to planning standards and the
development of the network production of public statements on planned
developments to the network are required
Chapter 7: Financial and Provisions designed to maintain financial health
ring-fencing arrangements and resources for the network business and
restrict the range of other business in which the
entity holding the distribution licence can engage
Chapter 7A: Independent Proportionate versions of section B obligations
Distribution Network for smaller network companies including
Operators
appointment of a compliance officer and the
need to keep distribution business information
confidential where the licensee is part of a wider
group with other electricity interests.
SECTION B: ADDITIONAL STANDARD CONDITIONS FOR
ELECTRICITY DISTRIBUTORS WHO ARE DISTRIBUTION SERVICES
PROVIDERS
Chapter 8: Application and
interpretation of Section B
Chapter 9: Requirements Some services to further support competition in
within the Distribution supply are specified here, including:
Services Area
- provision of a data transfer service to deal with
the day-to-day communications associated with
change of supplier systems;
Chapter 10: Credit rating Further requirements to maintain the financial
and Restriction of
health of these network businesses
Indebtedness
Chapter 11: Independence of Further measures are set out to underpin the
the Distribution Business independent operation of these distribution
services companies, including appointing a
compliance officer to oversee the nondiscrimination
elements of other parts of
the distribution licence and keeping
distribution business information
confidential
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SSE plc – supplementary written evidence
Chapter 12: Provision of
regulatory information
A greater burden of regulatory information such
as regulatory accounts is required from these
companies; this section also covers requirements
on information associated with incentives
forming part of the regular price control
settlement
ELECTRICITY SUPPLY LICENCE
SECTION A: STANDARD CONDITIONS FOR ALL SUPPLIERS
Headings Commentary
General arrangements Covers circumstances in which section B will
apply or its application can be varied
Continuity of supply Various requirements for customer contracts
and the operation of supplier of last resort
Industry activities and
procedures
arrangements are covered in this section
This section includes requirements to abide by
various industry codes and to be a party to and
comply with the Master Registration
Agreement, which is discussed further in the
main text. Requirements relating to supplier
interaction with the customer transfer systems
allowing change of supplier are also covered
Information for all
here
Certain types of information to be made
Customers
available to all customers – typically on bills.
SECTION B: STANDARD CONDITIONS FOR DOMESTIC SUPPLIERS
Regulation of Domestic Various additional requirements on the
Supply Contracts
contractual arrangements with domestic
customers
Domestic Customer
This section includes requirements on sales and
protection
marketing, arrangements for vulnerable
customers and for different types of payment
method to be supported
Domestic Customer
Further information to be made available to
information
domestic customers
June 2012
669

Rory Stewart MP and Miles Mandelson – oral evidence (QQ 430-465)
Rory Stewart MP and Miles Mandelson – oral evidence (QQ 430-465)
Transcript to be found under Miles Mandelson
670

Sunderland Software City – written evidence
Sunderland Software City – written evidence
1.Sunderland Software City welcomes the government’s recognition that a superfast
broadband network is as economically critical a part of Britain’s infrastructure as for
example, its road network, and is pleased to have the opportunity to contribute to the
House of Lords select committee inquiry into the government’s broadband strategy.
2. In our role as the public-private partnership driving and supporting the growth of the
North East software industry we have canvassed the opinion from a variety of regional
software companies as to their opinion on current UK government strategy.
3. It almost goes without saying that for the UK to be economically competitive on a global
scale in the 21 st century it is essential that it has a world class communications network
capable of meeting the needs of world class modern businesses – making superfast
broadband a hugely and increasingly vital part of national economic development, and making
it imperative that the UK government gets its policy right in this area.
4. The UK software industry is an significant contributor to the economy and software and
ICT services have been identified as key priority sector by the UK government, with BIS
stating that “software and IT services are central to the UK economy”, not only in their own
right, but also as a vehicle for driving innovation and productivity in other sectors.
5. The UK is far from alone in identifying software and IT as priority sectors however:
Lithuania for example, places a similar emphasis on ICT as driver of economic growth. At
this time, Lithuania boasts broadband speeds of 15Mbit/s at a time where typical UK speeds
could be as low as 2.5Mbit/s in rural areas. It is crucial, therefore, that the UK is not left
behind.
6. This issue is of growing importance for software, digital and commercial creative
businesses, particularly as on-demand Software as a Service (SaaS) becomes the default
delivery model of software solutions, making it market critical for companies with
international clients and competitors to be able to receive and transfer large amounts of data
quickly; offer a reliable and resilient service to their customers and carry out multiple
complex and bandwidth-hungry tasks simultaneously.
7. Sunderland’s personal view is that not ensuring businesses have such resources could
significantly inhibit their potential for growth, and to this end has taken the pro-active steps
of become the first city in the UK to offer universal superfast broadband, and by establishing
a city-wide Cloud, giving local businesses the ability to increase capacity and capabilities
without having to invest in their own infrastructure.
8. Our discussions with local software businesses identified three considerably overlapping
areas of concern with current government strategy.
9. Concerns that failure to deliver in this area could contribute to a block on
innovation
10. The North East’s key strength as one of the powerhouses of UK software innovation is
in the B2B (enterprise) software field, so arguably businesses will buy connectivity if they
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Sunderland Software City – written evidence
perceive it to be mission critical, or will develop solutions for utilisation on 'average'
enterprise speeds.
11. Nonetheless there was a sense from some of the companies that we spoke to that
having to buy-in connectivity was a "block on innovation", for smaller companies in particular
– whether as a drain on limited resources or, by developing for utilisation on average speed
broadband, purposefully limiting their innovation.
12. This response, from the managing director of software SME, was typical:
13. “We need high speed affordable broadband into all the business parks, including the ones
outside of city centres. It's as important to business as a good road or telephone network, especially
in the digital sector which must be high on our region's strategic objectives. Many of the locations in
the region aren't well connected which means expensive leased lines. It's a real block on innovation.”
14. Concerns of strategy focusing on fixed broadband at the expense of
mobile/Wi-Fi broadband
15. Some companies expressed concerns that government strategy was overly-focused on
purely fixed broadband at the expense of mobile technologies. There was a sense from some
companies, particularly those with interests in app development and software for mobile
devices that as more and more business (and personal) activity takes place on mobile devices
and tablets more thought needs to be given to increasing their broadband access, with
speeds currently limited to 7Mbit/s at best.
16. One correspondent for example wrote: “Bandwidth needs to match demand. But there isn’t
an understanding of the bandwidth needs of different services or functions. Needs to be mobile
broadband too”.
17. Concerns that the clear performance benefits of FTTP may be being
overlooked
18. Some companies expressed concerns that the government’s perceived strategic
approach was being taken – in particular an over-reliance on a Fibre To The Cabinet (FTTC)
solutions at the expense of Fibre To The Premises (FTTP) which have clear performance
benefits.
19. For example, one software business owner wrote: “Government strategy is failing. This was
a once in a generation opportunity to invest in a genuinely life-changing infrastructure by providing
fibre to the home/office. Instead, we are almost certainly going to have to settle for a subsidised
upgrade to BT's 100 year old network extended with a fibre to the cabinet solution”
20. Another wrote: “Fibre is essential in ALL locations. I am trying to run a WAN over 512k
copper connections - bloody near impossible. It's time we caught up with the third world.”
21. This final statement arguably overstates the situation – the overall view of current
broadband provision and government strategy by Sunderland Software City and by the
companies we have spoken to are that they are at least adequate – but should we be settling
for adequate when the potential exists for us to be exceptional? In a geographically compact
country with a high population density, that potential undeniably exists.
March 2012
672

TalkTalk Group – written evidence
TalkTalk Group – written evidence
TalkTalk welcomes this opportunity to respond to the House of Lords Select Committee on
Communications’ Inquiry on superfast broadband. This response opens with a summary
followed by background information on TalkTalk and our activities in the UK. It then
addresses some of the specific issues raised by the Committee.
TalkTalk would be happy to provide further information on any of the matters raised in this
submission, or contribute oral evidence, if that would be helpful to the Committee.
Summary
1. TalkTalk shares the Government’s belief in the role of broadband in driving economic
growth and the importance of building a world-class broadband network to support the
long-term competitiveness of the UK. However we also believe that the real economic
and social benefits come from take-up of broadband and services - whether via fibre or
copper networks - not from investment in superfast networks in and of itself. We
therefore believe that Government efforts should be focused on encouraging take up and
use of the internet, an area where today there is relatively little funding.
2. Below we discuss three initiatives that we believe will help drive take-up and use. These
will also stimulate and increase investment in superfast broadband networks.
3. First is competition. Competition is key to achieving take-up by consumers and businesses
– as well as greater investment, innovation, and growth. Effective competition in the UK
broadband market has enabled us to leap from being a laggard to a leader through a
compelling combination of world leading services, real choice, low prices and high takeup.
Effective competition can similarly drive choice, innovation and take-up for superfast
broadband and in turn accelerate additional network investment.
4. Currently take up and innovation in superfast broadband is low. Over 48% of UK homes
are covered by either BT Openreach’s fibre network or Virgin Media’s high speed cable
network yet just 4% of homes have chosen to take up superfast services 255 . We believe
this is a direct result of there being no real competition in superfast broadband. With the
exception of BT Retail, TalkTalk is the only scale provider to be retailing the BT wholesale
product yet a year since our launch we still only have around 5,000 customers taking fibre
from our base of 4.1 million customers. Unlike with our standard broadband products,
there are few ways in which we can differentiate our fibre product from BT because we
have to buy a standard product as defined by BT. As a result, while alternative ISPs
account for 60% of connections on the BT Openreach copper network, in the fibre world
we account for just 1%.
5. This serves to illustrate the very real need for a fit for purpose regulatory model for fibre.
As competition at a network level is ultimately not viable, we believe that the focus must
be on ensuring retail level competition by regulating wholesale products to create a level
playing field on which a variety of retail providers can innovate and compete. It is
255 According to Ofcom superfast broadband networks pass 48% of UK homes yet only 4.3% of households have
taken up such services. Ofcom, International Communications Market Report 2011, December 2011
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TalkTalk Group – written evidence
through fierce competition that the right balance of service and price will be found that
will drive demand for superfast services and then further investment. Without the right
regulatory regime, the UK risks a return to the doldrums of pre-2004 where broadband
investment, take-up and use were all low.
6. Second we think it is critical that there is universal access to broadband at a minimum of
2-5Mbps. These are the speeds that consumers need to be able to enjoy the benefits of
the internet today and in the medium term. We believe this should be the focus for any
public subsidy in networks as it provides the greatest return on investment; a 2010 study
estimates that for each €1 of subsidy, €2.25 of incremental consumer value is created 256 .
7. Third, we need to ensure that everyone who can use the internet does (whether via fibre
or copper networks). There are over 8 million people in the UK who are not online and
these are some of the most socially excluded in society. Research shows there is a high
economic return from getting everyone online – PwC estimated it to be in excess of
£22billion. This includes: direct benefits to consumers (for example, saving £560 a year by
shopping and paying bills online); enhanced education and employment opportunities
(people with good ICT skills earn between 3% and 10% more); and opportunities for
Government efficiencies by switching delivery of public services online (each contact that
is switched online could save government between £3.30 and £12) 257 .
8. The main barriers to uptake are motivation, skills and access issues such as affordability.
TalkTalk believes that many of these issues can be overcome by supporting existing
initiatives to get people online and through concerted action across the industry and
Government. There are a number of excellent national and local projects focused on
providing trusted support to the hardest to reach which should continue to be built upon,
including Race Online 2012’s Digital Champion model. This extends to industry where a
number of private sector companies are running programmes aimed at helping get more
people online, many of which are focused on affordability; for example TalkTalk runs a
scheme offering free broadband to offline families. We think however that Government
needs to explicitly set out that getting everyone online is a policy priority and therefore
drive further activity in this area. We also think that there are some specific actions
central and local government can take – such as switching to online delivery of public
services or by embedding teaching internet literacy in back to work programmes – to help
drive down the digital divide. Getting more people online will also increase demand for
higher speeds and so drive more fibre investment.
About TalkTalk
9. TalkTalk is the UK's leading value for money provider of phone, broadband and mobile
services to consumer and business users. In 2006, we revolutionised the broadband
market by offering ‘free broadband’ which has dramatically lowered prices right across the
sector and driven uptake. Today, TalkTalk serves 5 million customers under the TalkTalk,
AOL Broadband and TalkTalk Business brands. We have invested over £600 million in
building a Next Generation Network, which extends to over 2,500 exchanges and covers
over 90% of UK households.
256 Ingenious Consulting Network, Optimal Investment in Broadband: the Trade-off Between Coverage and Network
Capability, March 2010
257 PricewaterhouseCoopers, Champion for Digital Inclusion: the Economic Case for Digital Inclusion, October 2009
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TalkTalk Group – written evidence
• TalkTalk and TV. TalkTalk is one of seven partners behind YouView, the new IPTV
service, along with the BBC, ITV, BT, Channel 4, Arqiva and Five. TalkTalk will launch
YouView into UK homes in summer 2012.
• TalkTalk in the Community. TalkTalk employs approximately 3,000 people across
the UK and is committed to investing in the communities in which we work and
operate.
• TalkTalk and Digital Inclusion. TalkTalk supports and runs a number of initiatives
to help bridge the digital divide, such as our Digital Heroes Awards, offering free
broadband to offline families, and by working closely with Martha Lane Fox, the UK
Digital Champion, and her Race Online 2012 campaign.
• TalkTalk and Online Safety. In May 2011 TalkTalk launched HomeSafe, the UK’s
first and only network level parental control service. TalkTalk recently became the first
UK ISP to implement the Bailey Review recommendation that parents should be
offered an “active choice” about whether to use parental controls.
Detailed Responses
Please note, we have answered most of the questions though we have grouped together certain
questions.
What is being done to prevent a greater digital divide occurring between people who can
access superfast broadband and people in areas where the roll-out of superfast broadband
may not be commercially attractive? How does the UK communications market vary
regionally and what is the best way to connect the areas that the market alone cannot reach?
Is a universal service obligation necessary to avoid widening the digital divide? The
Government have committed £530 million to help stimulate private investment – is this
enough and is it being effectively applied to develop maximum social and economic benefit?
10. TalkTalk believes that the most effective way of addressing the digital divide is by making
sure that all households have access to a standard level of broadband (at 2-5Mbps) and
ensuring that everyone who could access broadband does so.
11. Research shows that achieving universal coverage of standard broadband provides the
greatest return on investment. This is higher than the return for investment in building
fibre networks 258 . Delivering universal coverage of standard broadband speeds should
therefore be the focus of Government subsidy in networks as it represents the greatest
benefit for UK plc.
12. The digital divide between those who use the internet and those who don’t is more stark
and more worrying than the divide in availability of superfast broadband. There are still
over 8 million people in the UK who have never used the internet and, paradoxically,
those who would most benefit in society from use of the internet are the very citizens
who do not use the internet today. Bridging this digital divide must be the priority for
Government.
Will the Government’s targets be met and are they ambitious enough? What speed of
broadband do we need and what drives demand for superfast broadband?
258 Ingenious Consulting Network, Optimal Investment in Broadband: the Trade-off Between Coverage and Network
Capability, March 2010
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TalkTalk Group – written evidence
13. TalkTalk believes that speed in and of itself will not deliver the economic return for UK
plc that government are aiming for. Rather it is take-up of services by consumers and
businesses that will deliver the real economic benefits. We were encouraged to see takeup,
price and choice included along with speed as the key indicators for what ‘the best’
broadband network in Europe constitutes in the recent National Infrastructure Plan 2011.
We believe these need to be given equal – if not greater – weighting than a headline speed
figure. Currently we think there is a danger that Government targets on coverage of
superfast broadband are achieved but there will be little demand and therefore few
economic benefits.
14. Levels of demand for superfast broadband remain low as there are few or no services that
really need very high speeds. The lack of underlying demand for superfast broadband
services has been further suppressed by the lack of competition at the retail level (see §20
below). These two factors combined have led to only about 4% of the households taking
up fibre 259 .
15. Though we expect new services to develop that will increasingly demand higher speeds –
such as IPTV – this will take time. Indeed the majority of TalkTalk customers could get
good quality IPTV service today over our current network. The lack of demand is further
evidenced by overseas markets; France has the highest take-up of IPTV in the world,
reaching over a quarter of homes in 2012, yet this is predominately delivered over copper
and take-up of superfast broadband is low because consumers do not perceive the
benefits 260 .
16. All of this illustrates that the age-old adage of ‘build it and they will come’ is unlikely to
work for superfast broadband and therefore the success of public subsidy in superfast
broadband is far from guaranteed. Effective competition (enabled by better regulation)
will help drive demand in the longer term.
In fact, are there other targets the Government should set; are there other indicators which
should be used to monitor the health of the digital economy? What communications
infrastructure does the UK ultimately need to remain competitive and meet consumer
demand over the next 20 years?
17. TalkTalk believe that any targets set for broadband should be focussed on what is
important in driving economic growth, namely take-up and use (whether via fibre or
copper networks). Competition and universal availability of standard broadband are
critical enablers of this. Fibre networks should be viewed as the means to achieving these
ends as opposed to ends within themselves.
To what extent will the advent of superfast broadband affect the ways in which people view,
listen to and use media content? Will the broadband networks have the capacity to meet
demand for new media services such as interactive TV, HD TV and 3D content? How will
superfast broadband change e-commerce and the provision of Government services?
259 According to Ofcom superfast broadband networks pass 48% of UK homes yet only 4.3% of households have
taken up such services. Ofcom, International Communications Market Report 2011, December 2011
260 According to Analysys Mason there is no killer application to justify ultra fast broadband rollout in France and
customers do not perceive the benefits over standard broadband http://www.analysysmason.com/About-
Us/News/Press-releases1/Services-that-would-justify-the-need-for-ultra-fast-broadband-in-France-are-yet-toemerge/?bp=%252fNews%252f
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18. We believe that new services will continue to be developed but that that superfast
broadband networks will be responding to demand as opposed to creating it.
19. With regards to the provision of Government services, we believe that it is universality of
access and usage that will enable Government to deliver effective public services online as
opposed to superfast broadband (we cannot see the need for bandwidth for e-government
services to be very high).
Does the UK, for example, have a properly competitive market in wholesale fibre
connectivity? What benefits could such a market provide, and what actions could the
Government take to ensure such a market?
20. The greatest benefits arise for consumers and UK plc where there is competition across
the value chain – at the network level, at the retail level and at the services (particularly
IPTV) level.
21. In an ideal world there would be competition at the network level since this would drive
the most effective competition and innovation. It would also help BDUK ensure value for
money. However the potential for competition at the network level is limited as the
economics cannot support multiple networks. This is compounded by the difficulty that
alternative fibre investors face in getting fair access to BT’s ducts and sub-loops to allow
them to compete on an equal footing. Government and Ofcom intervention has been
helpful in driving down wholesale prices but overall improvements are slow (for example,
the process of getting access remains expensive and highly manual). Widespread
competition at the network level is therefore unlikely in the medium term.
22. Given this, it is absolutely critical that BT provide an effective wholesale product to allow
other ISPs to offer competing retail services. Though BT do offer a wholesale product
(known as GEA) it is not yet working. Nothing demonstrates this more effectively than
the fact that only BT itself is able to proactively market fibre services. It is now over two
years since GEA was launched yet ISP competitors currently account for just 1% of the
connections on the BT Openreach fibre network. This is compared to the legacy copper
network where alternative ISPs account for over 60% of connections. This is the result of
the lack of effective wholesale regulation.
23. The main issues that still need to be overcome are:
a) Lack of an unbundled GEA product that allows other ISPs to innovate and offer choice
b) High installation costs for both ISPs and consumers
c) Lack of any wholesale price regulation (even light touch regulation)
d) Lack of any protection from margin squeezing
24. Ofcom has the power to introduce appropriate wholesale regulation though this may
require support from Government. Some stakeholders claim that investment is only viable
without regulation. This is simply not true – well thought through yet robust regulation
designed to foster competition can be introduced without compromising investment.
Effective regulation creates competition and so stimulates investment, both in networks
and in new and innovative services.
25. The pay TV sector must also be considered when thinking about the future success of our
communications markets. It is the live streaming of video that will drive the demand for
higher speed broadband and the regulatory approach to the broadband market will need
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to extend across the TV sector as ISPs increasingly bundle together phone, broadband and
TV services. If not, the development of a competitive and innovative Pay TV sector will be
hampered. In particular, robust regulation of wholesale premium TV channels (such as
sports and films) is needed to allow effective competition and innovation in Pay TV and
ultimately to drive superfast broadband uptake and the growth of the UK content
industry.
What impact will enhanced broadband provision have on the media and creative industries
in the UK, not least in light of the increased danger of online piracy? What is the role of the
Government in assuring internet security, and how should intellectual property (IP) best be
protected, taking into account the benefits of openness and security?
26. It is unclear what (if any) relationship might exist between superfast broadband and online
piracy, and as such we would suggest that the two areas are treated distinctly. We do
however believe that increased use of the internet brings with it increased opportunity for
attractive new services which should be the key approach in tackling piracy.
March 2012
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TalkTalk Group – oral evidence (QQ 408-429)
TalkTalk Group – oral evidence (QQ 408-429)
Evidence Session No. 6. Heard in Public. Questions 354 - 429
TUESDAY 29 MAY 2012
Members present
Lord Inglewood (Chairman)
Baroness Bakewell
Lord Clement-Jones
Baroness Deech
Lord Dubs
Baroness Fookes
Lord Gordon of Strathblane
Bishop of Norwich
Lord Razzall
Lord St John of Bletso
Earl of Selborne
Lord Skelmersdale
________________
Examination of Witnesses
Dido Harding, Chief Executive, TalkTalk
Q408 The Chairman: I welcome Dido Harding, the chief executive of TalkTalk. We are
very grateful to you for coming along and talking to us today. You saw the tail end of the
previous evidence session. What I suggest, if you are happy, is that you give us a brief
opening statement if you would like to, or equally we could just go straight into the
questions and answers.
Dido Harding: Whatever is better for you.
The Chairman: As you know, the Government’s avowed intention is that this country
should have the best superfast broadband network in Europe by 2015. What should such a
network look like to justify that title?
Dido Harding: We at TalkTalk take the view that we should start by asking customers what
makes for a good broadband network. If you ask our customers, they are pretty consistent
about what they say makes for a great broadband network. The first thing they say is value
for money. The second thing they say is having choice and a range of different providers. The
next thing they say is having sound customer service. The final thing they say is reliable
speed. Actually very low down in the tables is higher speed than we currently have. It is very
important that when we think about the best superfast broadband networks in the UK, we
think about the best broadband network, not only about speed.
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TalkTalk Group – oral evidence (QQ 408-429)
The first thing that would determine the best network is that there is strong competition on
it and that consumers and businesses have choice over the provider that they take their
services from. The second thing is that we have near-universal use of it, with genuine
widespread take-up of digital services across all parts of society, and the near-universal ability
to do the basics on the net. I would argue that that means near-universal access to at least
two Mbps to five Mbps, rather than thinking about the proportion of the country that has
access to much higher speeds.
Q409 The Chairman: We have heard evidence from people who are interested in what
are arguably slightly specialist applications—telemedicine and so forth—who have said that
you have to have the speed for videoconferencing to enable this to happen. They may be a
minority numerically, but how do you think that in policy terms the state should respond to
that?
Dido Harding: Just to give you some quite new stats that had not come out when we sent
in our submission, Northern Ireland today has the highest levels of superfast broadband
availability—nearly 99% of households there have access, if they choose to take it, to a
superfast product—but actually Northern Ireland has the highest levels of digital exclusion in
the UK. According to an ONS study that was published in May, 24% of adults in Northern
Ireland have never used the internet, compared with 16% in the country at large. Even that
16% figure is horrifying. We are trying to run before we can walk in worrying about access
to very high speeds, when every piece of economic and econometric analysis that I have
seen points to the fact that the societal benefits come from the universal use of basic
broadband first.
I give you the analogy that 100 years ago society was desperately keen to ensure that there
was universal access to books, and the public policy issue of the day was opening libraries to
ensure that people in the lower socio-demographics could access books. Fifty years ago the
communication debate was about access to television and ensuring that 99% to 100% of
society had access to TV. The issue today is how you get to 100% access to the internet
rather than to higher speeds. You are right that in time there will be a whole raft of services
that all of us will want to use that require ever greater speeds, but today you can livestream
a high-definition videoconference on 5 Mbps. In a world where, as I say, 16% of the UK
population has not used the internet, that should be the first and most urgent priority for
public policy.
Q410 The Chairman: Questions are often put about the balance between speed and
coverage. Given that part of any network will be paid for, even if not expressly supplied by,
the final consumer, are they alternatives or should they run in parallel?
Dido Harding: I am sorry, I did not quite—
The Chairman: If you want to have superfast broadband—if you can get access to a
cabinet and are prepared to pay to get to it—you can get it, even in a context where many
other people will not want it and will not be paying for it. I am wondering whether the way
we look at this is slightly mistaken, to the extent that they are not necessarily alternatives.
Dido Harding: I agree with you. If you create a market where there is sufficient access to
different providers then, as you say, consumers and businesses will drive demand for highspeed
products as the applications are developed. Today, if you are a medium-sized
business—the example that you hear a lot of people discuss is that if you are a design studio
and you have half a dozen designers who are using relatively high bandwidth video
technology to share their designs around the world—you can buy what is called ethernet
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TalkTalk Group – oral evidence (QQ 408-429)
Q411 Earl of Selborne: Is this available to all the rural areas, for example, where the
copper wire may be of some length? Is it really practical to run that sort of operation at the
cost of £5,000?
Dido Harding: You are correct that there is an up-front cost that is a function of how far
away you are from your cabinet, so it is less to do with how rural you are per se and more a
question of how far away from the cabinet you are in the first place. That can be just as true
in a more urban area. Going back to my Northern Ireland example, it is very striking that in
some of our most rural areas there is a very high take-up of the internet, and it is in the
most socially deprived city areas that we see low take-up even though the service is there.
The Government are entirely correct to be looking to subsidise those portions of the rural
community where it is not economic for either an individual or a service provider, on their
own without subsidy, to build up infrastructure. So in those small pockets it is entirely
appropriate; that is the only way that those communities will get more than 2 Mbps, let
alone superfast broadband.
Q412 Earl of Selborne: The conclusion that I draw from your example of Northern
Ireland, where there is excellent connectivity to fibre but a low uptake of broadband
services, is that it is not necessarily the connection to the fibre that will provide the social
benefit. It is the education and the applications that are relevant. I do not see why one
should be compared with the other. Once you have got your connectivity, surely it is
perfectly feasible to expect that there will be applications that benefit businesses in Northern
Ireland. It will not necessarily be a large proportion of the users, but the Northern Ireland
economy might well benefit because of that connection.
Dido Harding: I think that you are right that the two issues are distinct, but today I would
argue that government policy is much more focused on trying to get every part of the
country to the build-out that Northern Ireland has rather than focusing in addition on the
economic benefit of getting universal uptake of the product. I do not think that it just
happens automatically. I have the irony, running an internet service provider, that when I
took over TalkTalk two years ago we did not really use the internet very much. When I first
took over two years ago, only 6% of our sales were online; you could not buy our most
popular product online—you had to call. And yet we sell the product, so we do understand
that it brings benefit. It is because that sort of change is very fundamental in a company or
any organisation; you are changing the fundamental systems and processes and how people
do their jobs in quite a threatening way if you are the incumbent workforce and do not
know how to use the technology. So there is a public policy role to be played if we want to
have a genuinely world-class digital economy, which is about education and championing the
power of digital services that are all deliverable on copper networks, not dependent on us
having speeds that we do not have yet.
Q413 Lord Skelmersdale: Do you then believe that the Government’s subsidy is being
misdirected? It currently appears that it is directed at the infrastructure rather than the final
mile.
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TalkTalk Group – oral evidence (QQ 408-429)
Dido Harding: I think that BDUK targeting the rural areas where it would be uneconomical
for any network provider to build out on their own is well targeted.
Lord Skelmersdale: That is a tiny proportion, is it not?
Dido Harding: My understanding is that it is quite a significant proportion, although I may be
wrong. It is of the order of £0.75 billion, which is quite a lot—with one proviso, that it is
highly likely that the majority of that money will go to one infrastructure provider, BT.
Building out in that final mile, as we are all discovering, is pretty close to a natural monopoly,
and BT is actually very good at it. Therefore, to make sure that that money is well invested,
it is essential that there is good regulation of that monopolist and that there is real
competition in wholesale retail services on that final mile. Otherwise there is a risk that that
money is spent and customers do not take it up. On the other portions of the investment of
public money into pockets in cities, I struggle to understand why the market is not the best
place to do that rather than government.
The Chairman: This is the proposals for the 10 cities with the superfast broadband. Do
you think that the market should and would deliver on its own?
Dido Harding: Yes, I do.
Q414 Lord Razzall: In your written evidence, you are critical of BT in a number of ways.
First, you are critical of the whole product that BT offers to resellers such as you. As
evidence, you indicate that, although it has been in existence for two years, only 1% of the
network appears to reflect it. You also take a sideswipe at BT in relation to the access
provided to their ducts and poles. We would be quite interested if you elaborated a bit on
that. As a reseller, what are your thoughts on the product, the virtual unbundled local access
of fibre, as opposed to local loop unbundling of copper?
Dido Harding: Let me take that point first, Lord Chairman, and then follow up on the poles
and ducts. Local bundled products, MPF and SMPF, the products that Openreach sells us, are
by far the single largest products in my business. The reason that we are uncomfortable with
VULA which Openreach sells it as GEA to us—another three-letter telco acronym, I am
afraid. The difference between the two is that in the copper local loop world we have the
ability to construct a unique product for ourselves. We are able to do our own testing right
the way through down the customer’s line to identify faults. We have developed our own
testing equipment. We are able to control the balance between speed and reliability that
customers achieve on the line, so we are able to create a different product. We can source
the router that the customer connects with at home ourselves and we can send our own
engineers to a customer’s home, if we want to.
In a GEA world, we cannot do any of that, so we have much less control of the product. We
have to buy a bundled product, as defined by BT Openreach, and we have to negotiate
commercially with BT Openreach without regulatory intervention. So with the LLU
products, Ofcom sets the price, but with the GEA product I have to negotiate with a
subsidiary of my biggest competitor on what I pay for it. To be fair to BT Openreach, as a
division it genuinely wants me to sell it, and we have had a commercial negotiation. The
commercial pricing of it, as far as I can tell, has been a reasonable negotiation, but I have no
benchmark at all. There is no one else I can go to and no alternative supplier that I can
benchmark with. In the long term, that is a deeply uncomfortable position for any business
to be in—that my sixth single largest cost over time is likely to be provided always by my
biggest competitor and I have no means of benchmarking whether it is a good or bad price.
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TalkTalk Group – oral evidence (QQ 408-429)
Q415 The Chairman: You are not suggesting, are you, that Openreach in some way
favours BT Retail?
Dido Harding: No, I am not.
The Chairman: You are simply saying that you do not know.
Dido Harding: I just do not know. I have no benchmark at all. As I am sure a number of
your Lordships who have bought things commercially will know, the best way to tell
whether you are getting a fair price is to have a market and to have some alternatives, and I
do not. I can go through the process and try my hardest but I just do not know, whereas in
the local loop I do know.
The product construction makes a big difference to customer uptake. If you want to buy a
fibre-to-cabinet product today from TalkTalk—the same is true for BT Retail—you have to
have two pieces of kit in your home, an ordinary router and an Openreach router, both of
which need power and to be connected to your master socket. For the majority of
customers, that means that they will have to have some wiring done at home. They will have
to have an engineer’s visit to their home, mandated by Openreach, and Openreach only
does half-day slots, which means that most people will have to take a day off work. If you are
a customer who does not have a copper phone line into your house today—you are with
Virgin, for example, or you are moving into a new block of flats—you have to have two
engineers’ visits, one to install the copper wire and a separate one to install fibre. If you then
want to take an internet TV service—many people, including me, would say that that was
one of the reasons why they wanted fibre—you will have to have three engineers’ visits.
That is just hopeless for the customer. BT Openreach is working on solving that but it is
working very slowly, and history suggests that BT tends to work faster with regulatory
supervision.
In the world that TalkTalk went through as local loop unbundling was being created, there
was a phase not unlike the one now when there was no price control over the LLU product
or detailed product specification, and the innovation and growth of uptake was very slow.
Once the product was more tightly controlled and Ofcom started to set the prices, there
was a great spurt of innovation and competition. We would very much welcome getting
through this phase quickly to one where there was greater certainty on our cost base and
greater pressure on the monopolist to develop a product that would have real demand.
Q416 The Chairman: Do you find that the technical configuration of the way the fibre
operates, if I may use that layman’s way of describing it, inhibits what you would like to do
over the fibre for your customers—in other words, the GPON technology? Does that get in
the way of doing things that you would like to do with that fibre?
Dido Harding: There is a danger that this is going beyond my technical expertise.
The Chairman: I am right at the edge of mine, too. I have just learnt about it so I am full of
enthusiasm.
Dido Harding: It may be better for me to get my technical experts to update the
Committee on this.
The Chairman: That would be very sensible.
Dido Harding: There are some differences. They will say that there are different types of
GPON, one of which will make it easier in future for what is called wavelength unbundling
and one of which will not. I sound like I know what I am talking about, but I am at the edges
of my technical understanding.
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TalkTalk Group – oral evidence (QQ 408-429)
The Chairman: You are right ahead of the game as far as we are concerned. I suspect that
the implications and consequences of that are actually rather important, so we would
welcome hearing from you.
Q417 Baroness Deech: I think that most of this has been dealt with so I will go to the
second half of my question: have you any idea what the impact is of BT Retail’s commercial
strategy on the rollout of superfast broadband more widely?
Dido Harding: It is my biggest competitor and it takes the vast majority of fibre connections
today. In truth, to date that has been because if you are a customer leaving TalkTalk for
whatever reason, most probably because we have done something that has upset you, and
you choose to go back to BT, where you will be paying more for a standard broadband
service, you are offered a choice between a standard broadband product or superfast
broadband, and they are both the same price. So it is not in the least bit surprising that BT
Retail is getting quite a large uptake of fibre, but I do not think that that is because there is
real consumer demand for the highest speeds; rather, it is a free option. I have to say, in BT
Retail’s defence, that my superfast product is still cheaper than theirs, so none of my
customers is going to leave me to take a superfast product from BT because today it is
squeezing me out of the market. In all honesty, though, I worry tremendously that it has the
ability to do so. Because it is an unregulated product, it is entirely rational for the BT Group
to charge more for the wholesale product through Openreach, to make its profits there and
to drive the price of fibre down, and therefore make it uncompetitive for me to sell fibre in
the future. It is pretty transparent if they do that; it would be pretty hard to hide it from the
regulator. However, the very fact that I am being charged roughly £7 per customer per
month more for fibre versus copper but BT Retail can sell the two products at the same
price means that it is not easy to compete with the largest supplier.
Q418 The Chairman: Again, you may not feel that it is appropriate to answer but are
you suggesting that is what they are doing, or is that just a statement of rather more general
principles?
Dido Harding: It is a statement more of general principle in that, as I say, what they are
doing is very transparent. I have not said anything that is not clearly in the public domain.
They and we are starting to see that there are lower costs in serving customers on fibre, so
there is some argument for why they would not need to pass on all the incremental costs of
fibre. However, the statement of fact is that, if we look five or 10 years ahead, we all would
expect the proportion of consumers and businesses taking superfast products to be quite a
sizeable proportion of the market. In that world, I would be extremely nervous if I was
buying what would by then probably be my largest product in a completely unregulated way
from my biggest competitor.
The Chairman: Who is also a monopolist.
Dido Harding: Yes, who is also a monopolist. It is a concern more about the future than of
the practical reality of today. I have a product to sell: I can make money from selling it and
only 9,000 of my 4 million customers have chosen to take it in the last year, so it is early
days. But to look ahead, it would be a very bad place for Britain to be in to have a
monopolist that was not regulated in providing an increasingly essential service.
Q419 Lord Gordon of Strathblane: One thing that is fairly clear is that there will be
some public money involved in making sure that broadband, whether superfast or not, is
brought to all parts of the country. At the moment, as far as I can see, we face the prospect
of a lot of competition for 60% of the market and very little provision for a lot of the rest of
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TalkTalk Group – oral evidence (QQ 408-429)
it. What conditions would you like attached to that public money to ensure that it is not
simply bolstering a monopoly but available to all providers?
Dido Harding: I think the most important condition is to make sure that whoever wins the
right to build out that infrastructure has an obligation to wholesale the product and to
ensure that multiple, different retail providers such as myself and my competitors can use
it—and, regardless of who builds that, that Ofcom is encouraged to ensure that it really
guards the need for competition in those areas.
Lord Gordon of Strathblane: To drill down a bit further, it seems that we might have to
go a bit more specifically into certain areas because that applies in a way at the moment with
BT Openreach and BT Retail, yet you have voiced a degree of dissatisfaction with that.
Dido Harding: Perversely, and this may seem odd, I welcome BT Openreach winning a large
proportion of these bids because I have a trading relationship with it. Technically, I can
interface with its final mile and know that I can therefore offer services, as can my
competitors. One of the problems where smaller, stand-alone entities such as Digital Region
in South Yorkshire have built superfast networks without any of that is that they have
basically been stranded assets, so it is a non-trivial point for anyone other than Openreach.
For that reason—and I assume that Openreach will win most of the money—it really
focuses the pressure that I would want to put on Ofcom to make sure that it gets a move
on in regulating fibre. Ofcom is about to launch its periodic review of wholesale local
access—I think it is three-yearly or four-yearly—in the autumn, which will determine the
regime for 2014 to 2017. If in that review, which I understand will start in the autumn and
probably take a year to 18 months, Ofcom was to conclude that no regulation of fibre was
necessary, I would be deeply concerned that we are handing government money to a
monopolist where there will not be regulatory supervision. That is a very important moment
in time for the future of that final third of the country.
Q420 Lord Gordon of Strathblane: Some would argue that in an ideal world, if we
were starting from scratch, the owner of the infrastructure should be wholly separate from
the provider of services over it. We are not at that position, but how can we, as it were,
mimic it in the regulation?
Dido Harding: You are absolutely right that in an ideal world, that is what you do. I think
this is where pragmatism is a better route, in that separating Openreach entirely from BT
might theoretically be right but the time it would take to do that and the disruption it would
undoubtedly cause would be much worse for the country than any steady state beyond it.
Even if you did that, you would still have a monopoly provider of the infrastructure.
Openreach might not then have the moral dilemma of being a subsidiary of one of the retail
providers, but it would still be a monopoly provider. The work that Ofcom has done in the
last 10 years on local loop unbundling regulation is actually a very good standard. We should
take great pride in the fact that the UK has higher broadband penetration and lower
broadband costs than many other countries in the world and is the country where people
spend most on the internet. That is in part because of the competitive environment that
Ofcom has created.
Q421 Lord Gordon of Strathblane: I have one final point, if I may. There has been
quite a lot of evidence suggesting that, while superfast broadband speeds may sound sexy,
they are really unnecessary for most people. Would you however agree that, if we are laying
down any form of new cable, we should be laying fibre not copper?
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TalkTalk Group – oral evidence (QQ 408-429)
Dido Harding: It depends on where it is. If you are building a block of flats right next to a
BT exchange, fibre-enabling that cabinet is probably an unnecessary investment—whereas if
you are building anything in that final third I would agree that you will need fibre, at least to
the cabinet, in order to deliver a good service for the next decade.
Q422 The Chairman: You have described these assets as being “stranded”. Has your
firm sold anything to anyone over the network? You may say that that is a commercial
question and you do not want to answer it, which is fine. We have had people quoting the
example of what has happened in South Yorkshire and how it has all gone wrong, if I may
put it that way. Has it gone so badly wrong that it is unusable?
Dido Harding: We have not worked out a way of connecting affordably. None of the big
retail providers are able to sell to consumers in that area.
The Chairman: Because the way that the physical configuration has been done inhibits, if
not completely excludes, your businesses from running services across it?
Dido Harding: It is a combination. It is technically difficult and expensive to do, and there
has been so little confidence that that entity would survive—and it is relatively sub-scale—
that none of us has ever been able to make a business case out of doing that. It is also a real
example, in one of the most deprived parts of the north of England, of households having
access to copper but not taking it up, and it is not obvious why those consumers would then
want to pay more for a fibre connection. You cannot work out how you would then go and
market it to them either.
Q423 Bishop of Norwich: For the past 12 months Ofcom has had the power to impose
obligations on those without significant market power. Can you see any way in which, if
Ofcom used that power, it could be used well—for instance, by imposing an obligation on
Virgin Media to open up its own infrastructure? Can you see that happening? Would it be
helpful or irrelevant?
Dido Harding: I am not convinced that it would make a material difference. If I look at my
business, BT Openreach’s build-out of fibre is roughly in the same geography as Virgin’s. I
already connect to Openreach and have deeply embedded systems integration with
Openreach, and it would cost a significant amount to replicate that with a network that
crosses the same streets. As a retail provider, it would not really make sense to me to do
that and would add a lot of cost. Much as it pains me to admit it, there is a natural monopoly
in that space.
Bishop of Norwich: And that should remain.
Dido Harding: Yes, but it needs to be well regulated to ensure that there is a choice of
providers accessing it.
Q424 The Chairman: Forgive me—I am speaking too much—but the provisions under
the recent statutory instrument, which gives Ofcom the power to regulate those who do
not have significant market power, could be used to impose certain regulation of the kind
that you want to see in respect of access. Is that right, or do you think that it should be a
matter for Government, regardless of whether this gives it extra powers, just to go ahead
and do it?
Dido Harding: Yes, I would say the latter.
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TalkTalk Group – oral evidence (QQ 408-429)
Q425 Baroness Fookes: We talked quite a bit about Ofcom and its role. Does it lack
powers that you think it would be useful for it to have?
Q426 Dido Harding: Media regulation as a whole is a different issue, but in the space of
telecommunications Ofcom has all the powers that it needs to do this.
Q427 The Chairman: Is there anything else that you would like to say to us?
Dido Harding: I fear that I have sounded a bit like a broken record. I make a final plea for
the power of digital inclusion, which requires real leadership from Government. Because
changing an organisation that currently does not use the internet is hard, whether that
organisation is national Government, local government, a business or a charity, this requires
leadership from the top. That is an important role of championing and education, which I am
trying to play within my organisation as a CEO. My business is so much better for using the
internet, my customers are happy and my costs are lower. There is a great untapped
opportunity for Britain to be a digital leader if we really get our act together in championing
that. That will not happen just by building the infrastructure because it requires human
change in organisations, which is never easy.
Q428 Baroness Deech: Do you not mean individuals as well? I know swathes of
individuals who do not use the internet. How do you get to them? No matter what you do
about connection, they need very expensive hardware that they cannot afford. The simplest
of these machines costs several hundred pounds.
Dido Harding: There are a number of things that companies like mine and other
organisations can do. You are right that it is not a broadband connection that is expensive
but fear of the cost of the computer. We are running a promotion at the moment together
with Microsoft where we are offering a reconditioned computer for £49 if you are on
benefits or £99 if you are not. Equally, there are many new devices today; a large proportion
of the most digitally excluded will actually have smartphones that can access the internet,
although they do not have a broadband connection. So there is an education role as well.
There are some excellent organisations, and Martha Lane Fox as the digital champion has
done an amazing job, but we are just scratching the surface when it comes to some of the
most digitally excluded people in society, whether they are older, disabled or people for
whom English is not their first language—those are the three big groups. That is why there is
a role for Government to do that; otherwise, we leave them behind.
Q429 Lord Gordon of Strathblane: Do you think that the advent of internet television
and YouView, which you are one of the partners in, will help to encourage interest in the
internet that might then perhaps spill over into more proper use of it, as it were?
Dido Harding: Clearly, from a commercial perspective, we are very hopeful that that will be
the case. There is a degree of research that both YouView and TalkTalk have that suggests
that there are 8 million adults in the UK who have never used the internet. The advent of
good-value television may not suddenly make them want to buy a computer and surf the net,
but it may encourage them to get a broadband connection in order to get access to cheap
TV and then, over time, to start surfing the internet. It is a lot less sexy than building the
infrastructure but actually a lot more powerful in transforming the economy if we can
genuinely get to 100% digital inclusion.
The Chairman: Perhaps that is a good note to end on. Thank you very much indeed.
Dido Harding: My pleasure, thank you.
687

TalkTalk Group – supplementary written evidence
TalkTalk Group – supplementary written evidence
Thank you for your and your committee’s time yesterday. I hope that it was useful to you.
You asked a question regarding GPON and what it allows ISPs like TalkTalk to do. Fearing I
was moving outside my area of expertise, I said I would get back to you. Having consulted
with my technical experts, below is, I trust, a more detailed answer.
GPON (Gigabit passive optical network) is a type of fibre to the home (FTTH) network
GPONs are not used in fibre to the cabinet [FTTC] networks. There are alternative ways of
deploying FTTH networks. One alternative is WDM PON (though there are others such as
point-to-point fibre). We think that WDM PON is the better option for UK plc for the
following reasons.
Under a GPON architecture, all ISPs share the same bandwidth and equipment. This means
that BT specify most of the features of the product such as: the maximum speed; the total
shared bandwidth; how different traffic is prioritised (important for IPTV and business
services); and, the electronics/equipment placed on the both ends of the fibre. Furthermore,
ISPs and their customers would be forced to use Openreach equipment and probably
depend on Openreach engineers to install the equipment.
A WDM PON (wave division multiplexing passive optical network) differs in that ISPs are
allocated separate wavelengths (or colours of light) on the fibre network. This means that
ISPs do not share bandwidth and equipment with each other and so they can effectively
develop, innovate and differentiate their own services. ISPs can for instance develop
products with different speeds, equipment and traffic prioritisation to suit varying customer
needs. They can also identify and manage faults on the network more effectively. In effect,
WDM PON is a far more unbundled form of wholesale access. This reduces ISPs’
dependency on BT Openreach and so allows them more opportunity to innovate and reduce
costs which ultimately creates more competition and delivers greater benefits to consumers.
BT Openreach are deploying GPON in their FTTH build. This is not to be unexpected since
GPON allows them to monopolise more of the value chain and maximise their profits.
Therefore, if we want WDM PON – which is the best solution to ensure competition,
innovation and customer benefits – then intervention from Ofcom will be required. This
intervention must be done early since once GPON is deployed it might be difficult and costly
to retrofit WDM PON. If public funds are used to subsidise BT’s deployment of FTTH then
it becomes all the more important that WDM PON is deployed in order to deliver value for
money and return for UK plc.
The need for and benefit of unbundling are the same for FTTC. As I outlined at the
committee, we find BT’s FTTC GEA/VULA product to be highly bundled (for example, we
have to purchase an Openreach modem that is installed by an Openreach engineer). This
restricts innovation and increases costs thereby reducing competition and take-up. It is only
through timely regulatory intervention that products will be properly unbundled, whether it
be FTTC or FTTH.
Also, I think I may not have been clear on VULA and GEA. VULA (virtual unbundled local
access) is Ofcom’s name for unbundled wholesale products that provide access to FTTC and
688

TalkTalk Group – supplementary written evidence
FTTH networks. GEA is BT’s wholesale product for its FTTC/FTTH networks though, as I
described above, it is not that unbundled.
I hope this has addressed your query and my apologies for the acronym jungle that seems to
plague telecoms. If you have any more questions about this or other areas we would be very
happy to assist you further.
31 May 2012
689

TalkTalk Group – further supplementary written evidence
TalkTalk Group – further supplementary written evidence
Further to our conversation last week I have laid out in this letter our thoughts on the
appropriate regulation for GEA in Ofcom’s upcoming Wholesale Local Access (WLA)
Market Review which will set regulation up to 2017. Before I get into the detail I have laid
out some context regarding the need for regulation.
We think that the main model for retail competition (aside of cable) in the medium term is
for competitor ISPs (such as TalkTalk) to purchase wholesale GEA products from
Openreach 261 . Because of BT’s dominant position in the supply of wholesale FTTC/FTTH
products (like GEA) there is a risk of BT abusing their strength to the detriment of
competition and consumers (since competition won’t discipline their behaviour). In
particular, this could potentially include:
• Pricing the wholesale GEA product above cost and/or allowing insufficient margin
between the wholesale GEA and retail BT Infinity product (a ‘margin squeeze’) thus
preventing competitor ISPs from competing effectively or fairly
• Designing the product in a ‘bundled’ way that extends BT’s monopoly over more of
the value chain and limits the ability of ISPs to innovate and differentiate their own
retail products. For instance, by deploying GPON rather than WDMPON
technology for FTTH networks or by requiring that the GEA product unnecessarily
includes an Openreach modem and an Openreach engineer visit 262
• Designing a product that discriminates in favour of BT Retail – for instance, providing
better quality service to BT Retail or developing features that are wanted only by BT
Retail
• Designing a product that prevents GEA being used to compete with existing BT
products that have higher revenues/margins. For example, the GEA product is
currently designed in such a way that makes it difficult to provide higher quality
superfast broadband services to businesses in place of more expensive Ethernet
circuits or leased lines (since GEA lacks certain quality features and service
guarantees)
These concerns are well understood. LLU for instance was abjectly unsuccessful as a
platform for competition in ‘current generation’ broadband until a comprehensive package of
strong regulation was introduced including: equivalence to reduce BT’s ability to discriminate
(see below); tight cost-based regulation of the LLU wholesale prices; a minimum margin; and,
improvements in the product to allow more innovation. Once this strong regulation was
introduced LLU took off and consequently transformed the broadband market through
261 Though competitors could deploy their own FTTC or FTTH networks using Openreach’s ‘passive’ wholesale
products such as duct access and sub-loop unbundling (and possibly using BDUK funds), we think that this model
of competition is likely to be of limited success in the medium term not least since the passive wholesale products
are not fit for purpose
262 Though Openreach is starting to develop a product that excludes an Openreach modem and an Openreach
engineer visit this has taken over three years of continued pressure to get Openreach to begin to act. In our
mind this emphasises that, absent strong regulation, Openreach can delay implementation of features
690

TalkTalk Group – further supplementary written evidence
increased investment, more innovation and greater take-up that has made the UK a world
leader in the use of the Internet and digital services.
However, today there is very little regulation of GEA to restrain potential anti-competitive /
anti-consumer behaviour. There is no ex ante regulation of the price of the wholesale
product or of the margin. Openreach also has very wide flexibility in designing the product
as it/BT wishes 263 . There is an equivalence obligation on GEA whereby other parts of BT
(e.g. BT Retail) purchase the same GEA product from Openreach as competitor ISPs which
is very welcome and necessary since it avoids BT providing a low quality product for its
competitors to use (i.e. discrimination 264 ). However, the equivalence obligation alone is far
from sufficient to prevent abuse and so ensure effective competition and meet consumers’
interests.
In light of this ineffective regulation it is perhaps not surprising that competition is currently
weak – about 98% of all customers on BT’s FTTC network are served by BT Retail (versus
~40% on standard broadband). We believe this cannot be allowed to continue if we wish to
see investment, competition and uptake prosper and so consumers’ interests and economic
growth being delivered.
The WLA market review will set regulation of GEA up to March 2017 during what will be a
critical phase of development and growth of the market for superfast broadband services.
Thus this review is a critical and unique opportunity to move the regulation of GEA onto a
sounder footing for competition in the same way that LLU regulation was over-hauled and
competition transformed. In particular we believe that the following steps need to be
undertaken. Both are required – it is not a case of ‘either or’.
First, there must be effective regulatory control of prices and/or margins. There are a
number of different options to do this ranging from: a pre-maximum price (and/or minimum
margin) for particular products; more flexible controls over baskets of products; or, less
prescriptive (yet clear) rules and principles. We recognise that there are potential
difficulties involved with setting specific prices/margins for individual products since GEA is
not as well developed as say LLU. However, this situation cannot justify no price/margin
regulation given the risks that no regulation can have. We are currently developing our
view of the most appropriate package of regulation for price/margin.
Second, there are a number of areas where we consider that the GEA product could be
more unbundled (or otherwise improved). The key ones are 265 :
• A wires-only product where ISPs do not need to purchase an Openreach modem as
part of the product
263 The existing regulation also includes certain ‘VULA principles’ regarding the characteristics of the GEA product
yet these characteristics are rather vague and unspecific and consequently are difficult to enforce. See Review of
the wholesale local access market Statement 7 October 2010 §§8.10 -8.20.
http://stakeholders.ofcom.org.uk/binaries/consultations/wla/statement/WLA_statement.pdf
264 Equivalence can address many (but not all) types of discrimination. For example, without equivalence where the
wholesale product is not used by BT itself, BT could (and does) degrade the quality of the product (e.g. time to
provide or repair service) since their own operations benefit form their competitors being hampered in this way.
Equivalence addresses this type of discrimination. However, even with equivalence, Openreach could favour BT
Retail by developing features are suitable for BT’s TV product (but not TalkTalk’s, say)
265 There are some developments in train on wires-only and not requiring an Openreach engineer visit. However,
these initial developments are not yet implemented and further developments are likely to be necessary beyond
initial code.
691

TalkTalk Group – further supplementary written evidence
• A product that does not require an Openreach engineer visit thereby allowing selfinstall
by customers and/or an installation by a TalkTalk engineer done at the same
time as an installation of a TV service (say)
• A set of features that allow the product to be used by businesses – for instance:
assured speeds (including at peak times); rapid repair; guaranteed jitter/latency/packet
loss characteristics; and, service level guarantees
• Deployment of WDMPON technology (not GPON) for FTTH networks which
allows ISPs more control and greater ability to innovate
• Improved migrations i.e. the processes of moving to GEA from other wholesale
products or where a new line is required
• A ‘naked GEA’ product whereby the GEA product does not need to be purchased in
conjunction with WLR and MPF. In effect this would avoid the cost of the copper
connection between the exchange and the cabinet
There are a number of tools that Ofcom could use to ensure that these features are
delivered in a timely manner. In some cases, Ofcom should impose a specific obligation on
BT requiring it to introduce the feature by a certain date e.g. for wires-only. In other cases,
Ofcom should make a very clear signal that the feature should be introduced when (say) it is
technically feasible and there is demand from customers (e.g. WDMPON) and that it would
act to impose a specific obligation if this does not happen. Whatever is done it must be
clear and specific rather than giving vague guidance that is open to interpretation and
uncertainty. Ofcom must also give a clear signal that if other reasonable requirements arise
they will act expeditiously and decisively to, if appropriate, require Openreach to implement
these features.
BT has suggested that regulation is not necessary and the market will deliver and that
regulation to support competition will deter investment. We think that this is not correct.
The market (absent effective regulation) has failed to deliver a competitive market to date
and there is little reason to think this will substantially change in future. Further, it is a
fallacy that regulation to promote competition is the enemy of investment. As Neely Kroes
(European Commissioner for Digital Agenda) recently said in a speech 266 on superfast
broadband services: “You know, some say that for investment to happen, we need to abandon
competition. That we need to choose between one or the other. My answer is simple: no way!
Competition and investment aren't exclusive – the one promotes the other”.
I hope this has been helpful. If you have any more questions about this or other areas we
would be very happy to assist you further.
14 June 2012
266 Neelie Kroes speech “New powers to shape the Telecoms Single Market: one year” (21/05/2012)
http://europa.eu/rapid/pressReleasesAction.do?reference=SPEECH/12/363&format=HTML&aged=0&language=EN
&guiLanguage=en
692

Taxpayers’ Alliance – written evidence
Taxpayers’ Alliance – written evidence
Foreword
The TaxPayers’ Alliance welcomes this opportunity to respond to the House of Lords Select
Committee on Communications call for evidence on superfast broadband.
We believe that superfast broadband is possible, but only in an economically competitive
environment. The private sector as well as not for profit community organisations will
deliver broadband that fits the needs of the communities involved, but this can only be done
by lowering taxes and breaking the BT monopoly. This is fundamental to superfast
broadband expansion in the UK and underlies all other Internet access related issues.
We look forward to hearing from you about our consultation response and we would
welcome the opportunity to offer oral evidence at any future witness sessions.
Responses to the questions raised in the Consultation
Below are the TaxPayers’ Alliance’s responses to the individual questions raised in the
House of Lords consultation published in February 2012.
Introduction
Superfast broadband in the UK is here, but the problem is that superfast broadband is not
accessible to many who live outside of metropolitan cities like London and Manchester. The
problem is not the lack of initiative by the government or even the lack of desire or need in
rural areas in the UK, but the lack of competition and a regulatory environment that would
stimulate private and non-profit sector in superfast broadband. In short, the government
needs to provide certainty and get out of the way when it comes to improving the
infrastructure of superfast broadband in the UK.
This response will touch upon several themes. First, the delivery of what I term ‘mixed use’
access will provide the best options for the delivery of different types of entry points to the
Internet. Second, competition and regulatory certainty in the delivery of Internet access by
private and non-profit organizations will allow for the delivery of ‘mixed use’ Internet access.
And third, greater access to the Internet will allow for innovation, economic growth and
increased competition in the content sector in the UK.
Mixed Use Internet access
There is an obsession in the UK over delivering fibre to the home. We would all like fibre to
the home and those of us that live in London, for example, benefit from a competitive
market and so we have fibre access for less than £15 a month. The rest of the country
however is not able to access fibre and in many cases still rely on copper ADSL to deliver
Internet to their homes. Sometimes it is not economically feasible or even tenable to
provide superfast broadband to the most rural areas of the UK and in other parts of the
693

Taxpayers’ Alliance – written evidence
country investment has yet to happen. A quick look at OFCOM’s broadband speed map
highlights the discrepancies.
Each part of the UK has a completely different economic and geographical landscape when it
comes to superfast broadband needs. As a result of this it is our belief that superfast
broadband will not be delivered by fibre alone, but through what we have termed ‘mixed
use’ Internet access. The government cannot and should not pay for fibre delivery of
broadband. Instead fibre and copper broadband access along with mobile (2G, 3G and
4G/LTE) and satellite will make up the options that all individuals who wish to access the
Internet will have in the near future in a competitive environment which is full of choice, but
only if the government allows.
There are three key factors preventing private sector investment in superfast broadband
rollout. First, the government needs to life the burdensome fibre tax. While this is schedule
to happen, it is not happening soon enough. This tax is collected for the laying of fibre and
for the lighting of dark fibre, usually owned by BT. Considering the taxes that ISPs and other
firms are paying already to operate in the UK, it would seem that a simple solution is to
remove the fibre tax so that competitors to BT could use fibre through the wholesale
market even more than now. BT has a monopoly on the fibre wholesale market here in the
UK and while others are laying fibre, like Virgin Media, new entrants into the fixed
broadband market think twice before renting from the widespread network that BT has.
Second, the access to ducts and poles owned by BT should be offered for a low or no cost
to other ISPs. Other ISPs and BT have only recently agreed to access pricing for ducts and
poles, but not without OFCOM regulating the negotiation. BT is a monopoly holder of ducts
and poles in addition to fibre in the UK and this is never ideal for promoting a competitive
market and this delay will prove costly.
Third, access to this year’s (or more likely next year’s) should not be stymied or limited. The
auctioning of 4G/LTE is spectrum is already delayed thereby preventing the access to next
generation mobile technology throughout the UK. In a recent study that I co-authored, the
delay of the 4G auction will cost the UK economy up to £366 million267. Though
companies like O2 will be able to deliver 4G/LTE through unused parts of their alreadyowned
spectrum, this will only be available in certain areas generally confined to London.
These three factors in themselves are preventing non-governmental investment in rural
broadband that, if solved, could provide for greater access to the Internet However, there
are additional factors that are also preventing investment. The uncertainty of a tax regime as
well as the regulatory environment in the UK does not offer a stable market in which to
participate. Spreading the idea of the ‘Enterprise Zone’ to the entire country would, no
doubt see the launch of new and local ISPs in rural areas. Though out of the scope of this
particular submission, providing a business rates holiday, reducing the burden on taxes for
small businesses and providing simplified planning applications (in the case of masts for
mobile broadband) could greatly improve the Internet access market268.
And finally, satellite broadband will allow for broadband access to the most remote parts of
the UK. The costs are coming down for satellite broadband and access is more of an option
forever. An unobstructed view of the sky and a satellite dish are all that is needed in order
267 Estimating the cost to UK businesses of slow mobile broadband by James Firth and Dominique Lazanski
http://www.opendigital.org/papers/4GLTE-20111004_final.pdf
268 See my post Make the entire UK an enterprise zone:
http://www.thecommentator.com/article/376/make_the_entire_uk_an_enterprise_zone
694

Taxpayers’ Alliance – written evidence
to access a satellite provider. Access speeds range from 1Mbps to 10Mbps at the moment
when delivered over satellite and while this is not ideal, the average speed in the UK is just
over 7Mbps so it is not unrealistic.
A competitive regime with regulatory certainty is of the utmost importance in allowing for
the delivery of superfast broadband to all areas of the country. The government does not
need to invest to deliver broadband. By decreasing the tax burden to companies and moving
away from the obsession of fibre to all homes, broadband – and superfast broadband – will
be delivered through ‘mixed use’ Internet access points.
Community Broadband
It is important to note that community and local broadband is already filling the gap left by
the lack of Internet access in certain areas. A brief case study in this section will highlight
further the fact that broadband can be and will be delivered through alternative options
outside of BT and other large ISPs.
Cumbria County Council was awarded just over £17 million to help deploy rural broadband
to over 90% of its residents. While this might seem like a good idea, Cumbria already has a
local, rural broadband Internet provider who has private investment and means to deliver
broadband in Cumbria without taxpayers’ money.
NextGenUS Cumbria CIC is a community interest company which is gauging the interest
and need for rural broadband and providing from 10-60Mbps fibre optic and wireless
superfast broadband to Cumbria. In order to deliver access, it adopts a community owned
and privately funded approach. The business model is based on its parent company,
FibreStream (NextGenUS), who have already delivered superfast broadband to rural areas
like Lincolnshire269.
Another example of a community based, wireless ISP is Kijoma270. Based in West Sussex,
Kijoma provides secure, wireless access via antenna to local customers who might otherwise
be classed as rural broadband recipients. They offer broadband speeds greater than the
current ADSL in the local area and don’t rely on government/taxpayer supported subsidies.
Though these are two of many the examples in the UK, it highlights the fast that where this
is a need, the market delivers. In this case, NextGenUS uses ‘FiWi’ or the deployment of
network fibre through mobile WiFi deployment. The local community takes up the cost of
maintaining and managing the network and the deployment is based on the need of the
community and the expression of intention to use the superfast broadband. In West Sussex
as well, the community’s need for superfast broadband is delivered not from fibre to the
home, but from a provider who as help a better way to deliver wireless broadband in the
local area. The point is that there is no need for government/taxpayer subsidy. And if this is
the case in Lincolnshire, Cumbria and West Sussex then broadband can and will be delivered
– and probably through wireless or satellite technologies. No need for broadband funding
from BDUK or the continued UK government obsession with fibre to the home.
269 http://www.nextgenus.co.uk/
270 http://www.kijoma.net/
695

Taxpayers’ Alliance – written evidence
The UK content sector
This consultation discusses the diverse aspects of media consumption as well we as the
‘increased danger of online piracy’ if more and better broadband is deployed. There is no
doubt that better broadband or Internet access will provide an even more competitive
outlook for media consumption. Not only will users have greater choice in the media that
they choose to consumer, but they will be able to pay a variety of prices for it and choose
the option that best fits their budget and needs. Some consumers of media may become
media producers themselves. More and better access to the Internet will only enhance the
market.
In this context I feel that the question of online piracy represents a conflation of the issues
around superfast broadband. Why is this question even asked in this consultation? Aren’t we
looking at providing Internet access? Why bring piracy into this?
The question of piracy also demonstrates a lack of digital awareness by the House of Lords.
The Hargreaves copyright review, the debate around the Digital Economy Act sections 17
and 18, the on-going discussions in DCMS with rights holders and content providers and
well as the Communications Bill consultations all address these issues. It would be in the
best interest of the House of Lords to be aware of this and engage with these discussions to
understand the legal and technical issues of copyright infringement and IP protection in the
UK and globally today.
Increased access to the Internet will only serve to provide new opportunities to those who
might otherwise not have them. In a recent McKinsey study called Internet Matters271
Internet access has done nothing short of an extraordinary job as a vehicle for economic
growth and prosperity. The study shows that for every ‘tradition job’ lost, 2.6 were created
in its place as a result of the Internet. We would expect that everyone from a small bed and
breakfast owner in the Scottish Highlands to a burgeoning musician in Cumbria can take
advantage of Internet access to show what they are doing to the wider world. Internet
access will allow for many options to buy music or watch movies on demand. And we should
focus on these positives instead of falling into the trap of a negative attitude towards Internet
access due to IP theft. The Hargreaves copyright review recommendations propose a faster
and inexpensive way to provide for legal redress due to copyright infringement. I only hope
that the recommendations are implemented swiftly.
Conclusion
In this brief response to the consultation on superfast broadband a number of issues were
addressed. Internet access can and will be delivered with little or no government subsidy as
long as the government gets out of the way of all kinds of Internet access providers. Fibre,
copper, wireless and satellite Internet access will provide many different options and variety
prices for all residents in the UK. Though not all services will provide super-superfast
broadband, all services will provide options for broadband access. And that access will only
improve over time as technology develops and improves.
It is important to understand that a minimal tax and regulatory burden on ISPs in
conjunction with speeding up the implementation of the spectrum auction as well as keeping
an eye on any monopolistic activities by BT will allow for the growth of Internet access in
271 Internet Matters http://www.mckinsey.com/Insights/MGI/Research/Technology_and_Innovation/Internet_matters
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Taxpayers’ Alliance – written evidence
the UK. In spite of this many rural areas have privately funded community ISPs that are
already delivering Internet access. We hope that this becomes a more widespread practice.
Superfast broadband or any Internet access will only help to improve communication, the
economy, and job growth in the UK. The media and creative industries will continue to see
an explosion of growth in the UK as new services compete in a dynamic environment.
The future of the UK is unknown, but by allowing for non-taxpayer investment in a
competitive marketplace will spur on new ways to access the Internet, new types of services,
new jobs, and growth in the economy. We only hope that the UK government lets this
happen.
March 2012
697

Three – written evidence
Three – written evidence
1. Three welcomes the opportunity to submit evidence to the House of Lord’s
Communication Committee’s Inquiry into Superfast Broadband.
2. Three is the UK’s leading provider of mobile broadband services. We offer mobile
broadband and voice services to our customers on a range of devices including
smartphones, tablets, mobile broadband dongles and MiFi. Currently we have 97.5%
3G outdoor population coverage throughout the UK, which is provided by 12,631
base stations 272 .
Summary
3. It is widely predicted that the number of people accessing the internet on a mobile
device will exceed those accessing via a fixed PC by the end of this Parliament 273 . On
Three’s mobile broadband network our customers already use more than a 1GB of
data a month, and it is predicted that by 2016 the average smartphone user will be
using 2.6 GB per month 274 .
4. Consequently the UK’s digital infrastructure – mobile and fixed - must be ready to
cope with ever increasing demand from consumers.
5. The key issues that we would like to draw to the Committee’s attention are:
• LTE technology could deliver speeds significantly higher than the current
average for both mobile and fixed broadband connections.
• Mobile broadband is already the sole means of internet access for many
consumers. While this may be through choice, it can also be because of a lack
of access to an adequate fixed connection. Data on our network shows that
our mobile broadband is particularly important for rural communities.
• The previous spectrum auction in 2000 was structured so as to promote
competition in the UK market, which has delivered low costs and better 3G
coverage for consumers. Ofcom have recognised these benefits and in their
latest consultation on the spectrum auction they have said that their
overarching aim is to ensure the UK remains a competitive four player
market.
• However, there are serious concerns that flaws in their latest set of proposals
will jeopardise this aim. In particular their stance on low frequency spectrum,
which if carried through would significant weaken the competitive tension in
the UK market.
272 Three and T mobile entered into a ground breaking network share agreement at the end of 2007 to merge our
3G network infrastructure together, which means we have been able to offer improved stability, faster speeds and
greater population coverage for our customers.
273 See Gartner: “Mobile phones will overtake PCs as the most common Web access devices by 2013” and Morgan
Stanley: “By 2015 internet access on mobile devices will outstrip that of fixed.”
274 Cisco
698

Three – written evidence
LTE Technology
6. The 4G spectrum auction, scheduled to take place this year, will pave the way for the
introduction of LTE mobile technology. LTE (sometimes referred to as 4G) could see
mobile broadband reach theoretical speeds of 100mps, though in practice consumers
will typically experience speeds of 10-15mps. This is a significant increase, not only
from current average mobile broadband speeds 275 , but also from what many
customers presently experience from their fixed line broadband.
Tackling the Digital Divide
7. Mobile broadband is already becoming the broadband of choice for a number of
consumers.
8. Many use mobile broadband as their sole means of internet access. This can be
through choice 276 , but it can also be because they cannot access a fixed line service,
either because of their geographic location or their personal situation 277 .
9. An example of the latter could include those who live in rented accommodation and
are therefore unable to commit to a yearlong contract. In fact Ofcom figures for
2010 found that 1 in 7 people living in rented accommodation uses mobile internet as
their sole means of internet access and, significantly, this rose to 2 in 3 for those
households on the lowest income 278 . Mobile can connect these households by
offering access the internet via pay as you go.
10. With the current focus on superfast fixed broadband there is a risk that broadband
policy fails to adequately address the needs of those who are not yet online and for
whom mobile may offer the only means of accessing affordable broadband.
11. Another group who increasingly use mobile broadband are those who cannot access
fixed broadband due to their geographical locations, typically isolated rural
communities. With many rural communities still reliant on fixed dial up connections,
there is a risk of a widening digital divide as the Government prioritises initiatives
such as ‘superfast cities’.
12. In the absence of adequate fixed line services many rural communities have turned to
mobile as a solution. Looking at the traffic on our network, we have seen that the
heaviest users of data on our One Plan 279 occur in Cornwall, Devon, Norfolk,
Shropshire, Perthshire, Morayshire and Banffshire. The higher data usage in these
areas suggests that customers are using mobile broadband as their only means of
internet access, not as complimentary to fixed.
13. This conclusion is further supported by looking at the data usage on our network in
Wales. Welsh customers use the same number of voice minutes as the population of
275 Average speed on our network is currently 2.4mps.
276 YouGov/Three poll found that in 2011 14% of Mobile Broadband connections chose mobile because they did not
want a fixed line.
277 13% of of Mobile Broadband connections chose mobile because they could not access a fixed line connection.
278 Ofcom Communications Market Report 2010
279 This is our all-you-can-eat data plan.
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Three – written evidence
Birmingham, but their data usage is equivalent to that used by the population of
Leeds, Manchester and Birmingham combined.
14. It is increasingly recognised that mobile is an efficient way to fill the gaps in
connectivity left by fixed providers. Research by the Broadband Stakeholder Group
(BSG) has found that a combination of wireless technology and satellite technology is
the most cost effective way of reaching 100% of the population 280 .
15. Meanwhile in Ireland the National Broadband Scheme, which aimed to provide
universal broadband, opted for a mix of mobile and satellite as the preferred solution.
Spectrum
16. For mobile to continue to meet this growing demand more spectrum needs to be
made available. But critically it needs to be made available in a way that maximises
competition.
17. The 2000 3G auction set as a clear policy objective the maximisation of competition
in the mobile market. To achieve this, one spectrum licence was reserved for a new
entrant. That new entrant was Three.
18. Three’s entrance into the mobile broadband market in 2007 resulted in a significant
reduction in the price of mobile data. In 2007 customers on two of the mobile
networks were paying an average of £50 per gigabyte (GB). Three entered the
market at under £10 per GB and rapidly average prices fell to under £10 across the
market.
19. The success the new entrant has had in delivering a better deal for consumers has
been recognised by Ofcom and indeed, in their recent consultation on the 4G
spectrum auction, they stated that their overwhelming priority was to ensure the UK
retained a competitive four player market.
20. However there is a question mark as to whether Ofcom’s auction proposals 281 will
enable four wholesale operators to operate effectively.
Low Frequency Spectrum
21. Ofcom is auctioning two new bands of spectrum (800MHz and 2.6GHz). The second
band is termed high frequency spectrum and has properties which make it
particularly good for urban areas where demand is high and capacity is required to
meet demand.
22. The first band (800MHz), termed low frequency spectrum (sub 1 GHz), is particularly
useful for rural coverage as it can cover a distance three times greater than higher
frequency spectrum (2.1GHz).
280 See Broadband Stakeholder Group, Analysys Mason
http://www.broadbanduk.org/component/option,com_docman/task,doc_details/gid,1245/
281 Ofcom’s latest consultation on the spectrum auction was released on 12 January 2012 and can be found here:
http://stakeholders.ofcom.org.uk/consultations/award-800mhz-2.6ghz/
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23. It also has wider coverage benefits, as low frequency spectrum can penetrate walls
more easily, which is increasingly important in both rural and urban areas as people
expect to use mobile devices in their home.
24. Low frequency spectrum is therefore critical in enabling operators to provide good
urban and rural coverage.
25. All other national regulators agree that for a market to work, operators must have
access to the sub-1GHz spectrum low frequency spectrum. Up until the most recent
consultation, published in January 2012, Ofcom took the same position and proposed
that the 4G auction should be structured to ensure all operators had access to low
frequency spectrum.
26. Yet in their March 2011 consultation Ofcom said that: “These advantages could mean
that national wholesalers with a large amount of sub-1 GHz spectrum would have an
unmatchable competitive advantage over those without any sub-1GHz spectrum.” 282
27. However in their latest consultation Ofcom have changed their view on the
importance of sub-1GHz spectrum and claim it is not now needed to be a credible
national wholesale operator.
28. The impact of this conclusion is likely to be a weakening of the competitive tension in
the UK market. In the US all operators do not have access to low frequency
spectrum. As a result the US mobile market is considered to be highly concentrated,
with networks enjoying the highest average revenue per user (ARPUs) in the world-
significantly higher than in the UK and other Western European countries.
29. Unless Ofcom change their proposals there is a risk that, as with fixed, a two tier
mobile broadband will open up and the digital divide between rural and urban areas
will increase. Customers in rural areas may find their choice of network limited to
two or three operators while those in urban areas benefit from having all four
operators, including those who offer unlimited internet packages such as Three.
30. Ofcom have suggested that this divide could be addressed by having hard to reach
households buy femtocells, which boost mobile coverage indoors. However even
laying aside the cost of such equipment, which would be around £50 per household,
it must be highlighted that for femtocells to work they require a fixed line broadband
access- which is exactly the service rural communities cannot get and why they rely
on mobile broadband.
31. The opportunity for mobile to improve and extend the UK’s broadband
infrastructure is considerable. However the benefit to consumers will best be
realised in a market that is fully competitive, and the level of competition hinges on
the 4G spectrum auction delivering more equal access to low frequency spectrum.
March 2012
282 Consultation on assessment of future mobile competition and proposals for the award of 800 MHz and 2.6 GHz
spectrum and related issues, Ofcom, 22 March 2011.
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Three and Vodafone – oral evidence (QQ 354-378)
Three and Vodafone – oral evidence (QQ 354-378)
Evidence Session No. 6. Heard in Public. Questions 354 - 429
TUESDAY 29 MAY 2012
Members present
Lord Inglewood (Chairman)
Baroness Bakewell
Lord Clement-Jones
Baroness Deech
Lord Dubs
Baroness Fookes
Lord Gordon of Strathblane
Bishop of Norwich
Lord Razzall
Lord St John of Bletso
Earl of Selborne
Lord Skelmersdale
________________
Examination of Witnesses
Julie Minns, Head of Public Policy and Corporate Responsibility, Three; and Paul Morris,
Head of Government Affairs, Vodafone
Q354 The Chairman: I offer a warm welcome to Julia Minns from Three and Paul Morris
from Vodaphone. I think you both know the format. We have received statements from you,
for which many thanks indeed. You can take it that we have read them. We have quite a lot
of work this afternoon, so please try to be succinct in your responses. On the other hand,
do not let yourselves be inhibited by constraints of time if you have something important to
say. Would each of you like to make an opening statement, or shall we go straight into the
question and answer session? It is entirely up to you.
Julie Minns: Thank you very much for inviting me and Paul this afternoon. We are very
grateful for the opportunity to give our evidence to the Committee. Three was created at
the time of the last spectrum auction, so it is somewhat timely that we are here this
afternoon on, I hope, the eve of the next spectrum auction. We launched services in 2003.
We currently offer 97% population coverage to our customers, who use a range of devices
to access the internet, be it a smartphone or a mobile broadband dongle. Three is the only
pure 3G network and although we have a smaller customer base than our larger
competitors, we currently carry over 40% of all mobile internet traffic on our network. We
think that the policy intervention that the then Government made at the time of the last
spectrum auction was the right one, namely to drive competition into the mobile market by
reserving a licence for a new entrant. We think that the benefits that have flowed from that
policy intervention—namely, lowly prices in the UK market compared to other European
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markets and take-up of mobile broadband—justify the decision to have a competitive mobile
market. We very much look forward to the next auction realising the same benefits.
Paul Morris: I congratulate the Committee on a timely inquiry. Well done for recognising
that mobile internet is a key part of broadband. I hope we can have a discussion about that
today. Just to set the scene on mobile internet, it is happening now. Around the table, we
are probably all starting to use the internet a lot more on our mobile phones and other
devices. Over 90% of our new contracts are for smartphones. It is getting truly ubiquitous.
Some 70% of traffic on our network is for data.
That being said, a lot can be done to improve the regulatory environment by which we try
to roll out these digital networks. Included within that is how we work with fixed
broadband. I would like to highlight two areas that I hope we will discuss. First, we need to
acquire spectrum in the 4G auction to launch a comprehensive 4G service. Like Three, we
would like to see the auction as soon as possible. Obviously, we need to see the final design
of that auction. Secondly, we would also like to see a more joined-up approach from
government across the board on how the regulatory environment we face when rolling out
digital networks can be more supportive if we are looking to get coverage to as many people
as possible at the fastest speeds possible.
Q355 The Chairman: Let me set the ball rolling. As you know, the Government’s
avowed intent is to have the best superfast broadband network in Europe by 2015. What
should be the characteristics of a network that does that?
Julie Minns: I think there are three elements to the UK achieving the best superfast
broadband in Europe. First is to have the best infrastructure—both fixed and mobile. Until
recently, there has been a slight tendency for mobile to get left behind in broadband policy.
That has caught up now and the Government’s broadband strategy reflects the increasing
importance of mobile in connectivity and enabling people to get online. Secondly, there is
good coverage. Arguably, but certainly with the fixed provision, that has somewhat lagged
behind, particularly in rural areas. Having good, comprehensive coverage for the UK’s
broadband infrastructure is a key characteristic. Thirdly, even if you have good infrastructure
and good coverage, there is likely to still be a proportion of the population that is not online.
That is currently estimated to be about 8 million people. As we move towards the best
broadband in Europe, we cannot afford for those 8 million people to be left behind. Policy
intervention through the likes of Race Online and companies like mine, which do quite a lot
of work around digital inclusion to get people online and encourage them to enjoy the
benefits of the internet, will be critical.
The Chairman: Just so we are clear about that, you are saying that it is important that,
once you have network in place, everyone who can connect to it does so. Is that right?
Julie Minns: Yes.
Paul Morris: I think the Government strategy is fairly sensible, that where there is
commercial drive for it we develop a superfast option but we also give people across the
board connectivity to a level that they can have. Obviously, there are challenges to that, but
as we move towards a 4G world it is important that mobile internet is included in that mix.
There is work to be done there. I reread the 2010 broadband strategy last night and it
struck me that a lot of the areas it highlights are very important for mobile internet, and at
the time that was probably separate. There is a separate section on mobile; it is not a joinedup
strategy. If it can be, that will really help with the delivery of mobile internet across the
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board. We need to work well together because there are stark economic challenges to
delivering the connectivity that we want for as many people as possible in the UK.
Q356 Lord St John of Bletso: You mentioned that about 8 million in Britain are not
online. We have heard from Martha Lane Fox and others, but what do you suggest should
be done to promote greater access for those who are not online?
Julie Minns: The Government have looked at how you can use services such as library
services to help people to get online. I will share one of the things we have done in the last
year on digital inclusion. We have been looking at identifying organisations and individuals
who have contact with people likely to be socially, economically and digitally excluded. These
people are already delivering services. We tried to encourage them to use our connectivity
in their service provision. We give that connectivity for free to those organisations and
individuals so that they can incorporate it into the work that they do, so it does not become,
“Come along and have a six-week taster course to enjoy the benefits of the internet”. At
times, that can be quite off-putting. It just becomes part of the service that you are already
accessing—be it the library or hospice-at-home service, where the volunteers sit with the
individual for a number of hours, keeping them company. It is about making it relevant to
that individual.
Baroness Bakewell: Is that a pilot scheme?
Julie Minns: We have been running that scheme for 18 months. We are always on the
lookout for other organisations that we can work with.
Q357 Baroness Bakewell: We had a discussion before you arrived about statistics. One
part of our research shows that only 13% of the UK receives 3G coverage from all five
providers. What is holding you all back from pushing your 3G coverage?
Julie Minns: There are probably two parts to this—I hope we will do a little double act to
help the Committee with this one. That statistic is to do with geographic coverage. There is
also a statistic that shows 73% of premises in the UK have the opportunity to have services
from all five networks. That obviously still leaves 27% of premises that do not have that four
or five-network choice. We have two ways to deliver coverage. We need to put the
infrastructure in place—the mast—and we then need to run out spectrum over that
infrastructure. I know Paul will talk about some of the challenges that we as an industry face
with planning regulations in siting the masts. When it comes to spectrum, we struggle as an
industry with having legacy spectrum decisions. The first spectrum was awarded in the 1980s
to the two then-existing networks. The second tranche of spectrum was awarded in the
1990s and then in 2000, we as the new entrant and the existing four networks bid for the
3G spectrum licences. Those spectrums all have different frequencies and therefore different
characteristics. Lower-frequency spectrum reaches a wider geographic area. We at Three do
not have lower-frequency spectrum. The biggest barrier to extending our coverage is not
having low-frequency spectrum. That is why the 4G auction becomes so critical. It will
release low-frequency spectrum.
Paul Morris: We will probably get on to spectrum. Equally, Everything Everywhere has
announced that it could launch a 4G service on its current spectrum and is doing that on the
higher frequencies. There are horses for courses with some of this spectrum stuff. More
generally, your 13% is right. You are looking at geographical areas where there is a
population. The key thing is that we deliver the coverage to population. The Ofcom figure
for that is 87%—not perfect but not bad. Let us remember the model that we have as an
industry. It is not inherited infrastructure from the state with state subsidy. This is provided
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Three and Vodafone – oral evidence (QQ 354-378)
by private investment and, frankly, we have spent quite a lot of money on spectrum and
given it to the Government. That model has been fairly successful. Today, we will talk about
how we could make it even better by looking at appropriate ways of supporting the model
going forward.
Q358 The Chairman: I must declare an interest as somebody who is outside that area,
but it is part of our remit to consider the predicament of those who cannot get coverage.
Do you have any thoughts on that?
Paul Morris: On the digital divide?
The Chairman: On reducing the digital divide. You have said that it is all private
investment. Is it the role of the state to produce money to roll it out to the others?
Paul Morris: The Government have dipped their toe in the water with this mobile
infrastructure project, but the best model is to try to ensure that the industry can deliver.
That can be done, up to a point, and it is a fairly successful story. If you look at 2G, it is
pretty much ubiquitous. So there is a real opportunity to deliver the coverage at least to a
point. So the model does not work badly, it is just a question of how we support that model
rather than reinventing it.
Coming back to the digital divide—and I will be interested in the Committee’s view on
this—I think that the technology and devices for mobile are very consumer led. With the
connectivity we handle, you turn the device on and it is connected to the internet, so you do
not have to have to have a router. In a way, that solves a lot of the challenges that people
have on a price point entry, because you can get a smart phone for not a lot of money, and
on a technical point, whereby it turns on and it works and you do not have to become a
technical expert with the router having to be connected to the computer. In that sense, as
we move into a mobile internet world, there is a real opportunity for people not to have to
go over some of the hurdles that are holding them back at the moment.
Q359 Earl of Selborne: Paul Morris subscribes to the view that coverage is almost
ubiquitous. I cannot say that I agree; this is where statistics have to be looked at quite
carefully. If you look at the geographical areas, about 34% is not covered by 2G. So one has
to be careful before one assumes that the rollout has been successful so far. Given that
there are a large number of households who have only access to one mobile provider,
whether 3G or 2G, and given that government funds have a toe in the water with the mobile
infrastructure project, which is a modest contribution, but that we would all like to see the
industry incentivised to do the job without such interventions, what are your thoughts on
the best way in which to stimulate such service and competition?
Paul Morris: As I have said, I think that it is about modernising the structure and making it
as easy as possible for us to roll out network. That is one of the key areas. In our paper, we
have identified six areas: ensuring that the planning system supports and does not hold back
rollout; reform of the Electronic Communications Code, which is fairly 1980s regulation for
mobile networks, when we were just about making phone calls to a much smaller customer
base than we have at the moment; the use of public sector land, which would be cheaper;
access to BT back-haul, which we might well get on to, which is about how we use the fixed
network appropriately to connect our masts to our core network; pro-coverage issues,
which are about how we get companies that have a real impact on our businesses, such as
those in the training industry, to support us and have a pro-coverage attitude; and the final
point is about ensuring that spectrum fees are set in an appropriate manner that ensures
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that the economic potential of spectrum is fully utilised but are not at a level that is a
disincentive to network investment.
Julie Minns: Three has a slightly different take on perhaps why competition is not optimal in
certain areas, which is down to legacy decisions on spectrum. The four mobile networks
have dramatically different spectrum holdings, which means that we just cannot compete in
some areas with the networks that have low-frequency spectrum. Ofcom had three policy
choices: it could take back legacy spectrum, as other regulators around Europe did, and
redistribute that; it could structure the next auction to rebalance those holdings and
maximise competition; or it could choose to do nothing and leave competition to equalise
itself, which other markets have shown would result in a reduction in competition. Ofcom
proposes that the next auction should be structured to maximise competition, and Three
thinks that that auction is absolutely critical to driving up competition. There is a question
mark in our mind, given the current spectrum holdings, as to whether competition in this
market is optimal, because of those legacy holdings.
Q360 Earl of Selborne: Leaving aside the spectrum holding issues and recognising that
the next auction is an opportunity to address some of those issues, I want to ask what the
present operators could do to provide better competition. Could there be more
infrastructure sharing, for example? Should there be a requirement from the regulator to
require you to co-operate and share more?
Julie Minns: What we have shown on infrastructure sharing in the last four years with our
network sharing agreement with T-Mobile and now Orange, which has merged with T-
Mobile, is that the regulator does not need to intervene. We are already incentivised to
minimise our costs, which inevitably leads to infrastructure sharing. Four or five years ago,
we decided to put together our 3G network together with T-Mobile’s 3G network; over the
last five years, our network has grown from 7,500 sites to 12,500 sites today. Over the next
three years, as the Orange sites are added to that, we will get to a 3G network of 18,000
sites. The industry is already doing its bit on infrastructure sharing.
Paul Morris: We did a similar thing last year with another organisation. We recognise this
and are pulling together where appropriate, but there are major competition concerns. You
need in some ways to have separate networks and separate choice, so there are balances to
be struck as well.
Q361 Lord Gordon of Strathblane: If one were to look at the mobile infrastructure
project, would you both be content with a requirement that public money is being used and
must be available to all operators—in other words, a common infrastructure?
Julie Minns: Yes.
Paul Morris: I think that is right, yes. The model that is being looked at now is to build sites
that we would occupy with our radio equipment. That is a sensible approach. What we
argued on the mobile infrastructure project is that we should try to go with the grain of the
industry rather than inventing a different model, which would be very difficult to deal with.
Q362 Lord Gordon of Strathblane: Without wanting to split up this cosy relationship, I
gather that Three, in particular, is unhappy about the shape of the option. You have already
mentioned this in your evidence. In your written evidence, you say that it will risk widening
the digital divide if you are not given access to some sub 1 gigahertz spectrum.
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Julie Minns: Yes. There are a couple of passages in Ofcom’s consultation that highlight the
risk that the design that it consulted on earlier this year may mean that one of the networks
emerges without access to low-frequency spectrum.
Lord Gordon of Strathblane: You are worried that it could be Three?
Julie Minns: Yes, we are worried it could be us.
Lord Gordon of Strathblane: Vodafone is less worried, I think.
Paul Morris: Let us be clear about what this is. Three is asking for what it calls reserve
spectrum, which actually means a block of spectrum at a discount rate. That is basically what
is being asked for. We have said all along that the auction should be as free market as
possible, obviously with a ceiling on what you can buy in total. The four mobile companies
are all multinational companies: we are the British one; Hutchison, which owns Three, is
Chinese based: EE is German/French; and 02 is Spanish owned. We are all big companies,
and we have said all along that, as big companies, we should be pitching up at the auction and
showing our commitment to buying spectrum by putting our hands in our pocket.
Lord Gordon of Strathblane: Without wanting to take sides, I think that Ofcom at one
point seemed to share the view expressed by Miss Minns.
Paul Morris: There are all different levels of spectrum. Everything Everywhere has a lot of
the 1,800 Mhz megahertz spectrum, and in its latest iteration Ofcom came to the view that
Everything Everywhere could launch a 4G service on its existing holding of spectrum. That
means that you do not necessarily need to have sub 1 GHz gigahertz spectrum to launch a
service. That has been proven correct because Everything Everywhere has now announced
that it wants to launch a 4G service and wants to get a 15 to 18 months head start on the
rest of the industry by getting Ofcom to give it that head start. Ofcom looked at who could
do what, looked at that analysis, and that is where the change came.
Julie Minns: I have three quick responses to that. First, Three is not asking for spectrum at a
discount. It has made very clear from the outset that it is prepared to pay a market rate for
it. What we are asking for, which Ofcom acknowledges, is some protection for the fourth
smaller operator. In its consultation, Ofcom acknowledges that the intrinsic value of
acquiring new spectrum is greater for a larger operator with a larger customer base, and for
that reason a larger operator would outbid a smaller operator in an open auction. Ofcom
also acknowledged that the strategic value from outbidding a smaller operator—the
weakening of competition in that market—would provide additional value for a larger player.
Ofcom has acknowledged that and has suggested that there should be minimum spectrum
portfolios for the smaller operator. As I said in my opening remarks, I think that sort of procompetition
policy intervention is correct. The benefits to consumers from a competitive
market are immense and have been demonstrated over the past 10 years. It would be
unfortunate if the next auction weakened competition.
Q363 Lord Clement-Jones: Are you saying that Ofcom is changing its mind almost as we
speak?
Julie Minns: It made a slight change in its proposals from what it consulted on last year. It is
still saying that there should be some protection for the fourth smaller operator. It has
changed the packets of spectrum that it is proposing should be guaranteed for the fourth
smaller operator. Critically for us, it removed the guarantee for low-frequency spectrum,
which we believe is critical, because if you have a sub 1 gigahertz spectrum, you can cover
roughly three times the geographic area that you can cover with the 2,100 megahertz
spectrum that we currently operate on. What that means for us is that, for every mast that
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Vodafone may have to put in with low-frequency spectrum, we would have to put in three,
which obviously places us at a considerable disadvantage.
Q364 Lord Clement-Jones: Are you saying there is now a difference in the spectrum
floor proposed for 800 megahertz?
Julie Minns: Ofcom has proposed four packages, and one of them no longer contains lowfrequency
spectrum. We are concerned that that is the package that would go to the fourth
operator.
Q365 Lord Dubs: I shall ask a much simpler question on this. Would it go against
competition if Ofcom were to press you much harder to share infrastructure and possibly to
share roaming? You would get more coverage that way, would you not? Would that work
so much against competition that it would not be the right way to go forward?
Julie Minns: I shall speak very briefly on roaming. When Three launched, we were entitled
to roam on to one of the existing networks because we were obviously not going to start
with the same coverage as our competitors. That is very good as a stop-gap solution when
you are trying to acquire new customers, but in the longer term roaming has some
significant disadvantages. In particular, it has a disadvantage in the customer experience
because at some point the call hands over between our network and our roaming partner’s,
and sometimes there is not a great customer experience because the call might drop. For
networks, roaming can cause some technical issues, and there is also a point at which
wholesale costs begin to bite. Obviously, we have far greater control of our costs if calls are
always on our network. Where you start to introduce wholesale costs, you begin to have
less control over retail pricing because you have to cover that wholesale cost. I understand
why roaming is looked at as a possible solution, but it has technical and cost implications.
Lord Dubs: It works abroad, though. There may be difficulties, but I have not encountered
them.
Paul Morris: It is more expensive.
Julie Minns: It is definitely more expensive.
Lord Dubs: Does it have to be more expensive?
Julie Minns: No, and we were very supportive of the European Commission in reducing the
roaming rates. What tends to happen when you are abroad is that you are probably on one
network while you are making a short call. What tends to happen in the UK is that you are
moving around a little more, your call is probably a bit longer because you are not quite as
conscious of the cost, and therefore you will move from cell to cell and your call has more
chance of dropping when it is roaming.
Paul Morris: We already have two infrastructure organisations: MBNL, which allows Three
to get access to the network of Everything Everywhere, which has double the amount of
sites that we have; and Cornerstone, which is a shared relationship between Vodafone and
O2. So you are getting some of this already, but there are technical and competition
challenges. There is movement in that direction but, equally, we need to look at how we can
change the broader environment to make it easier to roll out into some of those areas
where it is hard to make an economic case in pure pounds and pence terms.
Q366 The Chairman: In talking about this, you are to some degree conflating your role
as an infrastructure owner with that of a service provider. Do you think it is appropriate
that service providers and infrastructure owners should be the same people and vertically
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Three and Vodafone – oral evidence (QQ 354-378)
integrated? If you are simply an infrastructure provider, you will sell access to your
infrastructure to anybody who comes along. There is no question of keeping anyone out for
other reasons.
Julie Minns: One of the benefits of having had four networks in the mobile space where we
have not had four networks in the fixed space is that we are incentivised to compete on
coverage. I hear the Committee’s concerns that perhaps our coverage as an industry is not
as extensive as it could be, but nevertheless, Three’s broadband coverage is 97% of the
population, and my understanding is that BT’s fixed coverage for broadband is nothing like
97%, so the mobile market is very different from the fixed market. Some of those arguments
about ownership of the middle mile or whatever in the fixed space are perhaps not
applicable to the mobile market because you have wholesale competition between four
networks and you do not have that in fixed.
Paul Morris: If you think about the technological challenges, the model we have is the model
that works well. As Julie Minns says, it is slightly different if you are looking at a BT scenario
where you have a monopoly player. In the mobile market, we do not have a monopoly
player, although EE is growing. It is a slightly different model and, technically, the model we
have works best. Companies such as Arqiva are providing a network service model. For us,
the model that works best is where you get the opportunity to build and deliver a service at
the same time.
The Chairman: That is a stand-alone objective proposition. You are telling us that in the
mobile market, vertical integration between the network owners and the service providers
is a good thing. In the case that you have made, that is differentiated from the fixed-line BT
state of affairs, where we have had quite a lot of evidence that it is important that the two
are kept separate. Your judgment is that that is the most appropriate model for the mobile
world.
Paul Morris: Yes.
Q367 Lord Dubs: Going back to the auction, there has been a lot of discussion on the
timing, methodology and conditions to be adopted for it later this year. What are your views
on that?
Paul Morris: We have been arguing all along that it is complicated enough, so let us try to
make it as simple as possible. We think market disciplines are the best way to do that. As I
have said before, this is not the 3G auction; we are all established companies. Three is a
successful mobile business and is owned by the larger multinational business Hutchison. All
of us are multinational companies, so freeing up the auction and making it more free market
orientated with no or as little reserved spectrum for Three as possible is a sensible
approach. We are still making the case for saying that there should be no reserved spectrum
and, if there is going to be a reserved spectrum, it should be as small as possible.
There are a couple of other issues. Tied to the auction is, effectively, a rent review of annual
spectrum fees, so we are looking at that. It is not entirely clear what the new fee will be, and
if you are affected by it, which not all the operators are, it is difficult when you are trying to
think about what you are going to bid in the auction if you do not know what rent you are
going to pay afterwards, so there is a bit of a challenge there as well. On these issues, there
is still work to do but, as I think Three will probably say, we need to have a spectrum
auction to launch a 4G service, so we are eagerly awaiting the final design and the dates for
the auction.
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Three and Vodafone – oral evidence (QQ 354-378)
Julie Minns: I think I probably explained our spectrum in some detail and expressed some of
the concerns that Ofcom has, but I shall make a couple of points for clarification. Ofcom is
not saying that, post next year’s auction, the market should be the four players that
currently exist; it just talks about four networks, although it makes a specific reference to
Three and its vulnerability as a result of its current spectrum holdings. If we were all starting
from the same place, I would be inclined to agree with Paul Morris that an open auction
without rules would be the right place to start for a 4G auction. Indeed, that is where other
countries in Europe started from, but that is because they took decisions on their legacy
spectrum. They took back that spectrum and redistributed it. We do not have that in the
UK, so the networks we currently have are not all starting from the same place, which
means that, if you want a competitive market post auction, there has to be a policy
intention, as there was in 2000.
Q368 Lord Clement-Jones: Are you saying that you should have more allocated in the
auction or that you should get some 900 megahertz spectrum reallocated from another
player? What is really being said here?
Julie Minns: Originally when Ofcom started looking at this some six years, one of the
options it looked at was taking back some of the 900 megahertz spectrum. That got quite
painful, and Ofcom dropped its proposal. The Government intervened at one point with
Digital Britain and a further set of proposals did not quite make it through before the general
election. We are now on to Ofcom’s second consultation, and what it is saying this time
round is that there needs to be some provision for the fourth operator—that is, there
needs to be spectrum reserved for the fourth player to bid for. However, it might be that
there is more than one bidder alongside Three. Ofcom does not preclude that; it does not
say that this is a market for just four players.
Lord Clement-Jones: But Ofcom is not reserving sub 1 gigahertz spectrum for the fourth
player in that process.
Julie Minns: It is not guaranteeing it. There are four portfolios, and one of them does not
have low frequency, so there is every chance that that is the portfolio that Ofcom will
allocate.
Q369 Lord Dubs: I understand that one possible consequence of the 4G system is that
when it comes into being there will be interference with television. If that is right, who
should bear the cost of that—of making sure that people’s televisions do not go on the
blink?
Paul Morris: There is a process in place to deal with that. There may be some interference
but the technical bit is fairly straightforward. As part of the auction process, they are putting
something together called “MitCo” to deal with that. Ofcom is leading on that. From our
experience in launching a 4G service in Germany, the levels of interference have been less
than anticipated so, yes, it could be an issue for some people but it is solvable and there will
be a process in place to deal with it.
Lord Dubs: Who should pay for that?
Paul Morris: It is being paid out of the auction. I mean that it is part of the auction.
Q370 Lord Clement-Jones: It is fair to say that quite a lot of people have pinned their
hopes on 4G LTE, in terms of filling the gaps that fixed broadband will not deliver by 2015. In
the light of the Government’s strategy and in terms of your own investment plans, do you
think it is realistic to see you as an effective back-stop?
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Three and Vodafone – oral evidence (QQ 354-378)
Julie Minns: Absolutely, particularly when it comes to rural areas. I am from Cumbria, so I
am acutely aware of some of the issues that people face there—
Lord Clement-Jones: Do not mention Cumbria, whatever you do.
Julie Minns: What we find in rural areas where we have provided coverage is quite
interesting. When we look at the traffic going across our network, we can segment it so we
know what proportion of it is smartphone traffic and what proportion of it is mobile
broadband traffic—that is, what we classify as dongles, which some Members may use with
their fixed PCs or their laptops. We are able to segment that and what we find in urban
areas is that the smartphone/broadband traffic is about 50:50. Interestingly, when we look at
rural areas where we have coverage, that switches to about 60% broadband and 40%
smartphone. In some areas, it rises to 80% broadband and 20% smartphone. What that
suggests to us is that, in those rural areas where we have coverage, consumers are probably
using mobile broadband because the fixed line is not broadband but still dial-up. They are
therefore getting a typical speed of 2 Mbps to 3 Mbps on their mobile network, which is far
in excess of dial-up speeds. To answer your question, Lord Clement-Jones, I absolutely
believe that mobile can be part of that solution of providing connectivity in rural areas where
fixed just has not yet covered.
Q371 Lord Clement-Jones: Can you give us an idea of the kind of speeds that you are
thinking about and the timescale? If we are going to fill the gaps and it is going to be useful in
the way that you are describing—the auction has been so delayed that we are in “Waiting
for Godot”, given that there have been two consultations and all that kind of thing—what is
the timescale once you have the spectrum as a result of the auction? What kinds of speeds
do you expect to get then from the improvement on 3G?
Julie Minns: Okay. To take those in reverse order, typically your speed on a 3G network is,
we say, currently anywhere between 2 Mbps and 3 Mbps—but I know I was getting upwards
of 5 Mbps yesterday on my smartphone. In terms of the move to LTE, you see claims of 100
Mbps. I think one of the things that the mobile industry has always been cautious not to do is
to overclaim speeds, so we would say that with LTE you would typically get somewhere
between 10 Mbps and 20 Mbps, but some consumers will get higher than that. In terms of
timing, provided the auction goes ahead in the first quarter of next year, as Ofcom suggests,
and the spectrum is cleared and released to mobile operators on schedule in the second half
of 2013, we would anticipate being able to have LTE services up and running within 18
months of that spectrum being cleared.
Lord Clement-Jones: Does Paul Morris want to add anything?
Paul Morris: Yes. In Germany, where we have launched a 4G service, the average speed is
around 20 Mbps, so that is exciting. If you do not have infrastructure in your area, it is not
going to solve everything and if you do not have decent back-haul—broadband connectivity
from the mast into our core network—it is also going to be a challenge, but other than that
it is exciting and will provide another option to fixed broadband to people who have access
to 4G. Some people, at least, will be able to make a choice between fixed and 4G, so in that
sense it is exciting.
In some areas it might be a better solution than some of the BDUK investment, but let us be
clear about that: it will still be about how mobile and fixed work well together, not 100%
one way or 100% the other way. It will be a mixed picture, but I think mobile internet can at
least be put into that bucket, where it can be thought about. Frankly, they should start
thinking about it now because we are moving closer to a 4G auction and the rollout. On
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Three and Vodafone – oral evidence (QQ 354-378)
launching the service, frankly, it is difficult for us to say at the moment, because we just do
not know what spectrum holdings we are going to get, but it will be reasonably quick after
the auction.
The Chairman: Lord Skelmersdale, I slightly shot your fox in some of the questioning.
Q372 Lord Skelmersdale: Only slightly. There is a view around—the Chairman has
expressed half of it, or possibly three-quarters—that the middle-mile infrastructure should
be separated from the traffic that runs on it. Would you both agree with that?
Paul Morris: For mobile, are you not really talking about the wholesale local access?
Lord Skelmersdale: Well, no, because do you not have infrastructure that allows mobile
into the home or the business? You have your masts and other connectors.
Paul Morris: Let me break that down. We need access to the fixed network to run our
own networks. That is how we transport data, frankly, which is how the mobile internet
works, so we need access. At present, as you have probably been hearing, we do not have
the same type of access as the fixed providers have to BT’s network. We think that the time
is now to look at that. That is why I mentioned wholesale local access, because we need the
option either to use BT’s infrastructure under that model or to do what we have now called
self-deploy, which is basically putting in our own wires and kit.
You have to remember that the mobile internet, and particularly 4G, will be a success as
long as we can get that connectivity from the masts back to our core network. It is not
magic. Even if we have a really good spectrum link through the 4G spectrum, which is a great
piece of technology and will really change the capacity that we all have, if we then get stuck
in the back-haul connection—that is, from the mast on to our core network—because the
pipe is basically not fat enough for the connectivity, that is a real problem. Now is a good
opportunity to look at that and to make sure that the mobile internet providers, like some
of the fixed players, have access to that model.
Q373 The Chairman: Could I ask you to elaborate slightly on that? I was not quite clear
from your answer. Are you saying that, particularly but not solely, the BT back-haul does not
have the capacity to be used by you, or are you saying that BT has a disinclination to do
business with you?
Paul Morris: No, it will do business, but at the moment we are outside the regulated access
model—that is the point. Being inside the regulated access model seems to make sense,
because we are now—
The Chairman: But there is nothing to stop BT doing business with you.
Paul Morris: No, and it does business with us, but it is the case that if we want this mobile
internet to work we would like to have the option that the fixed players have. We have
been down that route of recognising, have we not, that we have a significant market player
that has a lot of the infrastructure? How do we then take best advantage of that? Of course,
we would need to leave BT with an appropriate business model—we are not saying that—
but we think that it is now time to bring that together, for both mobile and fixed. In lots of
these areas, that is really what we are thinking: how do we bring them together to ensure
that you have the option of fixed or mobile as we roll out fast broadband on both platforms?
Q374 The Chairman: Earlier, you expressed yourselves enthusiastic about competition
between networks. Are you finding that BT is not enthusiastic? Frankly, it can link up with
anyone that it wants.
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Three and Vodafone – oral evidence (QQ 354-378)
Paul Morris: We do not have a problem with doing business with BT. It is just that we think
that things like self-deployment, access to poles and ducts need to be regulated. There is
already a model there but it is only open to fixed—
The Chairman: You are saying that you would like to have certain predetermined ground
rules in place so that everyone knew where they stood, rather than negotiate. Is that right?
Paul Morris: Exactly. At the moment, we work on a commercial model. There is a
wholesale local access model for fixed, but we think it is sensible if we look at how we can
have a model that at least has oversight from Ofcom.
Q375 The Chairman: In your statement you complain about the cost of poles and you
talk about the Electronic Communications Code, which in a sense is what you are asking for
but on a slightly different basis.
Paul Morris: Exactly. Our point is—
The Chairman: I see your point. You think that the big issue here is whether you have a
regulated market or an open market. I am just trying to discover what you think; I am not
criticising in any way.
Paul Morris: It is about ensuring that we create the best environment for access so that we
can build our networks and roll them out in the easiest possible way, of which access to BT
backhaul is one. I would add that where BDUK money is going in, there is an interesting
discussion to be had about access there as well. It is not separate at the moment. Taxpayers
have paid for that, so what is the access policy? There are some questions to be answered. I
do not think that it is a criticism to ask why it has not been done up to this point. It is just a
case of getting to a point where this connectivity will be so important in the success of 4G
that we should look at it and think up the best possible model.
The Chairman: Julie Minns, have you any thoughts on all this?
Julie Minns: I rather fear that if I attempt to add anything further it may confuse rather than
clarify things, so I will leave it there.
Q376 The Chairman: By all means. Do you think that there is enough co-ordination
generally right through the national rollout programme? Is BDUK talking enough as it is
trying to co-ordinate what is going on with, say, the rollout of superfast broadband with
what is happening in the various public financial initiatives for mobile? Is it all seamlessly
coherent or is it a bit disjointed?
Paul Morris: Up to this stage, BDUK has done a reasonable job. However, it is just coming
to the point where we have to start bringing things together—for example, the MIP
programme should be interconnected with the BDUK fixed line investments. That is what
we are talking about. I re-read the strategy last night: all the areas that we need to engage
are there and it is just about how we bring them together now. That is not to criticise the
job done two years ago because in a sense we are only getting there now, but this is
becoming increasingly important and it is time to bring mobile and fixed together and ensure
that both platforms are well linked and that we have the same sort of access as fixed had
historically.
Lord Clement-Jones: It sounds as if we may have to enter Arqiva into the conversation as
well.
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Three and Vodafone – oral evidence (QQ 354-378)
Paul Morris: They can talk for themselves.
Q377 The Chairman: You are saying to us that all this is really a single marketplace, not
a series of fragmented markets.
Paul Morris: When it comes to access, it is all interconnected. There are different
approaches—we have highlighted some of the differences in how the networks are run—but
when it comes to the points where they connect with each other, we should see how we
can take advantage of the current structures that are and historically have been in place for
fixed.
Q378 The Chairman: That seems a good moment to end, unless there is anything that
either of you would like to add. Have we missed anything out that you think is important?
Julie Minns: With regard to the future, it is 12 years since the last spectrum auction. In that
time, we have had mobile internet, which we did not have at the time of that auction. Paul
has talked about the amount of data that goes across the Vodafone network. Some 97% of
our traffic is data—mobile internet. It is going in only one direction. The estimate is that by
the time we get to the next general election mobile internet access will outstrip that of
fixed-PC internet access. Hopefully, we are about to have the next spectrum auction, but I
rather hope that it is not a further 12 years from next year before the one after that. I know
that Ofcom is looking at the release of 700 megahertz, while the MoD is looking at the
release of some of its spectrum for mobile use. As far as the Committee and the
Government are concerned, it is imperative for the mobile industry that more of the
spectrum is released for mobile use so that we can continue to match this incredible
demand for mobile internet from our customers and release it in a timely way.
Lord Clement-Jones: That adds weight to my Arqiva point, I think.
Paul Morris: The Government have an opportunity to come up with a pro-coverage
approach, which I think they want to do and have done. The time is now. There are a
number of areas coming up for review across the board, and we have highlighted some of
them in the Vodafone paper. There is a real opportunity to make the rollout of digital
mobile internet a success. As Julie says, it is growing rapidly; surveys that we commissioned
showed an 84% increase in mobile internet use per year. The productivity and social changes
that mobile internet can deliver are vast, so there is real economic value. Think about our
own lives and how people are working more flexibly and remotely and finding new ways of
working. Over and above how people use technology, think about smart phones and tablets
taking over from laptops and computers. There is a real opportunity here. The time is now.
With some policy changes, we could make a real difference to how we can roll out our
networks successfully.
714

UCL Centre for Digital Humanities – written evidence
UCL Centre for Digital Humanities – written evidence
I write in my role as Co-Director of UCL Centre for Digital Humanities: an interdisciplinary
centre devoted to establishing, appropriating, and promoting the use of computational
techniques within the arts, humanities, and cultural and heritage sectors. The recent call for
evidence was interesting within this context, as it completed ignored the cultural and
societal benefits that increased digital access to heritage materials can bring. I am writing to
highlight the importance of superfast broadband to both the general public interested in
heritage and culture, and the opportunities it raises for museums, libraries, archives and
other memory institutions.
Our studies (Ross, Terras and Motyckova 2012) have shown that there are now more
“virtual” visitors to institutions such as the British Museum than there are physical (in 2011
there were 10.5 million individuals visiting the British Museum webpages, as opposed to
5.8m physical visits to the museum). Accessing cultural and heritage based material is
increasing done virtually. We have demonstrated that access to online collections databases
is contributing to bona fide academic research: approximately 50% of the yearly visitors
searching the British Museum collections database are doing so for some form of research
purposes. There is a hunger for access to ever more complex information online. The form
and function of that online information is only going to become more complex, and more
bandwidth hungry. Allowing the general populace to continue interacting with online content
is dependent on the construction of a superfast broadband network.
At UCL Centre for Digital Humanities we are engaged with various research projects which
are experimenting with new and novel techniques to engage online audiences and encourage
interaction. The QRator project, for example, enables members of the public to type in their
thoughts and interpretation of museum objects. Their interpretation become part of the
object’s history and ultimately the display itself via the interactive label system which allows
the display of comments and information directly next to the artefacts (see
http://www.qrator.org/about-the-project/). Obviously, in order to engage with such two-way
systems (it is not just about broadcast anymore!) members of the public need to have access
to reliable, high speed Internet connections. The work that we are doing in 3D scanning of
museum spaces, and objects and artefacts, allows rare and fragile objects to be digitally
recreated for 3D investigation (http://www.3dencounters.com/) from afar: but to allow this,
both institutions and individuals need to have access to reliable and fast internet
connections. We are about to scan the entire Shipping Gallery of the Science Museum
before it is dismantled to make new for the new Communications gallery: this 2.5 billion
point cloud will be a model and a record of a museum space which has been in place for
approximately 50 years. We are researching how best to deliver this content online, and
the needs of users and researchers. This type of large scale dataset will become more
commonplace over the coming years, and we will expect that many more institutions will
seek to deliver complex, large scale information objects to their users, and expect their
virtual visitors to interact with them in increasingly complex ways. To do so, reliable and fast
broadband connections are necessary.
The general public are increasingly putting their own cultural and heritage content online.
Many are using social media websites such as Flickr, Tumblr, and Pinterest to set up their
own equivalent of virtual museum collections (Terras 2009). The reach and scope of this is
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UCL Centre for Digital Humanities – written evidence
stunning, as they provide detailed, in-depth coverage of specific aspects of culture and
heritage that traditional memory institutions are simply unable to do. For example,
http://www.jonwilliamson.com/ which concentrates on vintage advertising material, in the
past year has served 79,000 pages during 36,600 visits for a total of 4.3 million hits and 114
GB of traffic. For individual citizens to be able to create, upload, and maintain their digital
repositories, and to be able to engage and be involved fully in the cultural and heritage
spheres, they need access to fast broadband connections.
We can see a model of this two-way engagement with the online community in the growth
of crowdsourcing projects in the library and heritage sectors. At UCLDH we are very proud
of the award winning Transcribe Bentham project (http://www.ucl.ac.uk/transcribebentham/)
– an online initiative which has harnessed the interest of the general public in the
work of Jeremy Bentham to help us transcribe his work and writings. In just over a year,
volunteer labour has now transcribed approximately 3000 folios of his work – over a million
individual words – all done through an internet interface. We have demonstrated that the
general public are interested in engaging with complex cultural heritage and can contribute
to academically rigorous research projects. Using internet technologies to do so increases
access, but (as you can probably guess!) to do so, the general public needs access to reliable
fast broadband connections.
To ignore the use of technology in the cultural and heritage sectors, and to ignore the
hunger of the general public to engage constructively with these technologies in order to
contribute to our understanding of society and the past, demonstrates that there is a
misunderstanding of how large numbers of people are using the Internet. It is not just about
retail. It is not just about passive consumption of material created by content providers.
Museums, libraries, archives, and art galleries are providing large amounts of information
online which they want to be used, repurposed, and built on. Individuals wish to access, use,
repurpose, and engage with this content. Fast broadband will facilitate this two way dialogue,
and has huge implications for the range of information and possibilities of tools and
techniques which can be used in the heritage sector, to further contribute to people’s quality
of life.
I would be happy to talk further about any of the issues raised here, if necessary.
Yours sincerely,
Dr Melissa Terras MA MSc DPhil CLTHE CITP
Co-Director, UCL Centre for Digital Humanities
Reader in Electronic Communication
References
Ross, C., Terras, M., Motyckova, V. (2012). Scholarly Information Seeking Behaviour in the
British Museum Online Collection. In Hughes, L. (2012). Evaluating & Measuring the Value,
Use and Impact of Digital Collections. Facet.
Terras, M. (2009). "Digital Curiosities: Resource Creation Via Amateur Digitisation". Literary
and Linguistic Computing, 25 (4) 425 - 438.
5 March 2012
716

Upper Deverills Broadband Action Group (BAG) – written evidence
Upper Deverills Broadband Action Group (BAG) – written evidence
1. As the Chairman of the Upper Deverills Broadband Action Group (BAG) I am writing to
provide a submission from the Group to your Inquiry.
2. By way of background the Upper Deverills comprises three hamlets (Kingston Deverill,
Monkton Deverill and Brixton Deverill) in south west Wiltshire. Whilst we are in an
attractive rural area (part of the Cranborne Chase and West Wiltshire Downs Area of
Outstanding Natural Beauty) we are close to major towns and cities such as Bath and
Salisbury and have access to good road and rail connections.
3. The BAG was established by the Upper Deverills Parish Council in 2008 because of
concerns about the very poor broadband service being delivered in the villages. In brief
the Parish is served by two local telephone exchanges, Kingston and Monkton Deverill
being the furthest settlements from Maiden Bradley exchange and Brixton Deverill at the
furthest point from Sutton Veny exchange. Our distances from the telephone exchanges
(up to 4 miles) together with the poor quality of the copper wire circuits means that
existing broadband speeds are low (typically less than 1 Mbps) and there are locations
where the service is unable to be delivered at all. There has been little investment in
local wiring and cabinets so the distance to the remote exchange is a crucial issue. Our
topography and the AoNB designation also limits our mobile phone coverage and
militates against alternative broadband provision such as wireless.
4. Whilst the hamlets are mainly residential and, apart from farms, there are no large scale
businesses, we are aware that there are an increasing number of residents seeking to
either operate businesses from homes or small premises in the Upper Deverills or are
employed and would benefit (as would the environment) from an ability to work from
home more frequently.
5. We submitted evidence to the Interim Report on Digital Britain in 2009 and have also
highlighted our concerns to Wiltshire Council, our Member of Parliament and various
bodies such as the South West Regional Development Agency.
6. We know from the Digital Britain report and a multitude of other reports and
observations, for example from the Commission for Rural Communities that the
arguments and justifications for providing superfast broadband services to rural areas are
well documented. So we do not propose to repeat all those points but rather to express
our concern that it appears that rural areas such as ours will be left behind as the
superfast broadband implementation progresses. This will inevitably disadvantage
residents, from senior citizens relying on broadband to access services, to those in
middle age trying to build businesses and children requiring at least a basic service to
help in their education.
7. During the last four years we have spent a considerable amount of effort seeking to find
ways to ensure that we can have a reasonable service.
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Upper Deverills Broadband Action Group (BAG) – written evidence
8. We were initially successful in putting pressure on BT Openreach to improve the
existing service, which was then frequently only attaining 0.5 Mbps and was subject to
regular failures. BT carried out some improvement work to the local network so
reliability has noticeably improved and typical download speeds increased to up to 1
Mbps. However BT has also made clear that the existing network cannot deliver beyond
this.
9. Over the intervening years we have conducted surveys of local residents to establish
both their level of satisfaction with the existing services and their willingness and ability
to contribute towards an improved service. We have recently been collecting evidence
from residents who have an existing business use and the overwhelming response has
been that a faster broadband service is crucial now; and that for the future access to
faster speeds will be a pre-requisite for businesses to be able to operate.
10. We have explored various options to improve the service including applying for grants,
for example from the Rural Communities Fund Broadband Pilot, but these opportunities
have inevitably been oversubscribed and so we have had no success. In addition we have
explored private sector provision but again our limited number of households and
topography has not so far attracted a commercial provider with both affordable
technology and sufficient interest in making provision.
11. Wiltshire Council is now in the process of their procurement exercise. Although the
outcome of this will not be known until the summer, they anticipate that viable
commercial activity together with their support should achieve their base target of
coverage of 85% of households. This suggests that they will effectively provide a solution
for the majority of households who live in areas of greater density of homes and who, in
many cases, already have a much better service than us. We are therefore resigned to
being told that we are in the remaining 15% or less that have no solution and will
therefore be left behind. Naturally that leads to increasing concern for us about the
sustainability of the hamlets in the Upper Deverills as people will see themselves as
increasingly disadvantaged and unable to access services.
12. What we find particularly frustrating and unsatisfactory is that there are more remote
areas, such as in Cornwall or in the Scottish Highlands and Islands, where state aid in
some shape or form is ensuring that a superfast broadband service is going to be
provided everywhere. Yet for the Upper Deverills, in the heart of central southern
England, the prospects are more limited.
13. We strongly feel that just as there is a universal service commitment for telephony so
there should be for broadband at a speed that facilitates the sort of communications and
media that most people will be expecting to access over the coming few years. In
comparison to other services such as Health and Education, the capital cost would be
very small. What is not being taking into account is that sort of investment could easily
be offset in the future through savings in budgets such as for health and education as
people are able to access information and support in their own homes which improve
their own health and education. Even more importantly, at a time when the UK needs to
generate more entrepreneurial business activity and improve its competitiveness the
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Upper Deverills Broadband Action Group (BAG) – written evidence
opportunity to ensure that can happen whilst sustaining rural communities is being
ignored. Indeed the real risk is that communities like ours will depopulate thus placing
even more pressure on urban areas in relation to housing provision.
14. Your Inquiry statement observes that “the depth of penetration of superfast broadband
infrastructure into communities is therefore of strategic importance” and we could not
agree more. Our belief is that more attention is being given to developing even faster
maximum speeds, to 100Mbps for example, for communities that already have very fast
broadband services, rather than ensuring a reasonable minimum speed coverage for
those in hard to reach areas. Our conclusion is that many communities, such as ours, will
become even more isolated and resources in existing communities wasted, because in
many parts of the country much less than 99% or 100% of minimum speed coverage will
be achieved under the existing programme.
15. We hope that the Inquiry will bear our views in mind in writing its report.
Richard Kitson
Chairman, Upper Deverills Broadband Action Group
12 March 2012
719

Virgin Media – written evidence
Virgin Media – written evidence
Will superfast broadband meet the needs of our “bandwidth hungry” nation?
Virgin Media Limited (“Virgin Media”) is an entertainment and communications business
which offers a “quad play” of broadband, fixed line telephony, mobile telephony and TV
services to residential and (in relation to some services) commercial and public sector
customers in the UK. Virgin Media welcomes the opportunity to respond to this
consultation.
Introduction
1 Virgin Media has led efforts to deliver superfast broadband across the UK. Over the
last 20 years, the cable industry has invested over £13.5 billion in a fibre-rich next
generation communications network that has the capacity to deliver superfast
broadband to just under around 13 million homes across the UK. In the last few
weeks, Virgin Media has announced plans to double the broadband speeds of all of
our customers. Virgin Media is therefore at the forefront of efforts to deliver
superfast broadband to a “bandwidth hungry” nation.
2 Clearly, Government has a key role in meeting the needs of a bandwidth hungry
nation, not least in incentivising further investment in superfast broadband. Virgin
Media believes there are two clear priorities for Government in delivering superfast
broadband: first, to drive a regulatory environment that incentivises private sector
led investment in next generation networks; and, second, where private sector led
investment alone will not deliver next generation networks, Government
intervention should focus on driving a self sustaining cycle of investment in that area,
rather a one off subsidy to the incumbent provider.
3 However, while building the pipes that deliver superfast broadband is the critical
element of meeting the needs of a bandwidth hungry nation, Virgin Media believes
that to meet the needs of the nation AND maximise the benefits of the digital age
requires a focus beyond the infrastructure to deliver more data at faster speeds.
Virgin Media believes that too little of policy makers attention has to date focused on
stimulating demand for superfast broadband. Virgin Media believes a major
component of this focus lies in creating a more coherent framework for the
regulation of content in the UK, but also through the promotion of connected public
policy solutions across major Whitehall departments and agencies.
Virgin Media’s response to the Committee’s questions
What is being done to prevent a greater digital divide occurring between
people who can access superfast broadband and people in areas where the
roll-out of superfast broadband may not be commercially attractive? How
does the UK communications market vary regionally and what is the best
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Virgin Media – written evidence
way to connect the areas that the market alone cannot reach? Is a universal
service obligation necessary to avoid widening the digital divide?
4 The Government and Committee are right to recognise that the rollout of superfast
broadband in the 50% of the UK in which BT is predominantly the only network
provider is much more difficult to achieve. Rather than placing a universal service
obligation on network providers, the key objective for Government should be the
creation of an environment in which two or more network providers invest and
compete aggressively to deliver innovative, high bandwidth broadband products.
While not committing to bid for public money directly, Virgin Media has previously
committed to act as a potential anchor tenant on a new network of scale built using
public money, to help provide that new entrant with certainty that large scale ISPs
will retail to consumers and businesses across that network 283 in order to underpin
that dynamic.
5 As the Committee may be aware, around 80% of the cost of building next generation
networks lies in the civil costs. In rural areas, spanning large, difficult terrain, those
costs are significant and commercially prohibitive. In addition, issues such as
wayleave agreements are necessarily much greater in rural areas than in urban areas
of the UK due to cables spanning much greater distances. The first key challenge for
the Government is to lower the barriers to building next generation broadband
networks in rural areas as much as possible.
6 Virgin Media has worked with DCMS officials to identify barriers to network rollout
at the moment. The Government’s “Britain’s Superfast Broadband Future 284 ’ strategy
document - published in 2010 outlined a range of interventions to remove barriers
to network rollout, including changes to the Telecommunications Code to enable
access to overhead infrastructure, and work to improve streetworks sharing.
Ofcom’s finding in the Wholesale Local Access market review that BT is dominant in
that market and therefore should provide access to physical infrastructure such as
ducts and poles offers the potential to enable third parties to reuse existing
infrastructure to reduce the cost of network build.
7 Whilst Virgin Media believes that the Government’s interventions in rural areas
target the right barriers, it is unclear whether a new entrant will have the certainty
required to justify a significant commercial investment in the face of a deeply
entrenched incumbent. It is becoming clear even before these measures have had
chance to bed in, the scale of the challenge for any provider of scale other than BT to
enter the rural broadband market is significant, and that in all likelihood, BT is likely
to win the vast majority of public money to upgrade its network in these areas.
The Government have committed £530 million to help stimulate private
investment – is this enough and is it being effectively applied to develop
maximum social and economic benefit?
8 Virgin Media believes that Government should seek to maximise return on what is a
considerable outlay of public finances. As outlined above, a key objective of the
283 http://www.fujitsu.com/uk/news/pr/fs_20110413.html
284 http://www.culture.gov.uk/images/publications/10-1320-britains-superfast-broadband-future.pdf
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BDUK project and funding allocation should be to strive to achieve a self fulfilling
competitive dynamic in rural areas, as is present in urban areas, which will deliver
long term cyclical network investment, not just an incremental network improvement
that may struggle to cope with the increasing data demands over the coming years.
9 Virgin Media’s has driven this dynamic in urban areas through the investment of
private capital in competition with the incumbent network BT. This dynamic
investment between two competing infrastructures has had a huge impact on the
product quality and price available to consumers as illustrated by the graph below,
which demonstrates how Virgin Media’s has acted as a spur to the incumbent to
invest and upgrade its own network.
10
11 Figure 1: Documenting Virgin Media’s investment in new top tier broadband speeds
and the market’s reaction
12 Therefore the Committee may rightly be concerned that while £530 million may be
sufficient to deliver an incremental upgrade in BT’s existing copper network, the
potential entrance of a large scale long term competitor to BT in more rural areas of
the UK look increasingly unlikely. This is likely to mean a sub optimal result for tax
payers in terms of value for money for the substantial public funding used to underpin
this network upgrade, while the absence of a serious long term competitor to BT is
likely to mean less competition, less innovation and higher prices for consumers in
those areas.
Will the Government’s targets be met and are they ambitious enough? What
speed of broadband do we need and what drives demand for superfast
broadband?
13 The Government has set a target of delivering the best broadband in Europe by
2015. This sits within the context of the European Commission’s Digital Agenda
targets which “aims to bring basic broadband to all Europeans by 2013 and to ensure
that, by 2020, (i) all Europeans have access to much higher internet speeds of above
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Virgin Media – written evidence
30 Mbps and (ii) 50% or more of European households subscribe to internet access
above 100 Mbps.” 285 Virgin Media’s network investment means that the speeds
provided to consumers on the network already match the EU’s ambition of making
100Mb available to half of households by 2020.
14 The latest research from web-based network diagnostic company Ookla, places the
UK as a whole currently sits at 32 nd in the world 286 . However, if the speeds received
in the home by Virgin Media customers were counted as a nation in themselves, they
would currently rank as the 13 th fastest in the world. Following the doubling of
customers’ broadband speeds – to be completed by 2014 – Virgin Media customers’
real world speeds would mean that on the basis of the Ookla research, Virgin Media’s
customer base would be the fastest ‘country’ in the world.
15 While other countries featured in the report will also drive network improvements,
Virgin Media’s network sits on a critical upgrade to faster speeds that will continue to
outpace consumer demand. In 2011, Virgin Media successfully trialled a 1.5Gb
connection at Tech Hub in Shoreditch, East London over a standard consumer
connection, indicating what is technically capable across our consumer network as
demand increases 287 , and the company is currently deploying 400Mbps capable
technology in customer homes.
16 Virgin Media for some time been concerned that UK consumers are unclear about
the differences in speeds delivered by difference broadband services due to the
misleading use of headline speeds in advertising. Over the past four years Virgin
Media has topped OFCOM speeds charts based on actual delivery to the customer.
Virgin Media delivers more than 90 per cent of our headline speed on average to the
end user 288 . Indeed, on our 30Mbps speed tier, Virgin Media actually exceeds the
headline speed, delivering an average 31.4Mbps.
17 Virgin Media therefore welcomed the Advertising Standards Authority’s review and
update of guidance coming into force in April 2012 that will require providers to limit
advertising speeds to actual end user speeds achievable by a minimum of 10 per cent
of customers 289 . This action will see the currently advertised 20/24Mb ADSL package
reduced to a more realistic advertised speed of 13Mbps and should drive further
demand for genuinely higher speed services.
Driving demand for superfast broadband
18 The emergence of innovative new legal services across the internet holds the
potential to transform demand for superfast amongst mainstream consumers and
harder to reach demographics. The Government’s forthcoming Communications
Review provides an ideal opportunity to assess whether the regulatory and
competition framework governing the content market works in the interests of
consumers as much as the clear and consistent regulation of the telecoms sector. It
is essential that the competition and regulatory framework that sits around the UK
285 http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/10/200&format=HTML&aged=0&language=EN
286 http://www.netindex.com/download/allcountries/
287 http://mediacentre.virginmedia.com/Stories/Virgin-Media-delivers-world-s-fastest-cable-broadband-2131.aspx
288 http://shop.virginmedia.com/broadband/about-virgin-broadband/speed-matters.html?buspart=6469
289 http://www.cap.org.uk/Media-Centre/2011/Up-to-speed-with-telecoms-advertising.aspx
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Virgin Media – written evidence
digital economy keeps up with consumer behaviour, enabling the emergence of
innovative new content services, that enable consumers to access the content they
want, when they want, how they want, at a price they are prepared to pay.
In fact, are there other targets the Government should set; are there other
indicators which should be used to monitor the health of the digital economy?
What communications infrastructure does the UK ultimately need to remain
competitive and meet consumer demand over the next 20 years?
19 The judgement as to whether the UK digital economy is in a healthy position should
not be on the basis of infrastructure alone. There is sometimes an assumption that
digital technology is in and of it self disruptive, that the dynamism of digital will drive
competition and innovation regardless of apparent dominance in the market. To an
extent this is true, but just as the UK TV market is dominated by a few very large
players, there is a risk that without vigilance, the digital economy could become
ossified, with such high barriers to entry that competition is diminished.
20 The development of a plural, competitive digital economy in which value is spread
amongst multiple parties, not just the largest beasts in the digital landscape must be a
priority for Government. To that end, the Government must not focus unduly on a
single element of the digital value chain. Just as the behaviour of fixed line and mobile
ISPs as to how they manage traffic on networks is scrutinised, it is important that the
Government and regulator examine how search engines prioritise and highlight
results, how content owners distribute content across the open internet that can
only be accessed by specific devices and ecosystems. A competitive framework in
which the UK, EU and global digital economies operate is critical to the health of the
digital economy and continued consumer benefit of the connected world.
To what extent will the advent of superfast broadband affect the ways in
which people view, listen to and use media content? Will the broadband
networks have the capacity to meet demand for new media services such as
interactive TV, HD TV and 3D content? How will superfast broadband change
e-commerce and the provision of Government services?
21 The bandwidth hungry nation on which this enquiry focuses is rapidly evolving.
Access to multiple devices such as smartphones, tablets and internet-enabled TVs,
are expected to see data consumption increase by a projected 5 times current levels
by 2015 290 . This demand will require further Investment by network operators – as
evidenced by Virgin Media’s announced investment of £110 million to enable the
doubling of over 4 million customers broadband speeds – in a hugely aggressive UK
communications market in which consumer revenues are projected to remain
broadly flat 291 .
22 The consumption of video content is an example of an activity that is increasingly
shifting online, whether over fixed line connection, TV set-top box or mobile device.
Ofcom’s most recent Communications Market research documents that ownership
290 http://newsroom.cisco.com/press-release-content?type=webcontent&articleId=324003
291 Figure 9 http://www.atkearney.com/index.php/Publications/the-internet-economy-in-the-united-kingdom.html
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Virgin Media – written evidence
of internet-enabled TV sets is now above 1 million 292 and 27 per cent of UK
consumers watch some content over the internet each week 293 . Virgin Media’s own
internet-enabled TV platform TiVo was introduced into the market in 2010 and has
seen above projection take up in the first 18 months of sales. Close to 500,000
customers have upgraded to TiVo to date and our aggressive roll-out to our 4 million
customers is projected for completion in 3 to 4 years.
23 Connectivity via the TiVo set-top box is supported by a dedicated 10Mbps IP stream
separate to the fixed line household connection, ensuring that consumers streaming
content ‘through the middle’ 294 uninterrupted. The platform houses a library of apps
including YouTube, Spotify and social media and the potential to link to cloud based
storage solutions that would enable the consumer to store purchased or recorded
content for use on a separate device outside of the home.
24 Whilst it is at a nascent stage in its development, TiVo offers huge potential for
product innovation and service delivery that will drive new revenue streams to rights
holders and app developers, and open the potential for efficiency savings through
innovative public service delivery.
25 The real growth area for superfast broadband is in driving material benefits to
citizens and the state. A recent Department of Health study into the use of
telehealth suggests that if used correctly, telehealth could deliver a 15% reduction in
A&E visits, a 20% reduction in emergency admissions, a 14% reduction in elective
admissions, a 14% reduction in bed days and an 8% reduction in tariff costs. More
strikingly the findings also suggest a potential 45% reduction in mortality rates. 295 A
recent report by BUPA suggested potential savings for the health economy of
between £1.3-£1.7bn as a result of greater use of home healthcare. 296 Virgin Media
Business is already driving the benefits of digital technology, working with 15 hospitals
in Cumbria and Lancashire to provide a video-diagnostics facility for stroke patients
across a broadband connection. The project will deliver £6.7m in savings to the NHS
per year, but more importantly driving better health outcomes for patients 297 .
26 More broadly, Virgin Media Business is already exploring the potential for superfast
broadband to fundamentally transform the way that people engage with public
services and delivering a number of contracts that drive efficiency savings and
improve public service outcomes:
292 OFCOM Communications Market Report 2011 p103 -
http://stakeholders.Ofcom.org.uk/binaries/research/cmr/cmr11/UK_CMR_2011_FINAL.pdf
293 OFCOM International Communications Market Report 2011 p4 -
http://stakeholders.Ofcom.org.uk/binaries/research/cmr/cmr11/icmr/3_-_tv.pdf
294 Virgin Media refers to the capability of the TiVo platform to connect to content delivered via the open internet
as ‘Through the Middle’ rather than ‘Over the Top’ due to the fact that this deliver is an integral part of the Virgin
Media platform, rather than a best efforts attempt to deliver internet content to set top boxes. The dedicated
10Mbps modem inside the TiVo box means that the separate broadband connection is unaffected by streaming to
the TiVo box.
295 http://www.dh.gov.uk/dr_consum_dh/groups/dh_digitalassets/documents/digitalasset/dh_131689.pdf
296 http://www.bupa.co.uk/jahia/webdav/site/bupacouk/shared/Documents/PDFs/healthcare-professionals/bupa-homehealthcare/Taking%20the%20pressure%20off%20-%20the%20opportunity%20for%20home%20healthcare.pdf
297 http://www.dh.gov.uk/dr_consum_dh/groups/dh_digitalassets/documents/digitalasset/dh_131689.pdf
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Virgin Media – written evidence
• Virgin Media Business is one of four core suppliers of the public sector IT
rationalisation programme - the Public Service Network - which aims to reduce
Government ICT spend by £500 million per year 298 .
• Virgin Media Business is the supplier of the London Grid for Learning under the PSN
programme, which will connect up to 3,200 unique education locations in the city,
utilising spare capacity on our consumer network during the day to guarantee
consistent superfast internet access. The scheme is estimated to deliver potential
savings of £100m.
How might superfast broadband change the relationship between providers
and consumers in other sectors such as content? What aspects of this
relationship are key to enabling future innovations that will benefit society?
What impact will enhanced broadband provision have on the media and
creative industries in the UK, not least in light of the increased danger of
online piracy? What is the role of the Government in assuring internet
security, and how should intellectual property (IP) best be protected, taking
into account the benefits of openness and security?
27 Networks built using private investment from companies such as Virgin Media and
others is hugely beneficial to other parts of the value chain in the internet economy.
AT Kearney’s recent report on the internet economy in the UK highlights the
strategic value of investment in connectivity - the most capital intensive activity within
the internet value chain - constituting 72 per cent of internet-based investment. That
hugely risky and speculative investment catalyses enormous economic value across
the rest of the value chain. The AT Kearney report suggests for every £1 that Virgin
Media and other network operators have invested in connectivity, an additional £5.30
of commercial or economic activity has taken places over those pipes 299 .
28 The widespread availability of superfast broadband and connectivity has already
changed the way millions of consumers’ access content, and the way in which the
content owners and artists can monetise their work. Above all, the impact of
superfast broadband has to date seen an insatiable desire on the part of our
customers to consume content whether in the home or on the move.
29 Virgin Media is responding to this trend of entertainment on the move with the
development of additional products and services to cater for this data demand.
Virgin Media’s Metro Wireless platform utilises the power of Virgin Media’s fixed line
connectivity to provide high capacity wireless connectivity across entire areas, not
just one or two hot spots. Virgin Media believes that Metro Wireless offers the
potential to further transform connectivity on the move.
30 This insatiable appetite for content provides huge potential opportunity for the UK
creative industries to drive growth through innovative new digital services.
However, for those content providers that stand still, there is a real danger of a
corrosion of value, whether through online copyright infringement, or consumer
dissatisfaction with those services.
298 http://www.cabinetoffice.gov.uk/resource-library/public-services-network
299 http://www.atkearney.com/index.php/Publications/the-internet-economy-in-the-united-kingdom.html
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Virgin Media – written evidence
31 Virgin Media has been at the forefront of trying to find a sustainable response to
online copyright infringement which combines both carrot and stick. The carrot in
the form of the greater availability of innovative, affordable, content services
combined with the stick of a legal process which addresses those sites which
persistently proliferate copyright infringing content. In 2011, Virgin Media announced
an agreement with Spotify, the subscription based music library granting legitimate
access to 13 million tracks. The agreement enables Virgin Media customers to access
music across the product and service range, whether that be the TV, laptop, and
mobile for a monthly subscription fee.
32 Evidence from other territories suggests that services such as Spotify and Netflix can
have an impact of online copyright infringement on superfast networks. In Sweden, a
deal between internet service provider Telia and Spotify has driven an estimated
reduction in piracy of 50% or more amongst subscribers 300 . In the US, the rapid
development and adoption of Netflix is impacting on the balance of legitimate traffic
vs illicit traffic. Netflix now accounts for 29.70% of peak period downstream traffic, a
44% increase over the figure presented in the Fall 2010 study. Even when measuring
total traffic and averaging over 24 hours, Netflix, with 22.2% of traffic, has overtaken
BitTorrent (21.6%) as the largest component of Internet traffic on North America’s
fixed access networks 301 .
33 The development of such innovative services relies however on being able to get
access to the relevant rights from content owners. In the UK, existing bottlenecks in
the distribution of content continue to prevent such compelling business models
emerging in the UK. Ofcom’s 2010 Pay TV market review found that restrictions on
the distribution of premium video content to a limited number of platforms is causing
consumer detriment.
34 Virgin Media continues to work through the Competition Commission to ensure that
the current monopoly around crucial content rights is remedied to ensure that
service providers other than Sky can access first run Hollywood blockbuster rights
that are so central to the creation of genuinely transformational and compelling
content services.
Does the UK, for example, have a properly competitive market in wholesale
fibre connectivity? What benefits could such a market provide, and what
actions could the Government take to ensure such a market?
35 The regulator Ofcom conducts regular reviews of the Wholesale Local Access and
Wholesale Broadband Access markets to examine whether there are any issues of
dominance that require regulator intervention. To date, Ofcom has found that BT is
dominant in some of those markets and has focused efforts to remedy that
dominance by forcing BT to put a Physical Infrastructure Access (PIA) product into
the market to enable competitors to deploy their own NGA infrastructure between
the customer and the local exchange, along with a Virtual Unbundled Local Access
("VULA"), which will allow competitors to deliver services over BT's new NGA
300 http://www.musicweek.com/story.asp?storyCode=1043996&sectioncode=2
301 http://www.wired.com/images_blogs/epicenter/2011/05/SandvineGlobalInternetSpringReport2011.pdf
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Virgin Media – written evidence
network, with a degree of control that is similar to that achieved when taking over
the physical line to the customer.
36 Unlike in the content market, Ofcom is under an obligation to keep this market
under regular review, and respond according to issues it identifies in those market.
March 2011
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Virgin Media – oral evidence (QQ 283-319)
Virgin Media – oral evidence (QQ 283-319)
Evidence Session No. 5. Heard in Public. Questions 250 - 353
TUESDAY 22 MAY 2012
Members present
Lord Inglewood (Chairman)
Baroness Bakewell
Lord Bragg
Lord Clement-Jones
Baroness Deech
Lord Dubs
Baroness Fookes
Lord Gordon of Strathblane
Bishop of Norwich
Lord St John of Bletso
Earl of Selborne
________________
Examination of Witness
Andrew Barron, Chief Operating Officer, Virgin Media
Q283 The Chairman: I would like to extend a warm welcome to Andrew Barron, COO
at Virgin Media, where I understand you lead your company’s operations and strategic
development right across broadband, TV, home phone and mobile. You heard the tail end of
Chi Onwurah’s evidence, so is there anything you would like to say as a statement before
we move to the questioning?
Andrew Barron: No, except by way of introduction to Virgin Media in case everyone is not
up to speed. We serve roughly 5 million customers across Britain. We own and operate our
own network, which we built with our predecessor companies of 28 franchises that
consolidated into Virgin Media as it is today. We recently completed the rollout of 100 Mbps
speeds availability to all our footprint—some 13 million households. So today I am delighted
to say that half the households in Britain can receive four times the current definition of
superfast broadband.
Q284 The Chairman: That is a good place to start, which leads to my first question. As
you know, the Government’s plan is that the UK should “have the best superfast broadband
network in Europe by 2015”. What do you think the characteristics of the network should
be to justify that description?
Andrew Barron: I think that superfast is as good a definition as any. Our entry tier these
days is 30 Mbps, but let us run with 24 Mbps being better than that which the vast majority
of customers get today in the UK. The current tiers that we sell to customers are 30 Mbps,
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Virgin Media – oral evidence (QQ 283-319)
50 Mbps and 100 Mbps—100 Mbps will go to 120 Mbps over the next few months as we
complete that rollout. I think that the criteria include speed, the quality of the service of the
network, reliability and stability. In particular, when you are using video services and the like,
and multiple video services in a home, the stability and reliability is as important as speed.
The Chairman: Just to be clear, stability means that the picture does not freeze.
Andrew Barron: Yes. It means the quality of the network—the ins and outs—and the
products, services and support that you get around the raw infrastructure connection. At
the moment, we are rolling out a product called TiVo, which is a high-end television
platform. It does everything that the YouView platform that is shortly coming to Britain will
do. It is the leading television platform in the UK. We think that it is state of the art
worldwide and we are rolling out, we think, at the fastest rate of any operator’s connected-
TV platform worldwide. Again, it is fine to have a fast connection, but it is what you do with
it that counts. Rolling out products and services like TiVo really bring the benefits of a fast
connection home to customers.
Q285 The Chairman: You are describing the way in which the network operates in a
vertically integrated way. Are you talking, first, about the network and what it physically
comprises and then some of the things that have been done, as it happens, in this case by an
overland network?
Andrew Barron: Yes, exactly. I would add one last criterion. For superfast to be relevant to
the majority of Britons, it has to be affordable. You will see a lot of announcements of partytrick
speeds, such as 300 Mbps and the like, as being “available”. But one should check the
pricing of some of those. One of the things that we are quite proud of is our 100 Mbps
which is available to half the country at, typically, £25 a month plus a phone line rental or
£35 a month if you do not want a phone line. We believe that that sort of price is accessible
for cutting-edge speed.
If you look at countries—there was a piece in the Guardian this morning—such as Latvia, the
headline may say that it is fifth in Europe in terms of raw speed, but only one-fifth of Latvians
have fixed broadband because the pricing and the reaches are not quite there yet. I think
that, as regards mass availability, the price point is the corollary of having decent
performance.
Q286 Lord Clement-Jones: In your evidence, you wrote that the Government’s
greatest objective should be “the creation of an environment in which two or more network
providers invest and compete”. Will you describe how you think that the Government
should approach that in those areas where competition at the network level is viable? I
know that in a sense that is a slightly circular argument because there are only certain places
where there is existing competition. Perhaps you think that the Government should do
nothing and just let you get on with your battle with BT. We are looking at a rather broader
context. We are trying to get competition beyond the places where you already are in
competition.
Andrew Barron: I stand by that statement. The way to start is to look at what has happened
where there has been competition and to extrapolate perhaps some of the lessons of what
we think has worked from that to the rest of the country where there has been less or no
effective competition. We go all the way back to the Cable and Broadcasting Act 1984,
which essentially created the conditions to build cable across the country. More than 20
years ago, there was a framework by which two alternative infrastructures were built across
half the country in typically not quite urban, but skewed towards urban, areas. We believe,
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Virgin Media – oral evidence (QQ 283-319)
as evidenced by some of the current situation that I have just described, that that
competition has worked for Britain. It has remained vibrant over 25 years and there has
been effective infrastructure competition in half the country, which has led to us alone
investing £13 billion roughly over that span to create our current network. That has led BT
increasingly to invest against us in those areas to roll out Infinity and roll up speeds. Every
time we double our speeds, as we did last October, BT understandably brings forward its
investment plan. Under laws of competition, we have matched each other for giving
customers more and more, and for lowering the price points. We look at our footprint as a
reasonably good European case study where competition not only has worked but will, we
believe, continue to work.
When we look at that underpinning of competition as the best long-term sustainable basis
for ensuring benefits to consumers off net—in the places where we do not have a network
and where, typically, not even BT provides a decent infrastructure—we believe that
Government policy could be guided by the overarching determination to institute
competition in as much of that footprint as possible. That will lead not to a one-off injection
of a subsidy to the incumbent to accelerate its rollout plan but to a sustainable two, three or
four alternatives for infrastructure provision that will continue for many years to come.
Q287 Lord Clement-Jones: That is very interesting. You are very clear. You are really
saying that we should have these great trunk routes in parallel rather than have a single
trunk route over which a multiplicity of competing services at the retail level operate. So
one could really say on the positive side, “Yes, fantastic, there has been £13 billion of
investment in the key infrastructure in the key urban areas”. But one could also say on the
downside that that is basically cherry picking the best places and that that will not lead to
competition outside those key urban areas.
Andrew Barron: As Britain we are doing it again. For example, three large companies and
many smaller companies are trying to roll out wifi—public out and about, and out-of-home
broadband for people to use. There is an incredibly piecemeal and patchwork-quilt
infrastructure developing. People are going from café to café, or from local authority to local
authority in London, or to the Underground where we are active and—to use your words—
cherry picking the bits that are available and ready to be tendered, and getting access to
lamp-posts here and the edges of buildings there. As a result, the dynamic that you describe
is at grave risk of occurring. So, instead of having a national cable framework, we have a
market where Westminster is at one speed, Birmingham is at another speed and London
Underground is at another speed. I fear that Sutton High Street, to choose a random
example, will not get public wifi in due course. There is a pressing need for a more
overarching, more co-ordinated national approach to say, “Look, wifi is a key broadband
platform for the future. It involves building off where fibre is already deeper. Shouldn’t we
approach this in a more holistic way?”
Q288 Lord Clement-Jones: You have nicely diverted us on to public wifi and I accept
some of what you say. But, going back to the main provision of fibre on the trunk routes and
so on, why would not the same co-ordinated approach be equally valid?
Andrew Barron: To an extent it would, but we are somewhere between two extremes at
the moment. I applaud the aims of the BDUK process to get decent broadband to the other
half of the country. Clearly, that is a noble ambition and should be applauded, but its
approach has been extremely local and devolved. We heard a little about the resources
trying to hold that programme together. Again, I sympathise with the people trying to
conduct that orchestra. It is leading to a situation where, almost inevitably, the subsidy
731

Virgin Media – oral evidence (QQ 283-319)
available is being dispersed across the other half of the country, again without a co-ordinated
umbrella approach except that provided by BT, which is sensibly hoovering up the funds one
by one, in the context of its existing rollout programme.
Quite rightly, for commercial reasons, it already has hundreds of millions of pounds
committed this year, next year and so on, in order to improve its broadband infrastructure
across Britain. As one would, it tends to skew it—this is a contentious statement and I make
no apology for that—to the areas where the competition is strongest. Where you have
other entities popping up—either us on net, other winners of local BDUK subsidy or people
trying to start a business—understandably, BT can sit on top of them with its rollout plans. It
is a very piecemeal approach.
A company the scale of Fujitsu, for example—we have expressed our support for Fujitsu and
would express our support for others in a similar position—is in a position to adopt, with
the right regulatory framework and support, a much broader-based, more systematic build
programme, which would create, in your words, these two motorways/trunks and, would
create for many years to come two entirely parallel infrastructures in many areas. I believe
that that would underpin competition and sustain ongoing investment from both entities and
the users of both entities for the good of consumers.
Q289 Lord Clement-Jones: So you do not think that this would be like building two
Great Western Railway lines to Bristol, for example?
Andrew Barron: No, but that is a great example. If you go back 100 years and look at the
way in which the railways or canals were rolled out, they are national infrastructures—
specifically transport infrastructures. Broadband is not that dissimilar. It is a national,
absolutely fundamental prized asset that underpins development and continued progress.
We are approaching it bizarrely in a very localised piecemeal way. I believe that our
predecessors for the railways and canals would eventually not have done that. It has taken us
20 years to put together into one national network the 28 franchises that started cable. I
would argue that it has taken ITV years 30 years to put all the broadcasting local entities
back together to one national broadcaster that can be efficient and compete. Here we are
setting off—whether with wifi or the BDUK approach—and again skewing down a series of
local entities that almost inevitably, because of the underpinning economic logic, will need to
be reconsolidated either artificially through interoperability and standards, or more
fundamentally as they roll up into single entities, to provide the scale, reach and ongoing
investment that you need to maintain cutting edge infrastructure.
Q290 The Chairman: Before we go on, perhaps I may make one point quickly. You said
that if you had the right regulatory change you could achieve what you have described as
your ideal vision. What should that regulatory change be?
Andrew Barron: The comments this morning were, I believe, interpreted as partisan
contributions to the debate from Virgin Media—understandably. However, they are perhaps
that, but they are not only that. When we look at the other side of the UK—at the half that
does not benefit from the intense competition that we have had and continue to have—we
say, “Is there a role to replicate what has happened on our side of the fence on the other
side of the fence?” What we see right now is that the well-intentioned provision of public
subsidy—significant sums of money, amounting to £530 million in this Parliament and £100
million for superconnected cities—by our reckoning should be going exclusively where
competition is not. Some of it at the moment—particularly superconnected cities—is
actually going at a European level into deeply competitive entities. Secondly, that money
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should not automatically go to an incumbent. That does not mean that it should go to us and
it does not mean that we would want to build in the other half of the country, but we think
the lesson for Britain is that where you establish someone like us, whether it is a Fujitsu or
anyone else, who competes with the incumbent, you get better infrastructure and better
services, in perpetuity almost, as a result. That does not meant that we want to do it. Again,
our comments this morning were misinterpreted as us crying out.
Q291 The Chairman: Deflecting the direction in which the question is going, I come
back to you and say that that is fine as a proposition—I am sure we will all agree to that—
but is not the practical difficulty that, in many instances, if you are an incumbent, by virtue of
your incumbency you can achieve what is sought at less cost than a new incomer?
Andrew Barron: Absolutely right.
The Chairman: How do you get round that one?
Andrew Barron: When you look at the regulatory framework again, if we are talking about
the area that does not have effective competition today, then you have the passive
infrastructure access regime, which we have maintained is still not as effective as I think
many players would have hoped it would be. I mean that in terms of clarity and efficacy—the
ability to operate beneath its terms as opposed to the concepts that have been espoused.
For example, the only people who are allowed to do overhead deployments in the UK, I
believe, are still BT; we are not allowed. That means fibre above the ground as opposed to
the terms of our charter of below the ground. You have access beyond PIA—4G and
alternative infrastructures. Britain is relatively slow for many complex reasons. It is
empirically relatively slow in adopting some of the other broadband infrastructure
alternatives that exist at a European level and beyond. There are a whole host of other ways
you could look to accelerate the framework to incentivise private investment and ways in
which you could create alternative infrastructures beyond accelerating BT’s DSL Infinity
broadband.
Q292 Lord Clement-Jones: If there was a level playing field, would you then be happy
to give access to your network to other services?
Andrew Barron: We maintain—and I make no apology—that in the areas where our
network is we are absolutely exemplary competitors with BT, and BT competes with us.
Look at where all the money has gone in terms of what has been invested in the UK in
broadband infrastructure to date. The problem, where the market has perhaps not worked
as well, is to get decent broadband into what people always call rural—it is not strictly rural
but off-net or off-our-footprint areas. That is a challenge. The economics can be very
marginal, but how you go about closing that gap and making private investment want to
chase it is a much more complex and subtle mosaic involving some of those other
technologies and some of those other interventions, rather than just giving BT, for example,
the lion’s share—not all, but the lion’s share—of half a billion pounds to bring its roll-out
forward, arguably by a year or so.
Q293 Lord St John of Bletso: Can I just touch on that last point. You mentioned in your
report here that the first key challenge for the Government is to lower the barriers to
building next generation broadband networks in rural areas as much as possible. Could you
possibly expand on that specifically?
Andrew Barron: Passive infrastructure access—ducts and poles—is an important part of
that. It is well known that the most expensive part of some of that roll-out is civil
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engineering cost. If you can avoid replicating the existing civil engineering cost then you
dramatically lower the barriers not only to us but to anybody building in that space. Fujitsu
would say the same thing if they were sitting here. Indeed, a major piece of whether they
would have compelling economics in Cumbria and one other place where they are still
bidding would come down to that regime. Regarding wayleaves, can they get access to be
able to build where they need to build with reasonable efficacy? These are big builds. Again,
under the Cable and Broadcasting Act you need frameworks under which you can operate
to achieve scale and mass, otherwise you end up with relatively small piecemeal
deployments. You need a framework in which, where public money is used—if I may, I will
come back to something that was said in the earlier session—it seems right and proper that
the network created using public money should be shared and open and discussed. Where
you have attracted private money to come in and take risk and commit capital to build
networks, it seems to me less clear that there should be a presumption that those networks
should be open. They can always be overbuilt—someone else can come along and build
alongside in theory—but there should be a return on capital invested. So, very specifically,
PIA is important, wayleaves are important, alternative technologies and licensing spectrum
for 4G are important, overhead deployments are important, and wifi is extremely important
because you can cover very effectively areas off a single fibre drop and a cabinet or
whatever. However, you need access to civil infrastructure such as lamp-posts or something
else that has power and height. Lamp-posts are about as good as anything. So there is a lot
of stuff you can do.
Sadly, 10 people sitting in BDUK are unlikely to manage a build for the other half of the
country, even armed with half a billion pounds. BT can because it is already in place and
already rolling out. On 11 October last year BT announced an acceleration of its build
plans—fantastic. Some £300 million extra went in—again, coincidentally, related to our
doubling all of our customers’ speeds at almost exactly the same moment. I wonder where
that £300 million has gone. Has it gone to the have-nots and replaced public subsidy, or has
it gone into competing with us in an already competitive footprint? Either way, I think it
proves a case.
Q294 Baroness Fookes: You mentioned fibre in earlier answers. We are very interested
in fibre. Does your organisation have an inventory of all your fibre assets?
Andrew Barron: Yes, and I can see a thousand engineers flinching at this point. It is a
monstrous undertaking not only to know where your fibre is—and you have to to deal with
outages and build quotes—but also to maintain accurately those records.
Baroness Fookes: Both the dark and the light varieties?
Andrew Barron: Yes. Lit and dark, yes.
Baroness Fookes: And do you know if your competitors do likewise?
Andrew Barron: I could not answer for them. I would assume that anyone providing
enterprise services would certainly know in great detail where their fibre is.
Baroness Fookes: It has been suggested that there should be a totally integrated list of
everybody, of all the competitors at least, held by Ofcom or some body? Would you think
that a good idea?
Andrew Barron: Why? It is a purely open question. I need to know why.
Baroness Fookes: I assume that the thought behind it—it is not my idea but it has been
floated—is that it would be good if the regulator had a fair idea of who was doing what.
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Andrew Barron: I see no problem. I do not necessarily want to share it with BT and with
Cable & Wireless, although I think there is a lot of porousness anyway. Essentially, the first
thing that springs to mind, and, if you like, the main commercial sensitivity, would be that
when each one of us goes out and bids for enterprise customers—networks of high street
shops, banks, whatever—one of the key elements in how we price those bids to supply
services is whether or not we have to dig or use someone else’s network for how many of
those sites. We serve, for example, Nationwide estate agents—I think on several hundred
sites nationwide—and a large number of those are on our footprint, so we have the fibre in
our records to do that. We also rent circuits from BT and from other people who may
reach sites that we cannot reach and put it all together under our umbrella. And they do the
same with us. For example, we are a major supplier to BT of circuits for the NHS.
Q295 Baroness Fookes: So there is quite a degree of co-operation despite the
competitive nature of your organisations?
Andrew Barron: Yes, there are so-called interconnect agreements. We reciprocate: we
both rent each other’s circuits left, right and centre. We both terminate each other’s traffic
so that our phone calls go from one customer to another. It involves hundreds of millions of
pounds a year.
Q296 The Chairman: I ought to know the answer to this. In terms of constructing your
infrastructure, do you enjoy compulsory powers, on wayleaves and so on?
Andrew Barron: There are frameworks on these. Again, this is reaching the limits of my
expertise.
The Chairman: Well, do not worry. We would be quite interested to know if you could
tell us.
Andrew Barron: We operate under the local authority frameworks. Can I tell you whether
that is a national framework or a local authority framework? I am not sure. I can certainly
give a written reply.
The Chairman: That is fine. If you could let us know, I would appreciate it. Thank you.
Q297 Lord Clement-Jones: In your inventory, what is the extent of the dark fibre that
is there compared to the lit?
Andrew Barron: Again, I cannot tell you off the top of my head how much of our total fibre
of 185,000 miles is unlit.
Lord Clement-Jones: But there is a significant amount.
Andrew Barron: There is some that is unlit. It does nothing for us. We would use it
wherever we possibly could.
Lord Clement-Jones: Or others might use it?
Andrew Barron: Just to put this in context, our business, if you go by revenue for a second,
is roughly £4 billion, of which a little more than £600 million is enterprise and a little less
than £600 million is mobile. So the bulk of our business is consumer cable and in that,
basically, you are not talking about dark fibre. You are talking about the massive increases in
the amount of traffic at every level in the network that we have been seeing over the last
few years. We have been investing every year to build capacity to cope with that underlying
level of broadband usage growth. So the amount of dark fibre in the consumer business and
in the network is—I will correct this in a written answer if I am wrong—I suspect deeply
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minimal except where we build 10 times the capacity we need and it takes us two years to
fill it up. We are not talking here about stuff that has sat there for 10 years untouched.
There will be enterprise circuits where we used to serve a business and it is sitting there
because the business is no longer a customer. But that is £600 million out of total revenue of
£4 billion.
Q298 Baroness Bakewell: Can I just follow up with something a little bit more abstract?
First, you establish that the best way in which to run the whole system is an environment in
which two or more network providers invest and compete. So you give us a hymn to how
wonderful that is and what an excellent and perfect competition situation exists between
you and BT, right? You then have a hymn to how wonderfully collaborative you are with BT.
So I want to know at what point does an industry with two mega-players in competition
move into a cartel in which they begin to operate against newcomers, perhaps.
Andrew Barron: Let me give some other examples. We are Sky’s biggest distributor, so we
have more wholesale Sky customers by far than anyone else. BT is the second largest, and it
is good business for us and for BT. As I say, we do interconnect business with BT and with
every fixed and mobile telephony operator, because our customers want to call each other.
That is part of doing the right thing by customers. We exchange circuits with Cable &
Wireless to reach the right combination of customers. It is almost an inevitability of the
business that we are in, which is the business of connecting people, things and businesses,
that we must deal with each other at a very fundamental level. I have sat in this room talking
about the BBC, which is another esteemed and valued partner, yet we have a very different
point of view about YouView and rolling out a competitive TV platform with state money—
allegedly. So we are perfectly capable of having a “frenemy” relationship with Sky, with the
litigation and Ofcom and all the debates that we have, and at the same time being its biggest
distributor. There is a similar situation today with BT and the same on occasion with the
BBC. I am afraid that it is the nature of the business that we are in, and you would get the
same answer from my peers at the same institutions.
Q299 Baroness Bakewell: So you are quite happy that there is no risk of restrictive
practices that would inhibit the arrival of newcomers. That is what we want to encourage, is
it not—lots of newcomers into the business?
Andrew Barron: If we go for a second to the half of the country that does not have
superfast infrastructure, one opportunity that we see—if Fujitsu or someone else were to
come in and start building systematically—would be to provide TiVo boxes and products
and services to that network owner. If you asked Fujitsu, I think that it would say that it
does not necessarily want to create a TV platform; that is not its business. So we and Sky
and YouView would troop in and compete. But again it all comes down to having sustainable
competition as opposed to a transitory subsidy to bring forward otherwise intact
commercial plans. That seems to me a wasted opportunity for Britain.
Q300 Baroness Deech: Leaving aside the ideology—I hope that this question does not
show that I have completely misunderstood—would not it make sense for the Government
to nationalise the entire fibre infrastructure until such time as it was all over the country and
then sell it off again?
Andrew Barron: I am not even remotely going to attempt to answer that.
Q301 Lord Gordon of Strathblane: Can I take you back to superfast broadband? You
mention that you are covering 50% of the country. I think that we would all agree that the
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take-up is quite a lot smaller than that. I have two questions. What can we do to stimulate
demand for superfast broadband—in that connection, the arrival of YouView, which you
were not all that keen on, might be one thing that might stimulate demand. You would be
perhaps the best person to ask the next question. We had a witness a couple of weeks ago
called Sir Robert Kenny, of Communications Chambers, who was faintly dismissive of
superfast broadband. He said, “Take a household of five people, which is very large by
today’s standards. If all of them are watching an HD movie simultaneously, that only takes
you to 30 megabytes. What is this demand for 50 or 100 Mbps?
Andrew Barron: I have heard that argument for 15 years. I remember that argument when
Telewest launched superfast broadband as was 11 years ago at 124 kbps. Why could you
possibly need more than that? The argument has reverberated ever since. We are in an
inflection when the amount of capacity that is going in, particularly in our case, has grown
leaps and bounds. We are getting to a point now where there are other things that will
stimulate people to use ever higher levels of bandwidth. To be very specific, if you have 100
Mbps in the wall at the cable modem, you are probably in our case delivering 96 or 97 Mbps
on average into the PC that is hardwired into that cable modem. The minute that you put
that over wifi—especially if you put that wifi router behind the fish tank and next to the
microwave with a lead case over the top of it—you will find a degradation of the speed you
get around the House. I have four children—three teenagers and a smaller one—and we are
definitely in need of faster bandwidth, and have been for as long as I can remember, although
I am not saying that that is typical. The empirical fact is that, at every turn that this argument
has resonated over the past 15 years, the need for bandwidth and the number of devices
that connect to wifi within a home has grown spectacularly.
YouView and services like it will be another turning point. TiVo has its own broadband
modem in the box. We are seeing multiple devices in the home, using bandwidth. We are
just on the cusp of all the main providers going to video on multiple devices, as opposed to
just on the TV—on phones and tablets. We added 247,000 superfast customers last quarter.
Our definition is 30 Mbps and above. So we are not seeing a slowing in the take-up. Indeed, I
think that we still provide the majority of superfast customers in the UK, and we see no
prospect of that slowing—and our entry is 30 Mbps.
Q302 Earl of Selborne: Francesca Caio who gave evidence to us and told us that, while
the logic with which the incumbents have developed their networks has been to build a
network to sell services and capture market share, these companies “know in the depth of
their heart that the source of profit is coming from the access network”. What do you think
about that?
Andrew Barron: I think that a source of profit is coming from the access network—the
provision of fast broadband. Again, that was the basis on which our investors invested to
create the network, because at some level they would generate a profitable return. There
are other sources of return; the enterprise division that uses the same infrastructure is a
different set of returns, which is interesting because enterprise customers tend to use the
same network—certainly the same core network—at a totally different time of day. They
tend not to be using the network between 7 and midnight; they tend to be using it in
working hours. So there is a different profit stream there. I am deliberately slightly
oversimplifying, but bear with me. We have a mobile profits stream, which is increasingly
related to the network, so 15% of our customers have mobile and cable. Again, our
relationship with them is about their communications and entertainment services, rather
than one or the other. We are the second-largest phone provider in the UK, which uses
copper over the last piece of the network infrastructure. So there are multiple profits from
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multiple businesses built off what looks like a single network and a single relationship with
customers.
The network is a wonderful thing, but the services and the service are what differentiate that
wire—I am being deliberately derisory—to a customer. Most of our customers do not know
whether they are on fibre or DSL; they do not know what a hybrid fibre/co-ax network is,
which is what we operate. Why should they? They just want fast broadband, a TiVo box to
watch their television programmes and they want a good phone deal. I see no reason to
cloud their enjoyment with an understanding of the network.
Q303 Earl of Selborne: Do you think that newcomers providing services to enterprises,
for example, have any legitimate complaint about ability to access existing networks?
Andrew Barron: It is a scale game. At the level of creating national phone services and
relationships to interconnect traffic and creating a leading-edge television platform like TiVo,
and at the level of creating broadband networks, where you are constantly investing to
upgrade the capacity and keep pace with developments, it is a scale game. You see evidence
of that in the fact that 28 cable companies, quite naturally, consolidated into one. You see it
in the scale, size and reach of BT in that area, and you are going to see it over time—if you
remember how the internet business started in this country—with many small providers
that rolled up and up and up. You are going to see it with the distribution of BDUK funds, if
there were a whole bunch of local fibre start-ups. You get some. Scandinavia has a good
tradition of connected cities where local authorities have put fibre into the centre of a town.
Typically, they have gone in at a time when there were not two existing strong networks
already in the ground in those cities, but city nets, as they call them, exist. So there are
exceptions, but by and large it is like railways—it is a great big scale game, where you are
dealing with in our case £800 million of capital investment a year for our entire business.
This is not an environment where it is easy to compete with a triple or quad play of services
on a shoestring. So the reality favours strength and size, because that is how to serve
customers best.
Q304 Bishop of Norwich: I want to explore where Government support should be most
focused. It has been put to us that Government subsidies are being awarded to owners of
the middle mile extending their networks outwards rather more than to communities and
the final mile wanting to build and connect a new network back in. Is that accurate, or do
you agree with our previous witness that it is a lack of enough of the middle mile that is the
real problem?
Andrew Barron: It will not surprise you to hear that I think it is horses for courses. I
apologise in advance that the problem is more complex than we would like it to be. When
you look at the infrastructural alternatives for individual areas, you will see that some may be
best served by state-of-the-art wireless, but on the fringes of the country even a satellite
connection might work best. Some have decent ducts and poles, but for whatever reason do
not yet have decent connectivity over the fixed line. You will see different levels of selfsufficient
economics for different areas. Some are marginal but close, while some are deeply
remote and would require significant subsidy to get two fixed infrastructures to them, or
indeed even one fixed infrastructure. I am afraid that it is a bit of a patchwork quilt, but the
way to address it is by using horses for courses and backing at the regulatory level several
different infrastructure investors—again, whether they are the mobile companies for 4G,
Fujitsu or an infrastructure owner with deep pockets and a long payback perspective—who
say, “We will invest”. You use the subsidy to top up on the margin in order to reach as
many as you possibly can. PIA has a role in some areas but it is certainly not a panacea for
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all. Overhead deployments have a role. Again, it is a patchwork quilt. To be honest, wifi in
terms of local reach round a single fibre drop has a role to play. In some ways it is similar to
4G.
Bishop of Norwich: I take that as an endorsement of the Diocese of Norwich’s plan to use
church spires and towers in rural areas in exactly that way. Thank you.
Q305 Lord Gordon of Strathblane: It is not fair to criticise government subsidies to
BT. In a way they are open to you as well if you go into rural areas, but you choose not to.
Andrew Barron: Yes, that is right. I am not criticising BT for hoovering up the available
money because it makes sense. However, I think it is a shame. The opportunity would be to
use those funds and the additional regulatory frameworks at our disposal—PIA and the
like—to incentivise alternatives to BT, because it will continue to invest at some level.
Q306 Lord Gordon of Strathblane: In a way, you are the biggest and best alternative
to BT. If you will not do it, why would someone a lot smaller than you do so?
Andrew Barron: Take Fujitsu, which has said very publicly that it would like to do this as a
long-term 20-year infrastructural owner. It would receive public money and thus open up to
some degree that it would build for multiple different service suppliers. We have said that
we are perfectly happy with that and would like to be one of them. There would be several
of them, but we have said yes.
Lord Gordon of Strathblane: That may happen, for all we know.
Andrew Barron: Shall we revert to this topic in a year or two and look back empirically to
see what did happen?
Q307 The Chairman: Are you saying that by virtue of the way the network is laid out
over the country, it is very likely, if not certain, that BT will in due course roll out quite a
bit? Therefore, when the public subsidy is being offered to BT, from the BT perspective, part
of it is a payment for bringing forward investment that otherwise would take place, and part
of it is the cost of doing it. However, if you are a third party, you are not in the position that
BT was going to do it anyway, and therefore it becomes more expensive.
Andrew Barron: We are not in the position that BT would do it anyway. It is more
expensive, but I think that you have to go back to one of the objectives. We are arguing this
on the basis of our experience, which is that where you foster competition, you will create,
as in our case, 20 years of sustained private investment.
Q308 The Chairman: I am trying to look at this in another way because I was in
Government. As we all know, Governments are mean and they do not want to spend any
more money than they have to. Is it the case that, because of the physical nature of the
network, it is almost certain that if BT does it, it will cost less than if anyone else does it?
This is the stuff in the final third.
Andrew Barron: If your objective—again, this comes back to Francesco Caio’s point of view
put earlier—is to continue to invest as much as you can in the existing copper network and
thus eke the most out of it, and to bring forward acceptable service levels to a larger
number of people by a year or two, that is probably the most effective use of public money. I
am arguing for a slightly different objective. Francesco Caio argued that fibre should go
deeper and that we should deliberately skew policy towards pushing it all the way into the
home. There are instances where policy should be skewed so that we can get really good
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infrastructure—people use the term “future-proof”, but I refer to infrastructure with a more
extended life—into the ground that will provide 20 years of life and competition at speeds
that are unimaginable compared with where we are today.
Q309 The Chairman: I accept that. I think that a more sophisticated version of the
argument can be put to you. Putting it more or less in these words, if you could eke out the
copper network by improving it, it is generating money. If it generates more money now, it
actually means that it is more economic for the provider of the infrastructure to generate
profits which can then go into rolling out a better network later when the requirement for it
is greater than it is now, bearing in mind that much of what people use the network for is
for the kind of things which at present do not require much bandwidth. I am just putting the
argument; I am not saying whether I buy it or not.
Andrew Barron: Our experience to date is that uses of bandwidth have more than kept up
with the sources of bandwidth supply. First, what seems to be pertinent at the moment will
be overtaken in due course. Do not ask me how, we are just observing a trend. Secondly, a
fundamental point is that it depends on whether you are trying to set up a structural
intervention in these markets that, over 25 years, creates a sustainable dynamic of improving
service, with self-sustaining competition, improving services and the reinvestment of profits,
or whether you are looking for a tactical intervention to improve the existing infrastructure
by a year or so—those are my words—and regulate a single incumbent by splitting it in two
with the services put on top. That is a heavy touch model. What we are contributing here is
that in our experience, going all the way back to the 1980s when our network was set up,
the competitive dynamic has worked better than most people would have thought.
Lord Gordon of Strathblane: For the avoidance of doubt, the cable network went bust.
Andrew Barron: Yes, it did. At one stage the investors and bond holders lost out, but the
customers are now sitting on an absolutely state-of-the-art European network with cuttingedge
services.
Lord Gordon of Strathblane: Only because Virgin took it over and very imaginatively
used it for fibre. Prior to that, the cable network was a goner in this country.
Andrew Barron: We upgraded aggressively, but the basic infrastructure was already in place.
We took the physical wire, if you will, and put new boxes on each end to make it perform
better. Frankly, that is the nature of the industry these days. Almost anyone would have
aggressively put more bandwidth in at faster and faster speeds. That is what customers are
clamouring for.
Q310 Lord Clement-Jones: Can I come back to the point about market-entry
investment competition that we were discussing earlier? You mentioned Fujitsu and what it
is up to. Is that a mixture of access over your and BT’s fibre along with its own investment,
or are we talking about yet another trunk network that Fujitsu is going to place? I do not
mean the enterprise business, which I suspect is rather different because it is where you
share. I am talking about consumer services.
Andrew Barron: If you are setting up a core network, you have various choices from which
you could source it or, indeed, whether you would build portions of it yourself. The tricky
bit is the last mile or the middle mile—the final reach, if you will.
Lord Clement-Jones: So are you going to give access to Fujitsu?
Andrew Barron: Yes. If we did not, somebody else would. There are many sources of
competition.
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Q311 The Chairman: When you say the last mile or the middle mile—these slightly
interchangeable terms can be slightly confusing—are you basically saying that it is the bit
outwith the exchange, or is it the bit out from the core of the network into the exchange?
Andrew Barron: It is fibre deeper, and then you get into various technology choices.
The Chairman: What does “deeper” mean?
Andrew Barron: Deeper means closer to the customer. It is fibre to the exchange, fibre to
the cabinet. Fibre ever closer to the customer gives you inherently higher speeds. We are
fortunate in that the topology of the cable network as it was built already pushed fibre very
deep into the network. Basically, Infinity is about starting the process of pushing its fibre not
quite as deep, but deeper.
Q312 Lord Clement-Jones: What is Fujitsu’s model in that context? Is there room for
Fujitsu to enter the market?
Andrew Barron: That is a question for Fujitsu, but if it had access to some of the existing
civils infrastructure—ducts, poles and the like—that would put its own network deeper and
it would start to aggregate customers in local areas.
Lord Clement-Jones: Is that a way of getting further coverage?
Andrew Barron: Again, it is partly a game of scale. Once you have the fibre in deep, you can
build from there. It is very topographical.
Q313 The Chairman: As we have heard, since last year Ofcom has had the power to
impose obligations on those who do not have significant market power. You told us earlier
that you offered the equivalent of ALA voluntarily on your networks. Do you think that
having a much more comprehensive set of rules about the terms and ways in which people
can gain access to other people’s networks would be a good thing? Is it something to which
you would subscribe as a matter of principle?
Andrew Barron: No. There are two entirely separate scenarios here. One is where private
investors have put in money to generate a return. They compete fairly and squarely against
alternative infrastructures for consumers and reap rewards as a result. Another is where
you take public money—a subsidy at some level—to create a good for consumers. In that
case, it is only fair that you should have a series of obligations tied to that public money to
create competition or access to those assets.
Q314 The Chairman: If you argue it that way, how do you draw a line to mark where
subsidy starts?
Andrew Barron: I think that you look for harm or potential harm. There are areas where
competition is clearly working and areas where market realities mean that either it is not
working or it is unlikely ever to work. You have two entirely different scenarios. A lot of
what is going on at the moment blurs the edges of that. Perhaps they deserve to be rather
different scenarios.
Q315 The Chairman: I take that point, but in this context what is a subsidy? Is it the
ability to offset losses in one part of one’s business against profits in another? Or is it a
dollop of public money that is given by central or local government, hypothecated for a
particular purpose? What you said was intellectually clear, but how do you interpret its
practical application in the real world?
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Virgin Media – oral evidence (QQ 283-319)
Andrew Barron: I think that public subsidy is best targeted to make a difference where
private investment by itself will not quite reach. It bridges the gap to make a compelling and
sustainable economic case for building and extending infrastructure in those cases. It tops up,
as opposed to creating unnatural behaviour. It is about making a market and tipping
investment that is almost there over the edge. That has happened quite effectively in a
number of other markets. I want to leave you with the thought that it is not just money;
there are a whole series of interventions that can support this sort of activity that are not
directly tied to releasing public funds. They are the likes of the PIA. A whole host of
initiatives that support digital Britain do not call on the public purse.
Q316 The Chairman: In your definition, do those interventions amount to subsidy or
not? They give the beneficiary a financial benefit.
Andrew Barron: I think that it is entirely fair, when public money is spent, that something
should be asked in return. Again, it will be horses for courses. The amount of BDUK money
available for Surrey was £1.3 million. That is unlikely to make a massive difference to
network evolution in Surrey. In other counties the numbers are larger, but they are still
relatively small compared to the infrastructure investment projects of ourselves, BT, Cable &
Wireless and even Fujitsu. We are talking about tipping points. The question is what it is
appropriate to ask in return for tipping the private investment of Fujitsu or whoever into an
area where otherwise it would economically fear to tread.
Q317 Lord Gordon of Strathblane: In the 30-odd years since cable companies were
set up, the company in my area has failed even to think about connecting my house, and I do
not expect you to do so, either. For that reason, is it not sensible to offer a subsidy to the
only player who will do something for me in the way of provision of broadband, because you
will not do it?
Andrew Barron: There are lots of alternatives. We build 150,000 homes a year on average,
so we will continue to extend the network. I suspect that you are in a 4G area. You will
have seen that Three, for example—even before 4G—has launched web cubes that take
mobile internet and turn it into domestic internet. It is a Huawei device. I do not know
where you live, but I suspect that there are multiple ways of reaching your home with
acceptable broadband other than through BT.
Lord Gordon of Strathblane: I will seek some free advice from you afterwards.
Q318 Lord Bragg: There is not much time left. I have enjoyed the session and have been
very well informed. I will cut to the chase in my question. What would you do now to get to
where you think we should get ASAP?
Andrew Barron: I would do two or three things. There should be a careful consideration of
whether the available public funds are going for the good of the have-nots. We touched on
that quite comprehensively. There are a number of other things in the broadband space that
we did not discuss that are worth flagging up and that are in various levels of progression. I
will touch on a couple of headlines.
In the area of content models—legal content models—there is a clamour for leadership at a
political, legal and even moral level about how the internet is to work. There is a lot of
pressure on individual ISPs, of whom we are but one, to make judgments about that stuff,
which we are ill equipped to make. I would argue that we are not confident or qualified to
make them. We need support and intervention, and holistic frameworks from government,
the courts and consumer groups to start to guide all of us on our rights and responsibilities
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Virgin Media – oral evidence (QQ 283-319)
Q319 Lord Bragg: That is very comprehensive. Do you think it is going to happen?
Andrew Barron: I think that it has to happen.
Lord Bragg: But do you think that it is going to happen?
Andrew Barron: I am an optimist.
The Chairman: Perhaps that is a good note on which to end. Thank you very much
indeed. You have been very helpful.
743

Vodafone – written evidence
Vodafone – written evidence
Introduction
1. Vodafone welcomes this timely inquiry into the Government’s superfast broadband
strategy. Whilst your call for evidence focuses on the provision of fixed-line broadband, our
response draws attention to the crucial role that mobile broadband will play in extending
broadband coverage in the UK.
The importance of mobile connectivity
2. The pace of change in the way people use digital communications services over the
next two decades is going to be rapid. Total UK internet traffic is expected to increase by an
average of 37 per cent every year between 2010 and 2015, and traffic on mobile networks is
already growing 84 per cent year on year. By 2015, we expect it to account for 11 per cent
of total internet traffic.
3. While fixed networks are more often used for bandwidth-intensive services such as
video or catch-up TV, mobile is currently often used for productivity tools through
smartphones like email, mobile apps and social media. Indeed, more users are accessing the
internet on mobile devices, whether through mobile or Wi-Fi networks, and the next
generation of mobile communications (4G or LTE) which will be many times faster than 3G
will shift this dynamic much further. The rapid adoption of smartphones and tablet devices –
penetration has doubled in the past two years – will also sharply increase this growth over
the coming years. Today, 90% of the new contracts we sell come with smartphones.
4. The importance of increasing broadband coverage to as many people as possible
cannot be overstated. It is extremely important for social reasons but more connectivity also
means more economic growth. A recent report commissioned by Vodafone by the research
consultancy AT Kearney (a copy of which can be found here:
http://www.atkearney.com/index.php/Publications/the-internet-economy-in-the-unitedkingdom.html)
found that the UK internet economy is worth £82 billion per year. Mobile
connections make up 16% of this contribution, and every £1 spent on internet connectivity
(both fixed and mobile) generates £5 of revenue for the wider UK ecosystem.
5. The economic case for extending broadband is therefore not in question. And
neither, we believe, is the case that mobile must form an essential part of that. Any
broadband solution that can keep pace with the way consumers and businesses access the
internet must involve a mix of both fixed-line and mobile broadband.
6. The UK mobile industry is a rare, if not, unique part of national infrastructure
because, unlike fixed telecommunications, roads and railways, it has not previously had
significant financial support from the Government. The development of Vodafone’s mobile
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Vodafone – written evidence
network that is now regarded as so essential to the country has been funded almost
exclusively through private investment. However, Vodafone believes there are a number of
things that the Government and Ofcom can do to ensure that mobile does play a significant
part of providing superfast broadband coverage, particularly in the hardest to reach areas.
4G spectrum auction
7. Ofcom will soon finalise the rules governing the auction of the next generation of
mobile spectrum for the delivery of 4G services. Ofcom have recently published a revised
consultation on the rules for this auction, and we largely welcome the progress that has
been made. However, there are still some vital areas which we believe need to be
addressed.
8. As set out above, one of the challenges for the UK is to create an environment that
encourages private investment in connectivity and networks. One aspect of getting this
environment right is the revised annual licence fee for spectrum that will be imposed
following the 4G auction.
9. Even under the revised rules for calculating the annual licence fees for spectrum after
the auction, we still face uncertainty which makes decisions about the levels of investment
difficult to make. The UK is already one of the most expensive places in the EU to use
spectrum. We have much lower margins in the UK than our European counterparts which
are around 10% on average less than other member states. High spectrum fees coupled
with lower margins ultimately could put pressure on network investment.
10. Therefore, we are calling on the Government to make it clear that the objective of
the re-valuation of spectrum after the auction is to ensure efficient spectrum use rather than
to raise money at the cost to broader investment and economic growth. Ofcom should then
settle early on a preferred methodology for calculating the new licence fee that is in line with
such an instruction and which takes full account of the difference in value between the
spectrum we already hold and the type that is being sold in the auction.
11. Finally, we strongly believe that holding a completely open auction, where there is no
minimum spectrum holding guaranteed for any particular participant, is the best way to
achieve a competitive 4G service rollout. While some changes have been made in this
direction, we still question the special protection that is still being provided for a fourth
operator.
Improving mobile phone coverage
The Government has recognised that connectivity has a direct impact on economic growth.
The Treasury has pledged to invest £150m in mobile infrastructure. This is the first time that
public money has been used by the UK Government in a nationwide project. In contrast
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Vodafone – written evidence
with the fixed broadband market, this is the first major nation-wide public subsidy our
industry has received. The Department for Culture, Media and Sport recently consulted on
how to best deploy the funding available for the Government’s ‘mobile infrastructure
project’ (MIP).
12. We welcome this additional support for the UK’s mobile communications
infrastructure. However, unlike other major infrastructure investments where it widely
accepted that the UK can be an expensive place in which to invest, we don’t believe that the
cost associated with rolling out a mobile network has historically been fully recognised. We
feel MIP is a great opportunity to focus on how the costs of building and running a network
can be reduced through addressing some of the policy challenges mobile and other
companies building digital infrastructure face. We believe that Government has an
opportunity to unlock greater private investment and extract maximum value for its £150m
by introducing a number of public policy reforms that could reduce the cost of network roll
out.
13. We believe there are six main areas where Government - both central and local -
could help improve the commercial viability of network infrastructure investment:
a) Streamlined planning procedures. Many delays during the planning process are caused
by tokenistic opposition which is more often than not overturned on appeal. Delays add
significant actual costs, as well as the opportunity costs for the local economy. Government
should consider simplifying the planning process to facilitate mobile telecommunications
development.
b) Reform of the Electronic Communications Code. The current system of high annual
ground rents for the lifetime of the site imposed by the code is one of the greatest
disincentives to the rollout of mobile coverage and should be reviewed.
c) Access to Government and wider public sector land and buildings. Public bodies
could support both MIP and mobile network roll out by providing free access to publicly
owned sites. Some local authorities still have a presumption against using their land for sites.
We would argue that there should be a presumption in favour of use.
d) Access to BT backhaul. Where MNOs are serving rural areas, the cost is brought
down considerably by using the BT backhaul network at affordable rates, or using BT ducts
and poles for self-deployment. Where public money has been invested through BDUK,
access should be provided at an appropriate cost rate. This principle should be applied to
both MIP and MNO network investment.
e) Spectrum Fees. In addition to our comments under paragraphs 7-11, if operators
need to conserve operating costs because of high spectrum fees then this could impact the
money available to invest in sites where the economic case is marginal. A balance needs to
be struck between fees and network investment.
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Vodafone – written evidence
f) Energy installation. Rollout can be held up by slow action to install power to new
sites. The Government should work with the energy companies to ensure minimum levels of
service at a reasonable cost.
The role of innovation
14. Innovation can provide answers to network coverage challenges. It is essential that
companies are encouraged to invest in the necessary R&D that leads to new innovative
products and are then allowed to benefit from this innovation when the projects are
launched commercially. Regulation needs to encourage innovation and feel comfortable with
companies gaining market share through these products.
15. A good example of Vodafone’s innovation solving coverage challenges is the femtocell
technology products we have developed. Customers with access to at least 1Mbps fixed line
broadband but with little or no Vodafone signal in their home can purchase our Sure Signal
unit which uses femtocell technology to provide 3G coverage indoors. The technology
allows customers to use their fixed line broadband signal to connect to the Vodafone
network. It can help to plug gaps where there have been challenges with rolling out
traditional network infrastructure for economic, technological or socio-political reasons (like
planning objections).
16. We recently asked for 12 local communities to get involved in tests of a public
outdoors version of the femtocell technology called open femto. This innovative could
provide rural communities with a more affordable way of getting mobile internet 3G
network coverage. We are currently finalising the locations for these trials, having received
tremendous support from local communities.
Conclusion
17. We are strongly committed to putting the mobile internet into the hands of our
customers. The economic benefits of investing are clear, Mobile internet is rapidly moving
from a nice to have technology to a must have every day essential for individuals and
businesses. Its use is predicted to rise exponentially. We believe that this rapid change
demands a shift is emphasis in the approach taken by Government at both local and national
level to solving the challenges faced when rolling out digital infrastructure. We hope and
believe that this inquiry will make an extremely helpful contribution to the debate.
March 2012
747

Vodafone and Three – oral evidence (QQ 354-378)
Vodafone and Three – oral evidence (QQ 354-378)
Submission to be found under Three
748

Vtesse Networks – written evidence
Vtesse Networks – written evidence
Vtesse Networks operates an advanced Next Generation optical network, connecting a
range of large companies’ data centres to their users. It has operated since 2001 and has
some of the largest companies in the UK as its customers. For example, we helped to keep
the UK banking system solvent though the worst of the recent financial crisis in 2009 by
supporting transfers from one of our major customers to the other clearing banks.
Several years ago, we identified the increasing need for high speed residential broadband
improvements in the Final Third – those parts of the country outside the Virgin Media
footprint where BT had no plans to invest in Superfast Broadband without subsidy. We drew
the importance of this to the House of Commons BIS Select Committee prior to the last
election, and understood from it and its report that there was a general cross-party
agreement of the importance of solving the problems of the Final Third.
We provided comprehensive information on the barriers to entry to the Final Third in our
submission to the then House of Commons BIS Select Committee in September 2009 and
also gave oral evidence. The full report is available to Members. Our written evidence can be
found at:-
http://www.publications.parliament.uk/pa/cm200809/cmselect/cmbis/memo/broadband/ucm2
602.htm
I would urge the Committee to read our 2009 submission as, in our view very little material
progress has been made since then.
We have undertaken trials in Hatt, Saltash (both in Cornwall) and north of Rugby, and two
settlements in rural Hertfordshire. We have also undertaken trials of Fibre to the Premises,
details of which can be found on YouTube at:-
http://www.youtube.com/watch?v=5w4kM3yhOik
The regulatory and fiscal barriers we identified in 2009 still remain.
As a result of these, we have decided not to proceed with further roll-out of residential
services, and no longer engage with BDUK.
We have also applied to the EC General Court to have the decision of the European
Commission approving state aid to BT in Cornwall set aside. In our view any contest where
the market was foreclosed to us by BT’s refusal to allow us access on non-discriminatory
terms to its infrastructure should not have proceeded without a full investigation by the
Commission. This is case reference T-362/2010. We would be happy to provide further
information on this if the Committee so requested.
I would also be happy to provide oral evidence.
If there are any further questions the Committee or its secretariat has, then I would be
more than happy to supply it.
12 March 2012
749

Wispa Limited – written evidence
Wispa Limited – written evidence
Q. What is being done to prevent a greater digital divide occurring between people who can
access superfast broadband...Is a universal service obligation necessary to avoid widening the
digital divide?
A. The essential strain that is being placed on any funding, is a fundamental lack of
understanding with regard to the way in which broadband is being delivered. Broadband is
not a function of infrastructure - infrastructure exists to facilitate broadband. The widening
divide is evident and accelerating, due to the insistence of intervention organisations (Govs
and Ofcom) trying to 'pick' the right technology to invest in. Once these blinkers are
removed and outcomes are the focus, the divide will close.
Q. The Government have committed £530 million to help stimulate private investment – is
this enough and is it being effectively applied to develop maximum social and economic
benefit?
A. £530m is enough. But it is enough to stimulate, not 'fix' a market.
The Gov (via BDUK) restricted the involvement of niche suppliers (sub

Wispa Limited – written evidence
Q. How will individuals and companies use cloud services for distributed storage and
computation? What network properties are required to enable efficient provision and use of
such services?
A. It is very easy to look at Cloud and think that it is the way that will we all compute. It may
be (and indeed is used a great deal already) but it is just another innovation in the comms
industry. If we treat it in the same way as streaming, online gaming, etc and allow it to simply
be a market force, we can concentrate our efforts on what is important - universality. By
making broadband ubiquitous and reliable, the industry and innovators will find ways for
their technology to deliver what users require.
Q. To what extent will the advent of superfast broadband affect the ways in which people
view, listen to and use media content? Will the broadband networks have the capacity to
meet demand for new media services such as interactive TV, HD TV and 3D content? How
will superfast broadband change e-commerce and the provision of Government services?
A. Answer as for cloud above
Q. Will the UK's infrastructure provide effective, affordable access to the 'internet of things',
and what new opportunities could this enable?
A. Answer as for cloud above
Q. Does the UK, for example, have a properly competitive market in wholesale fibre
connectivity? What benefits could such a market provide, and what actions could the
Government take to ensure such a market?
A. Ofcom is the single biggest failure in this area. They do not understand how to create
competition and subsequently little exists. BT
(rightly) focus on avoiding any Ofcom requirement affecting their business. As every Ofcom
requirement is punitive to BT, BT spend a lot of time and effort to make sure that they
continue to enjoy the market monopolization they have. Competition stimulation is not
about punishing a successful or monopoly organisation, more it is to reward a more open
and competitive environment. Remove or reshape Ofcom to meet this aim and the market
will take a significant leap. Leave a misguided and misinformed organisation to be responsible
and the Comms industry will continue to treat it with justifiable disdain.
March 2012
751