Some other countries (notably the developed economies in the Far East, the US metropolitan centres, urban France and the Netherlands) have taken an early lead in the deployment of next generation fibre-based or co-axial cable fixed networks. (Wireless technologies such as Long Term Evolution/ 4G and WiMax are also promising, but, within the constraints of available spectrum and devices are unlikely to be able to provide mass, very-high bandwidth services in the short term).
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A number of other governments are including next generation networks in their infrastructure development plans. The further development of next generation digital networks is part of the new US Administration's growth package; Germany has sought to combine a measure of regulatory and fiscal incentives to encourage its main telco to upgrade to fibre. Other governments are adopting innovative financial approaches to bring forward such upgrade investment. The Australian A$5 Billion public broadband development tender includes a public capital instrument with an unspecified interest coupon: bidders for the tender offer their own values for that coupon. The Portuguese government is offering a public line of credit - albeit at commercial rates - to accelerate investment in fibre.
In the UK last year the Government commissioned the Caio Review to consider the UK's relative position and make recommendations.
The Caio Review In February 2008 the Government commissioned Francesco Caio (Vice-Chairman of Nomura International, and subsequently adviser to the Italian Government) to examine the barriers to investment in NGA in the UK. His six month review was based around discussions with stakeholders and review of existing evidence and analysis, and focussed on three main questions:
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1) Is the delay in the development of NGA translating to a competitive disadvantage for UK businesses and UK citizens?
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2) Will the market deliver an investment in NGA on its own, or should the Government intervene now through subsidies or a structural change in regulation to get the roll-out of NGA started?
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3) Is there a role for the Government to play in the development of NGA infrastructure and, if so, what type of initiatives ought it to pursue?
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In summary, the principal finding of the Caio review were that the short term case for a major government intervention was limited. First, drivers for investment in other countries were quite different in that the UK already enjoys high availability of current generation broadband, with good levels of take-up and a highly developed internet economy. Second, there were strong indications that the market was delivering investment in NGA, with Virgin Media and BT announcing plans for fibre roll-out. Third, despite the growth in internet traffic, there was little evidence that UK customers would suffer a short term detriment.
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Caio did though warn against complacency, stressing that broadband was important to quality of life and the competitiveness of the country, and that investment was not assured, being vulnerable to economic conditions and other developments. The Government and Ofcom should therefore play an active leadership role in determining the effective deployment of NGA. Caio recommended four sets of actions:
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1) Set out a framework for delivery of NGA, by defining the country's ambition and vision of the future.
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2) Launch a set of initiatives that do not distort the market but provide further momentum to the deployment of NGA. These included accelerating spectrum release, lowering build-out costs through better streetwork coordination and allowing overhead deployment, and supporting local open access network developments.
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3) Establish a structured permanent benchmarking process to monitor the development of NGA in the UK and in relation to other countries.
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During the Caio review and since its publication, consumer and market developments have continued apace. Virgin Media is rolling out its new 50MB/s cable broadband service to 95% of its base during this year (Virgin Media's network passes slightly more than 50% of UK homes). This service is offered to customers at £35 per month plus line rental. In July 2008, the Virgin Media CTO announced the intention to provide 200Mb/s by 2012.
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BT Group plc announced in July 2008 its plans to invest £1.5bn in Next Generation Access networks over five years, of which £1bn was incremental to planned investment. (BT is already engaged in a major upgrade of its core network as part of the '21CN' programme). Their announcement promised delivery of download speeds up to 40Mb/s to 10m homes by 2010. BT has stated that the deployment will involve a mix of fibre-to-the-home and fibre-to-the-cabinet solutions. This investment was identified as contingent on certain regulatory decisions, such as the rate of return on capital and rules on network access for BT's competitors.
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BT announced in October 2008 that Muswell Hill in north London and Whitchurch in South Glamorgan would be first sites for deployment of fibre-to-the-cabinet, with the trials involving up to 15,000 customers in each exchange. Work in Ebbsfleet, where new-build properties are being equipped with fibre-to-the-home, is ongoing.
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In addition there is a new breed of small, entrepreneurial companies offering Next Generation Broadband using a variety of different technology and innovation approaches. They sometimes using primary infrastructure that has not traditionally been used for communications networks (in the same way that Energis, now part of Cable & Wireless, used electricity and railway infrastructure for their core Business-to-Business network).
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Competing NGA infrastructures can drive down prices. But they can also drive availability, particularly as mobile operators seeks to offer users the additional benefits of mobility at increasingly higher speeds, and make available national offers which fixed line players have to counter.
If these investments are carried to completion, we can reasonably expect at least half of the UK population to have access to NGA services and possibly a periphery around that- perhaps as much as 60 per cent or even more.
The Government welcomes these initial investments and will continue to look, in turn, at what more can be done with industry to provide a framework that is supportive of those willing to engage their capital to establish enduring networks for the future.
In some countries, regulators and governments have developed NGA strategies based on 'regulatory forbearance'. This means encouraging investment by allowing operators to construct monopoly access networks, with no regulation to allow their competitors access to that network. While we are not persuaded by the case for such absolute regulatory forbearance, the Government firmly believes that, where returns must be regulated, higher risk infrastructure investment justifies higher rates of return. It is welcome that Ofcom recognises that its regulatory framework needs to reflect that principle.
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Unlike the current generation of broadband which flows off an already ubiquitous, sunk network (both physically and in cost terms), every additional home or business connected to Next Generation fixed networks represents new network build. This traditionally has a long (7-10 year) payback period, even allowing for uncertainties in the market, competitor decisions, and consumer take-up.
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We cannot now know the exact percentage of homes to which the market, with current incentives, will roll out Next Generation broadband. But as a nation the UK will need widespread Next Generation Access networks by the middle of the next decade, even if they do not become universal for some time after that. We should start to plan now and therefore return to this challenge later in this section.
Growing consumer demand requires at least the current level of investment which the market is currently promising to spend on new network capability in core, backhaul and access networks. That demand has accelerated over the past year. The UK's current network infrastructure is beginning to be tested by consumer demand for real-time, streamed access rather than downloads, as shown by the higher than expected use of video sites such as the iPlayer, which went from nothing to 41m programme requests per month within a year[1] .
The UK has enjoyed a sustained period of development of its first generation broadband network, with low prices and investment in the copper network to deliver good levels of service. But the UK might soon reach a stress-point at which the ability of that network to deliver further sustained improvements is strained.
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Much of the debate around next generation networks confuses two separate issues. On the one hand, there are apparently exciting maximum speeds of 50 Mbps, 100 Mbps or more, that serve as national or corporate headline symbols in the broadband world. On the other hand, most users experience average speeds that do not match the broadband headline claims. To use an analogy with transport infrastructure, it is akin to the difference between a car's theoretical top speed and the length of time a journey actually takes and whether you encounter any traffic jams on route.
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At this stage, demand for services requiring maximum speeds of 100Mbps is very uncertain. But between now and 2012 demand for average speeds of 20Mbps is likely.
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There are already the early signs of congestion in first generation broadband, particularly for video use in peak times. This is most noticeable in the shared parts of the fixed networks (in access and backhaul). BT's 21st Century Network programme will play a part in upgrading the network, but it is still reasonable to expect that congestion will become more acute as more people make increasing use of high-bandwidth applications. It will also be particularly acute in small town and rural areas, not served by cable and who already have much lower average speeds than dense urban areas.
These factors have an important bearing on how the market evolves next generation networks. A very high proportion of the costs involved arise from primary infrastructure, i.e. digging up the streets to install fibre in existing ducts or creating new ducts where the current network is inadequate.
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In some other countries, the emphasis has been on fibre-to-the-home (ftth). In new building developments, this is evidently sensible: essentially the same costs would be incurred whether fibre or copper were installed. But for the majority of existing urban households and small/medium-sized businesses upgrading the network to fibre from the digital exchange to the street cabinet may well be the sensible step for many years to come. It could involve less disruption and substantially lower cost. The Broadband Stakeholders' Group's research shows that this could achieve national coverage of next generation networks that would provide the desired 20Mbps average speeds for about one fifth of national fibre to the home coverage (£5Bn versus £25Bn).
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Against this market and consumer backdrop, the Government remains of the view that its key role is in helping the market in the timely delivery of upgraded network capability.
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But this should not lead to a sterile debate about intervention versus laissez faire. The Government and public policy already intervenes in many ways: through the sectoral regulatory framework, as a purchaser of goods and services, as the ultimate guarantor of the financial and credit system, as a significant deliverer of goods and services to Britain's citizens, and through the incentives or disincentive signals that the tax, rating and wider framework send out.
The developments, both in the domestic UK market and internationally, over the past year since the Caio Review started have tilted the balance between the two strands within the Review's conclusions- watching and leading- towards the latter. The existing network will meet many users' needs for some time to come. But if a substantive planning cycle for material network upgrade is not launched soon, then the UK will not have the necessary infrastructure in place when it needs it.
ACTION 1
We will establish a Government-led strategy group to assess the necessary demand side, supply-side and regulatory measures to underpin existing market-led investment plans, and to remove barriers to the timely rollout, beyond those declared plans, to maximise market-led coverage of Next Generation broadband. This Strategy Group will, by the time of the final Digital Britain Report, assess the case for how far market-led investment by Virgin Media, BT Group plc and new network enterprises will take the UK in terms of roll-out and likely take-up; and whether any contingency measures, as recommended by the Caio review, are necessary.
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Secondly, the Government recognises the importance of a regulatory framework that provides predictability and is supportive of investment. Assessment of the right regulatory approach is for Ofcom as independent regulator, but the Government needs to ensure that Ofcom has the appropriate powers and duties to deliver the right balance between investment and competition.
Ofcom has set out clear regulatory principles, consistent with market-led development. Ofcom is also consulting on options for ensuring next generation network competition. Options range from a wholesale product provided by BT to competitors to direct access to the electronic equipment in BT's physical infrastructure or indeed to the ducts themselves. Wholesale Ethernet products allow a much greater degree of product differentiation, and hence competition, than first generation broadband wholesale products.
Ofcom's competitive remedies are focused, in fixed line, on BT in those parts of the network where BT has Significant Market Power. The Government notes that there is a range of other providers who also have ducts and other primary infrastructure.
ACTION 2
Between now and the full Digital Britain Report, the Government will, while recognising existing investments in infrastructure, work with the main operators and others to remove barriers to the development of a wider wholesale market in access to ducts and other primary infrastructure.
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Internet Service Providers can take action to manage the flow of data - the traffic - on their networks to retain levels of service to users or for other reasons. The concept of so-called 'net neutrality', requires those managing a network to refrain from taking action to manage traffic on that network. It also prevents giving to the delivery of any one service preference over the delivery of others. Net neutrality is sometimes cited by various parties in defence of internet freedom, innovation and consumer choice. The debate over possible legislation in pursuit of this goal has been stronger in the US than in the UK. Ofcom has in the past acknowledged the claims in the debate but have also acknowledged that ISPs might in future wish to offer guaranteed service levels to content providers in exchange for increased fees. In turn this could lead to differentiation of offers and promote investment in higher-speed access networks. Net neutrality regulation might prevent this sort of innovation.
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Ofcom has stated that provided consumers are properly informed, such new business models could be an important part of the investment case for Next Generation Access, provided consumers are properly informed.
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On the same basis, the Government has yet to see a case for legislation in favour of net neutrality. In consequence, unless Ofcom find network operators or ISPs to have Significant Market Power and justify intervention on competition grounds, traffic management will not be prevented.
In terms of the wider regulatory framework, the Government accepts the detailed recommendations of the Caio Review.
* Ofcom has set out the framework for the deployment of Next Generation Access in new building developments; and
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* The Government is working to develop a publicly available specification to facilitate installation of NGA in new build properties as standard.
Caio also noted that Non-Domestic Rates add to the costs of development, but recognised that this would be true of any property tax. He said that lack of clarity about the potential business rates liability could add to uncertainty for new investors. He recommended that the Valuation Office Agency should provide updated and detailed guidance on the application of business rates to fibre. The Government is pleased that this has now been done. The guidance confirms that the pioneering allowance which has been applied for Cable TV networks will be similarly applied to investment in NGA and remain so for the period of the next valuation list (i.e. until 2015).
ACTION 3
The Valuation Office Agency has provided new, clear guidance which addresses the problem identified by Francesco Caio in his report, and will ensure that they respond to any queries from existing and new investors and maintain clear, helpful guidance. For its part, the Government will ensure that the guidance is widely understood by potential investors.
The Government is not persuaded that there is a case now for widespread UK-wide public subsidy for Next Generation Network deployment, since such widespread subsidy could simply duplicate existing private sector investment plans or indeed chill such plans. However, as suggested above, a significant proportion of households will fall into the group between current market-led planned deployment and the 'last few percent' of households. This gap reflects the difference between a widespread next generation broadband network, desirable for national innovation, efficiency and productivity gains, as opposed to, in the very long-term, universal access to the next generation network for reasons of fairness and equity.
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ACTION 4
We will, by the time of the final Digital Britain Report, have considered the value for money case for whether public incentives have a part to play in enabling further next generation broadband deployment, beyond current market-led initiatives.
The Caio Report also recognised that localised open-access models of broadband deployment had a potentially important role to play in Next Generation roll-out.
This is particularly true when a defined and relatively stable local community can be engaged in committing to demand for such roll-out. In the Netherlands, the OnsNet project in Neunen has direct commitment from a high proportion of residents in a local community to next generation broadband. This significantly alters the economics by
removing uncertainties over take-up. The issue then becomes long-term, stable finance.
A soft version of this model was successfully deployed by BT in the later stages of the roll out of first generation broadband to more rural communities. It has also been successfully deployed by organisations like the Community Broadband Network.
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Local Government and Regional Development Agencies too are working on broader roll-out of next generation networks as a central part of local regeneration and economic development strategies.
COMMUNITY BROADBAND. The Community Broadband Network is working with a range of groups across the UK, with a varying degree of regional development agency and local government support. Together, they can provide evidence of useful models for development of broadband beyond the plans of major telcos.
Alston Cybermoor is a localised community project in Cumbria which aims to provide a fibre-to-the-home network in the most sparsely-populated parish in England. A local project to obtain first-generation broadband led to the creation of Cybermoor, among the first community-run broadband projects in the UK. Cybermoor is now looking to maintain their pioneering position by investigating the opportunities for fibre-optic technologies. By taking an intelligent approach to network design, financing and harnessing the power of the local community to drive take-up, Cybermoor can become Fibremoor at a cost well below usual estimates for such rural locations.
West Whitlawburn Housing Co-operative (WWHC) is a progressive social housing provider on the outskirts of Glasgow. It is embarking on a project to build a further 100 new homes alongside their existing flats, and is keen to offer their tenants the kinds of services being enjoyed by their counterparts in mainland Europe.
WWHC has appointed the Community Broadband Network to design and deliver a solution for new homes with the aim of fitting it to the existing homes soon after the building work is complete. WWHC set up a new co-op, Whitcomm, to organise the services. The fibre installation is a comparatively small percentage of the overall new build costs, funded by a mix of public and private financing.
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The Caio Report rightly pointed out the key risk of such local developments: that we could see the emergence of unrelated and incompatible 'islands of connectivity'. If local developments are to form the nuclei of a connected Britain beyond the point that the market will serve, they need interoperability and common standards.
An established set of standards could also provide ready-made template solutions of best practice, which local communities could adopt off-the-shelf rather than each having to start from scratch. This could, in turn, provide further momentum to local self-help schemes, in which the public sector needs play only a small part.
The Government is committed to working with community and local groups to develop interoperability and best practice standards to unite localised NGA projects.
ACTION 5
The Government will help implement the Community Broadband Network's proposals for an umbrella body to bring together all the local and community networks and provide them with technical and advisory support.
Posted by WriteToReply on January 29, 2009
Tags: Consultations
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