Broadband For All -- An Alternative Vision

Transcript

Select Committee on Communications INQUIRY INTO SUPERFAST BROADBAND Oral and written evidence Contents Aardman Animations – written evidence.......................................................................................... 4  Arqiva – written evidence .................................................................................................................... 8  Avanti Communications – written evidence ................................................................................. 17  Bentley Walker – written evidence................................................................................................. 20  Boundless Communications Ltd – written evidence ................................................................... 21  British Film Institute – written evidence ........................................................................................ 24  British Recorded Music (BPI) – written evidence ........................................................................ 29  Broadband Stakeholder Group (BSG) – written evidence......................................................... 39  Broadband Stakeholder Group – oral evidence (QQ 550-622) ............................................... 48  Broadway Partners – written evidence .......................................................................................... 68  BT Group plc – written evidence .................................................................................................... 74  BT Group plc – oral evidence (QQ 466-549) .............................................................................. 86  Buckinghamshire Business First – written evidence .................................................................. 110  Professor Peter Buneman – written evidence ............................................................................ 115  Francesco Caio – oral evidence (QQ 115-135) ......................................................................... 116  Click4Internet – written evidence ................................................................................................. 127  The Coalition for a Digital Economy (Coadec) – written evidence ...................................... 131  Dr Peter Cochrane OBE – oral evidence (QQ 29-74)............................................................. 135  Communication Workers Union (CWU) – written evidence ................................................ 150  Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) 157  Communications Consumer Panel – written evidence ............................................................ 197  David Cooper CEng MIET – written evidence ........................................................................... 210  Cotswold Community Networks Ltd – written evidence ....................................................... 216  The Country Land & Business Association – written evidence .............................................. 221  Creative Coalition Campaign – written evidence ...................................................................... 226  Cumbria County Council – written evidence ............................................................................. 230  David Hall Systems Ltd – written evidence ................................................................................. 236  Department for Culture, Media and Sport – written evidence .............................................. 241  Department for Culture, Media and Sport – oral evidence (QQ 748-809) ........................ 249  Department for Culture, Media and Sport – supplementary written evidence .................. 270  Digital Outreach – written evidence............................................................................................. 271  Directors UK – written evidence .................................................................................................. 275  Everything Everywhere – written evidence ................................................................................. 283  Everything Everywhere – supplementary written evidence ..................................................... 286  Federation of Communications Services – written evidence .................................................. 288  Federation of Small Businesses – written evidence ................................................................... 292  Fibre GarDen (the Garsdale & Dentdale Community Fibre Broadband Initiative) – written evidence ............................................................................................................................................... 296  Film Distributors Association – written evidence ..................................................................... 302  Forum of Private Business – written evidence............................................................................ 306  FTTH Council Europe – written evidence .................................................................................. 307  FTTH Council Europe and Communications Chambers – oral evidence (QQ 136-249) 313  Fujitsu – written evidence................................................................................................................ 314  Geo Networks Limited – written evidence ................................................................................ 316  Dr Tehmina Goskar – written evidence ...................................................................................... 319  GreySky Consulting – written evidence ....................................................................................... 321  Peter Griffin - written evidence ..................................................................................................... 326  Groupe Intellex – written evidence .............................................................................................. 330  Mr John Howkins – written evidence ........................................................................................... 334  Huawei – written evidence ............................................................................................................. 335  The Independent Networks Cooperative Association (INCA) – written evidence .......... 377  KCOM Group PLC – written evidence ....................................................................................... 383  Robert Kenny – written evidence ................................................................................................. 387  Leire Exchange Broadband Action Group – written evidence ............................................... 394  The Liberal Democrats Action for Land Taxation and Economic Reform (ALTER) – written evidence ................................................................................................................................ 396  Suvi Lindén – oral evidence (QQ 1-28)........................................................................................ 397  John McDonald – written evidence ............................................................................................... 410  Miles Mandelson – written evidence ............................................................................................. 415  Miles Mandelson and Rory Stewart MP – oral evidence (QQ 430-465) .............................. 426  Dr Christopher T Marsden – written evidence ......................................................................... 444  Microsoft – written evidence .......................................................................................................... 456  Microsoft – oral evidence (QQ 623-649) .................................................................................... 463  Microspec – written evidence ........................................................................................................ 474  Dr Catherine A. Middleton – written evidence ......................................................................... 476  Middleton Tyas Parish Council – written evidence ................................................................... 481  Milton Keynes Council – written evidence ................................................................................. 482  Tom Morris – written evidence ..................................................................................................... 485  Motion Picture Association – written evidence ......................................................................... 490  The National Education Network – written evidence.............................................................. 494  NG Events Ltd – written evidence ................................................................................................ 510  2 NICC Ethernet Working Group – written evidence ................................................................ 514  Northern Fells Broadband (Cumbria) - written evidence........................................................ 518  Objective Designers – written evidence ...................................................................................... 522  Objective Designers – oral evidence (QQ 75-114)................................................................... 526  Ofcom – written evidence............................................................................................................... 543  Ofcom – oral evidence (QQ 650-747) ......................................................................................... 556  Chi Onwurah MP – oral evidence (QQ 250-282) ..................................................................... 580  Chi Onwurah MP – supplementary written evidence ............................................................... 591  Parliamentary Office of Science and Technology (POST) – written evidence .................... 594  John Peart – written evidence ........................................................................................................ 598  Mike Phillips – written evidence ..................................................................................................... 600  Simon Pike – written evidence ....................................................................................................... 602  Pitchup.com – written evidence ..................................................................................................... 608  Prospect – written evidence ........................................................................................................... 610  The Publishers Association – written evidence .......................................................................... 621  Steve Robertson – oral evidence (QQ 320-353) ....................................................................... 625  Les Savill – written evidence ........................................................................................................... 639  South West Internet CIC – written evidence ............................................................................ 640  SSE plc – written evidence............................................................................................................... 643  SSE plc - oral evidence (QQ 379-407).......................................................................................... 649  SSE plc – supplementary written evidence .................................................................................. 660  Rory Stewart MP and Miles Mandelson – oral evidence (QQ 430-465) .............................. 670  Sunderland Software City – written evidence ............................................................................ 671  TalkTalk Group – written evidence .............................................................................................. 673  TalkTalk Group – oral evidence (QQ 408-429)......................................................................... 679  TalkTalk Group – supplementary written evidence .................................................................. 688  TalkTalk Group – further supplementary written evidence .................................................... 690  Taxpayers’ Alliance – written evidence ........................................................................................ 693  Three – written evidence ................................................................................................................ 698  Three and Vodafone – oral evidence (QQ 354-378) ................................................................ 702  UCL Centre for Digital Humanities – written evidence........................................................... 715  Upper Deverills Broadband Action Group (BAG) – written evidence ................................. 717  Virgin Media – written evidence .................................................................................................... 720  Virgin Media – oral evidence (QQ 283-319) ............................................................................... 729  Vodafone – written evidence .......................................................................................................... 744  Vodafone and Three – oral evidence (QQ 354-378) ................................................................ 748  Vtesse Networks – written evidence ........................................................................................... 749  Wispa Limited – written evidence ................................................................................................. 750  3 Aardman Animations – written evidence Aardman Animations – written evidence Summary 1. I am making this submission as Head of IT for Aardman Animations based in Bristol. 2. Aardman are a typical creative company living in the digital age. We are in the happy position of needing to push material out for many different types of clients and this gives us a great deal of industrial experience. Most companies don’t cover quite as many bases as we do, although their data needs may actually be higher. So what’s good for us will definitely be good for the industry as a whole. 3. The submission is based around comments on the list of questions in the ‘Will superfast broadband meet the needs of our “bandwidth hungry” nation?’ call for evidence document; the original question is prefixed with (Q) and is in red text. Response 4. (Q) What is being done to prevent a greater digital divide occurring between people who can access superfast broadband and people in areas where the roll-out of superfast broadband may not be commercially attractive? How does the UK communications market vary regionally and what is the best way to connect the areas that the market alone cannot reach? Is a universal service obligation necessary to avoid widening the digital divide? 5. A universal service obligation is needed, this would expand the ability of companies to utilise home working in particular which would have a significant green advantage whilst reducing company costs, many workers commute from poorly serviced areas, so it is these areas that could see serious advantages from improved broadband, it would also enable people with commitments to family at home or disabled people to be able to engage with the workplace from a home office opening up work opportunities that are difficult currently for many people. We need to ensure that rural communities are not penalised due to the far greater cost of rolling out the infrastructure for remote communities and seeing disproportionate charges etc. for the service. (Q) Will the Government’s targets be met and are they ambitious enough? What speed of broadband do we need and what drives demand for superfast broadband? 6. History of government projects tends to show that targets won’t be met and will fall short of what is expects, whilst costing far more than originally projected. 7. The digital world is moving forward at a huge pace, with broadband there is a focus on the download speed but never on the upload speed or contention, to succeed in a 4 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 5 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 6 Aardman Animations – written evidence does the expected demand for superfast broadband influence investment to enhance the capacity of the broadband network? 23. Multiple delivery methods definitely need to be part of the plan to ensure a broad reach for the service in all areas. 24. If investment does not run ahead of demand we will see an appalling service that hinders rather than helps the consumer. 25. (Q) What impact will enhanced broadband provision have on the media and creative industries in the UK, not least in light of the increased danger of online piracy? What is the role of the Government in assuring internet security, and how should intellectual property (IP) best be protected, taking into account the benefits of openness and security? 26. Enhanced broadband opens opportunities for media and creative companies to reach many more consumers in new and innovative ways. This does of course increase the risk of piracy and hacking etc. so all companies need to pay much more attention to security and data protection. 27. The government needs to put more funding and greater priority on internet security, making companies far more aware of the risks they encounter when working in cyber-space, possibly using legislation to ensure this happens, as in the finance industries etc. CONCLUSION 28. In my humble opinion the High speed broadband that is currently being proposed will fall short of the requirements needed for a competitive digital economy. We need to be looking at low contention synchronous bandwidth with speeds of 100Mb minimum and 1Gb requirements will not be many years behind this. 29. We also need to improve the delivery times for high speed infrastructure as this can be appalling and very expensive; even in supposedly highly connected cities. Councils need to work closer with the data companies to smooth the way here. 4 March 2012 7 Arqiva – written evidence Arqiva – written evidence Summary of Key Points and Recommendations: • Arqiva welcomes the opportunity to respond to the House of Lords Communications Committee’s timely new Inquiry into The Government’s Superfast Broadband Strategy. • The Committee are quite right to begin this Inquiry by focusing on the risk of a ‘digital divide’. Arqiva strongly believes that the real gain for UK plc is to achieve universal access to broadband - not to push fibre to a little over 90% penetration and then stop. We believe there would be a considerable opportunity cost (both economically and socially) if, come 2015, consumers who already have access to broadband were “superserved” with fibre… while millions who currently have little, or no, broadband provision remain under-served, forgotten or left behind. • Arqiva strongly welcomes the £530 million of public investment in broadband being managed by DCMS. Yet, it appears that the current broadband procurements by the Devolved Bodies and Local Authorities in the English Counties will still leave some consumers without access to broadband by the Government’s target of 2015. The emphasis placed on making superfast broadband (essentially fibre) as widely available as possible is a laudable aim - but there are insufficient funds to offer superfast to all. Some funding must be targeted at other solutions for those who will not be offered fibre. • Only by investing in wireless/mobile broadband alongside fibre can we ensure that the final 6-8% or so of homes can also have access to a minimum 2 Mbps service. • Arqiva welcomes Ofcom recent revised proposal to increase the coverage obligation from 95% of the UK population to 98% in the auction of 4G licences. This is positive news – however, by setting a UK-wide obligation, rather than measuring this obligation by Nation separately, England, Scotland, Wales and Northern Ireland may not benefit equally. • Arqiva also strongly welcomes the initiative by the Chancellor of the Exchequer to invest £150 million in improving rural mobile phone coverage. Although principally envisaged to address mobile voice “not spots”, it would be a missed opportunity if this Mobile Infrastructure Project (MIP) failed to secure 4G mobile broadband for affected consumers, as a complement to the 4G coverage obligation, not least since many of them would have no reliable fixed line broadband alternative. To maximise the effectiveness with which the £150 million in invested, shared infrastructure with shared backhaul should be procured by BDUK. • An essential element of the UK’s digital communications infrastructure needs to be consideration of how far the UK has managed to deliver pervasive mobile broadband and Wi-Fi – including on the London Underground and major train lines where coverage is currently either non-existent or, at best, patchy. Given that Transport for London and Network Rail are both public sector bodies there is a clear role for Government in addressing this. 8 Arqiva – written evidence About Arqiva Arqiva is a media infrastructure and technology company operating at the heart of the broadcast and mobile communications industry and at the forefront of network solutions and services in an increasingly digital world. Arqiva provides much of the infrastructure behind television, radio and wireless communications in the UK and has a growing presence in Ireland, mainland Europe and the USA. Arqiva is implementing UK Digital ‘Switch-Over’ from analogue television to Freeview – a huge logistical exercise which touches every Parliamentary constituency, requiring an investment by Arqiva of some £630m and which is successfully being delivered to time and budget. Arqiva is also founder member and Shareholder of Freeview (Arqiva broadcasts all six Freeview multiplexes and is the licensed operator of two of them) and was a key launch technology partner for Freesat. Arqiva is also the licensed operator of the Digital One national commercial DAB digital radio multiplex. Arqiva operates five international satellite teleports, over 70 other staffed locations, and around 9000 shared radio sites throughout the UK and Ireland including masts, towers and rooftops from under 30 to over 300 metres tall. In addition for broadcasters, media companies and corporate enterprises Arqiva provides end-to-end capability ranging from – • outside broadcasts (10 trucks including HD, used for such popular programmes as Question Time and Antiques Roadshow); • satellite newsgathering (30 international broadcast trucks); • 10 TV studios (including the National Lottery Live) • spectrum for Programme-Making & Special Events (PMSE) 1 ; • playout (capacity to play out over 70 channels including HD); to • satellite distribution (over 1200 services delivered). Elsewhere in the communications sector, the company supports cellular, wireless broadband, video, voice and data solutions for the mobile phone, public safety, public sector, public space and transport markets. Arqiva’s major customers include the BBC, ITV, Channel 4, Five, BSkyB, Classic FM, the four UK mobile operators, Metropolitan Police and the RNLI. Arqiva welcomes the opportunity to respond to the House of Lords Communications Committee’s new Inquiry into The Government’s Superfast Broadband Strategy. 1 Such as the wireless cameras operated by the BBC and Sky News, and the radio microphones used in virtually all television production and many West End shows. 9 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 10 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. 11 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. 12 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 13 Arqiva – written evidence lines where coverage is currently either non-existent or, at best, patchy. Given that Transport for London and Network Rail are both public sector bodies there is a clear role for Government in addressing this. Will the UK's infrastructure provide effective, affordable access to the 'internet of things', and what new opportunities could this enable? 23. The “Internet of Things” is a reference to pervasive “machine-to-machine” communications, where devices such as energy smart meters, connected TVs, connected fridges and connected cars unilaterally access the internet to communicate data about their performance, location, consumer usage data etc. Machine-tomachine communications is expected to grow exponentially, so that there will be many more devices connected to the internet than people, although the absolute amount of data generated may be relatively small. 24. If the UK’s infrastructure is to enable effective access to such communications, then it needs to be recognised that the “last hop” will almost always be wireless, so both availability of suitable spectrum and associated infrastructure where demand is likely to be generated are key considerations. 25. Access could not be regarded as effective if machine-to-machine communications were essentially precluded from the London Underground, major train lines or major roads (in that latter case, Intelligent Transport Systems are expected to be a major growth area where the UK should be positioning itself as Europe’s lead). To that end public sector bodies such as Network Rail, Highways Agency and Transport for London will have a role to play. How might superfast broadband change the relationship between providers and consumers in other sectors such as content? What aspects of this relationship are key to enabling future innovations that will benefit society? 26. It is too early to say with any certainty how superfast broadband will change relationships between providers and consumers in other sectors such as content. Arqiva notes that during the last decade the digital consumption of music and, for that matter books, has posed serious questions and challenges for the long-term future health of the music and book publishing world. The online legal purchase of music through iTunes and Amazon etc – as well as the ongoing challenges of illegal downloading has posed questions for producers, and rights-holders as well as the business models of traditional retailers including HMV, WH Smith and the defunct Woolworths. Superfast broadband may similarly pose challenges for linear broadcasting and the traditional public service broadcasters, with significant implications for investment in UK-originated content. However assuming that consumers will continue to overwhelmingly demand content of UK origin, then universal access to broadband will offer new routes to market for UK content producers outside of their traditional relationship with broadcasters. 27. Faster broadband will clearly be beneficial for households likely to demand simultaneous HD content, but in the medium term ensuring universal access to 14 Arqiva – written evidence broadband may prove to be a bigger enabler of new content opportunities than superfast. Whether broadband does change the relationship between content providers and consumers will also be influenced by ‘data caps’, where even in Standard Definition a single one hour programme could comprise 1GB of data. 28. For this reason, in addition to its universality, Freeview will continue to offer a more efficient means of offering a range of (increasingly HD) content to all consumers. What role could or should the different methods of delivery play in ensuring the superfast broadband network is fit for purpose and is as widely available as possible? How does the expected demand for superfast broadband influence investment to enhance the capacity of the broadband network? 29. Public investment will maximise the number of consumers who will be offered superfast broadband, where the vast majority will be offered a service based on Fibre-To-The-Cabinet (FTTC) rather than Fibre-To-The-Premise. But even FTTC would be prohibitively expensive to provide for many rural consumers, including many of the 30% of SMEs in rural areas which would be too small to justify their own dedicated Ethernet line, so would need consumer or small business ISPs for connectivity. 30. As we contend above, wireless/mobile broadband must complement fixed provision to ensure that broadband is as widely available as possible. Unlike fixed solutions, no roads need to be dug up and no ducts shared (not that there are many in rural areas anyway), so wireless broadband could be deployed quickly. 31. As already stated, given the limited commercial appeal to the market of offering broadband to the last 5% or so of the population, both Ofcom’s proposed 4G coverage obligation and the MIP are essential elements in ensuring that those consumers who won’t be offered superfast are still offered broadband of at least 2 Mbps. 32. There will still be some consumers for whom even wireless broadband would not be the most cost-effective solution. Where population density falls below 15 houses per km2, satellite is likely to be the cheapest broadband solution. However the level of monthly subscriptions and associated speed and data caps, latency, and even “rain fade” are issues with satellite broadband. Does the UK, for example, have a properly competitive market in wholesale fibre connectivity? What benefits could such a market provide, and what actions could the Government take to ensure such a market? 33. Ofcom must remain vigilant that the competition remedies in place continue to deliver the benefits that we have seen over the last decade, and explore alternative remedies in the future should existing remedies fail to sustain the level of competition that the market is capable of supporting. 15 Arqiva – written evidence What impact will enhanced broadband provision have on the media and creative industries in the UK, not least in light of the increased danger of online piracy? What is the role of the Government in assuring internet security, and how should intellectual property (IP) best be protected, taking into account the benefits of openness and security? 34. As already argued, universal and (on average) faster broadband connections have the potential to offer new ways for content producers to reach consumers. Faster speeds enable simultaneous consumption of HD content and should particularly provide new opportunities for the UK’s innovative games industry to extend successful franchises such as Grand Theft Auto to a real-time multi-player service. 35. It is not clear what the relationship might be between piracy and superfast broadband; one view is that improved infrastructure may better support attractive legal services that would entice the consumer away from illegal services; another is that more bandwidth will support more piracy. In any event it is probably not helpful to link the two issues too closely and instead focus on the current remedies being pursued now in relation to the protection of IP online. In addition, a move to cloud services and initiatives such as UltraViolet may help to reduce online piracy. 13 March 2012 16 Avanti Communications – written evidence Avanti Communications – written evidence What is being done to prevent a greater digital divide occurring between people who can access superfast broadband and people in areas where the roll-out of superfast broadband may not be commercially attractive? ANSWER The phrase super fast broadband is misleading. No government report has adequately explained why 24Mb is necessary. Fibre provides this kind of peak speed, but only in urban areas, so why promote this as a national target? But one could alternatively choose to prioritise a technology which provides 100% geographic coverage at 10Mb as satellite does. The Broadband Stakeholder Group, in its work leading up to the Carter Report did NOT recommend a 24mb standard. We believe that government has got carried away promoting a technical standard which is unnecessary, impractical and not at all analysed or clearly understood. 24Mb would only be necessary if multiple occupants of a dwelling were simultaneously watching streaming high definition television. Is this an objective worthy of government subsidy, when HD television is universally available at lower cost with BSkyB? The provision of fibre on a universal, national basis is a preposterous notion which ignores fundamental economics. If the £530m is spent on fibre, it will either: A) subsidise investments which would have been made anyway in densely populated areas, or B) fund pilot projects which are not economically viable and will end when the subsidy ends. Government objectives should instead by re-prioritised to make sure that every family in the country has a minimum 2mb broadband service. Satellite can provide 10Mb universally and should therefore be the technology of choice. How does the UK communications market vary regionally and what is the best way to connect the areas that the market alone cannot reach? Is a universal service obligation necessary to avoid widening the digital divide? ANSWER There is no such thing as a region that the market cannot reach. Satellite can provide 10Mb everywhere. The installation costs of up to £400 can be a barrier for some families or their service providers but are VASTLY lower than the enormous cost of laying fibre outside cities. The Government have committed £530 million to help stimulate private investment – is this enough and is it being effectively applied to develop maximum social and economic benefit? 17 Avanti Communications – written evidence ANSWER No, it should be target first at Universal service. Will the Government’s targets be met and are they ambitious enough? What speed of broadband do we need and what drives demand for superfast broadband? ANSWER The government will fail to ensure that every family has broadband because it is wasting money on unnecessary pilots with the wrong technology. Every child should have access to broadband regardless of family income, and every job seeker should have the same access to information. In fact, are there other targets the Government should set; are there other indicators which should be used to monitor the health of the digital economy? What communications infrastructure does the UK ultimately need to remain competitive and meet consumer demand over the next 20 years? ANSWER Universal Service should be mandatory. How will individuals and companies use cloud services for distributed storage and computation? What network properties are required to enable efficient provision and use of such services? No comment To what extent will the advent of superfast broadband affect the ways in which people view, listen to and use media content? Will the broadband networks have the capacity to meet demand for new media services such as interactive TV, HD TV and 3D content? How will superfast broadband change e-commerce and the provision of Government services? ANSWER The highest profile media will remain broadcast because it is time sensitive, and this is overwhelmingly more efficient using broadcast technology rather than unicast. Time shifted download content will grow, but it will not dominate, and the costs of using it will moderate consumer behavior. Will the UK's infrastructure provide effective, affordable access to the 'internet of things', and what new opportunities could this enable? ANSWER The market will provide adequate service; the question which remains is about affordability to the poorest families. 18 Avanti Communications – written evidence How might superfast broadband change the relationship between providers and consumers in other sectors such as content? What aspects of this relationship are key to enabling future innovations that will benefit society? What role could or should the different methods of delivery play in ensuring the superfast broadband network is fit for purpose and is as widely available as possible? How does the expected demand for superfast broadband influence investment to enhance the capacity of the broadband network? ANSWER Money wasted on fibre subsidy is crowding out the benefits of Universal Service. Does the UK, for example, have a properly competitive market in wholesale fibre connectivity? What benefits could such a market provide, and what actions could the Government take to ensure such a market? No comment What impact will enhanced broadband provision have on the media and creative industries in the UK, not least in light of the increased danger of online piracy? What is the role of the Government in assuring internet security, and how should intellectual property (IP) best be protected, taking into account the benefits of openness and security? No comment 12 March 2012 19 Bentley Walker – written evidence Bentley Walker – written evidence May I present the following remarks/responses to points raised in respect to broadband delivery throughout the UK. Digital Britain target is questionable! The delivery through fibre optic service suppliers has a major part to play and one would imagine a significant target to achieve. The costs associated are obviously significant and the time to complete the infrastructure completion is upon us. I readily except that Fibre Optic services for broadband are suitably justified throughout urbanised areas but to what expense elsewhere. I just feel that we have been ignored to some degree as a satellite internet service provider, currently delivering systems to many homes through the UK, providing speeds up to 10mgbts/sec. If you map out the not spots and allocate satellite broadband services to these locations then the job to achieve Digital Britain becomes easier to achieve. We could work together with these fibre optic service providers to deliver the satellite broadband solution where the infrastructure becomes unfeasible, this would make some sense. We could actively complete 1,000s of installations throughout the UK within weeks; it is purely a case of working out our position and objectives adding a government supportive marketing statement explaining our position in respect to the delivery of broadband to these rural communities/villages. Please examine our pricing and proposal based on a method to achieve the Digital Britain target in conjunction to Fibre Optic services which means a subscription from the second month is the only payment required by the customer cost. Customer requires hardware & installation plus a service speed of 6mgbts/sec download and is a (light user) £214.99 hardware cost and completed installation which includes the first month subscription @ £24.99 /month. (All prices inc vat.) With a grant of £250.00 by allocation we can then actively market the services to these locations with the supportive statement outlining our position in providing internet connection at these locations. The problems with current grant arrangements it is left to the customer to become aware of the offer which leads to low up takes and the service provider to not market the product effectively. 17 February 2012 20 Boundless Communications Ltd – written evidence Boundless Communications Ltd – written evidence Questions the Committee will consider: What is being done to prevent a greater digital divide occurring between people who can access superfast broadband and people in areas where the roll-out of superfast broadband may not be commercially attractive? How does the UK communications market vary regionally and what is the best way to connect the areas that the market alone cannot reach? Is a universal service obligation necessary to avoid widening the digital divide? Response Name/Status 1 Andy Wilson, Chief Executive Boundless Communications Response on behalf of Boundless Communications There has been and continues to be a great deal of coverage about bridging the digital divide with many private and Government initiatives aimed at delivering a uniformly high speed service. It is our view that although these initiatives are well intentioned most seem to start from the premise that the only way forward is “Fibre”. Although this is an ideal solution for many premises (business and residential) it is not a cost effective solution for many in rural communities and some business parks, located on the outskirts of many towns. As a consequence the strategy of ”upgrading exchanges and certain cabinets with fibre” will actually widen the digital gap by delivering higher and higher speeds to the people that currently receive acceptable broadband whilst leaving many people with the same or even lower speeds. For example it is estimated that this type of policy would address 95 -97% of the population in Lancashire; Lancashire County Council estimates, January 2012. It is our view that the 3-5% not covered will probably account for over 10% of the rural community; the very communities these initiatives are aimed at. This does not have to be the case. It is possible to deliver a super-fast service at speeds of up to 100Mbps into virtually all community groups and businesses now. To do this government strategy needs to change from a technology, grant funding and partnership perspective to achieve it. 21 Boundless Communications Ltd – written evidence By adopting a blend of FTTC (Fibre To The Cabinet) and FTTM (Fibre To The Mast) coupled with high speed radio delivery to the premises that cannot be reached easily with fibre it is possible to deliver 100Mbps broadband to virtually everyone now. Grant funded FTTC schemes will not address the demand or the population fully in Rural areas. A “Universal Service Obligation” is a must along with the recognition that large Tier 1 providers will not deliver without partnerships with other smaller rural providers. The Government have committed £530 million to help stimulate private investment – is this enough and is it being effectively applied to develop maximum social and economic benefit? 2 Andy Wilson, Chief Executive Boundless Communications Will the Government’s targets be met and are they ambitious enough? What speed of broadband do we need and what drives demand for superfast broadband? 3 Andy Wilson, Chief Executive Boundless Communications In fact, are there other targets the Government should set; are there other 4 Andy Wilson, Chief Executive 22 The £530M is a welcome addition to help bridge the “Digital Divide”. However, many organisations ideally suited to deliver maximum benefit to rural communities are prohibited from bidding because of the selection criteria used. It appears to be geared towards large Tier 1 providers. Adopting a more flexible approach would allow other companies to participate delivering greater penetration and a faster roll out at a much lower price point. Targets will always be achieved if the criteria used for defining them are not tight enough. For example “97% of the population will receive superfast broadband” is a great headline figure and technically true. However if you are in the 3%, which may actually equate to 10 or 20% of the rural population in geographic terms, it is a failure. Care should be taken to ensure any targets will directly drive benefits to the communities in real need. It is possible with a blend of technology to deliver high speeds to the majority of communities providing coverage close to 100%. See (1 & 3) above however more specific measurements focussed directly at the target communities and groups should be Boundless Communications Ltd – written evidence indicators which should be used to monitor the health of the digital economy? What communications infrastructure does the UK ultimately need to remain competitive and meet consumer demand over the next 20 years? What role could or should the different methods of delivery play in ensuring the superfast broadband network is fit for purpose and is as widely available as possible? How does the expected demand for superfast broadband influence investment to enhance the capacity of the broadband network? Does the UK, for example, have a properly competitive market in wholesale fibre connectivity? What benefits could such a market provide, and what actions could the Government take to ensure such a market? Boundless Communications implemented. For example tighter geographic speed targets down to post code sector (incode) level rather than high level percentage statements. This would focus any funding to areas of real need rather than “easy wins”. This approach would maximise the benefit into areas either poorly or not served at all. 5 Andy Wilson, Chief Executive Boundless Communications See (1) above. It is essential if we are to achieve a near universal superfast service to use a variety of delivery methods. FTTC and fibre to the home is not a cost effective or practical solution for many rural properties. A combination of 4G, FTTC, FTTM and either fibre to the home or high speed radio links will allow the government to exceed its superfast broadband goals. A pure fibre strategy will fail and prove to be prohibitively expensive. A typical radio link from an FTTM mast can be delivered for less £300 per property. The equivalent fibre delivery in hard to reach communities would typically run into the thousands or even tens of thousands per property. YES in major towns and cities however NO in rural areas. A scheme that would allow rural broadband projects either managed by the community or speculative ventures by business to receive subsidised super high speed fibre backhaul, Gbps speeds, would massively reduce the delivery costs for these projects. This would allow smaller more agile organisations/communities to offer competitive superfast services in areas that would not be cost effective otherwise. Local connectivity is a must but this must be coupled with high speed backhaul to ensure the digital gap is bridged. 6 Andy Wilson, Chief Executive Boundless Communications March 2012 23 British Film Institute – written evidence British Film Institute – written evidence Introduction 1. The British Film Institute (BFI) is today the lead organisation for film in the UK. Founded in 1933, it has always been a champion of film culture in the UK but in its new wider role, it has the additional purpose of supporting and helping to develop the entire film sector. Its Royal Charter emphasises its responsibilities to develop the arts of film, television, and the moving image. Its new role as a Government armslength body and distributor of Lottery funds, widens the BFI’s strategic focus and increases its potential impact, both culturally and industrially. The BFI welcomes the opportunity to respond to the House of Lords Select Committee on Communications’ Call for Evidence in relation to its inquiry into the Government’s superfast broadband strategy. 2. The Government’s broadband strategy has important implications for the film industry in general, and for film culture and the BFI’s public policy goals in particular. As with other content industries, the internet is transforming the ways in which films are delivered and consumed, both legally and illegally. As with other forms of content, there are both opportunities and threats. 3. The greatest opportunity comes from the growing availability of video-on-demand (VOD) services, which allow potentially limitless libraries of films to be offered to people wherever they live. Films and other forms of audiovisual content are being consumed in greater amounts on smart-phones and tablet devices. And as take-up of connected TVs grows, VOD services will migrate over time from PCs to TV sets, allowing families and friends to watch films together on large screens in their living rooms. 4. The BFI especially welcomes the access VOD services can potentially provide to contemporary and classic British and international films that have historically been difficult to see, especially for people who live a distance from their nearest independent cinemas (which are typically located in the main metropolitan areas). As well as allowing films themselves to be distributed, new digital services offer a wide range of information on films – such as film-related news and blogs, previews and clips, and reviews – enabling communities of fans to engage more deeply with the films that they love. 5. As DVD sales fall, it is important for film rights-holders to be able to develop new business models that generate sufficient income from the exploitation of films via online services. Alongside the difficulty in establishing viable business models, one of the biggest threats to the film industry comes from copyright theft and infringement, given the ease with which it is possible to make perfect digital copies of films and distribute them illegally around the world. 6. The Call for Evidence asks if superfast broadband will meet the needs of our “bandwidth hungry” nation. More than any other popular form of content, film is highly reliant on fast and reliable broadband services to enable online distribution, given the large data requirements: it is audiovisual in nature, feature-length films often 24 British Film Institute – written evidence run to more than two hours in duration, and consumer expectations of high picture and sound quality are typically higher than for other forms of audiovisual content (such as TV programmes). Our understanding is that minimum bandwidth requirements of 3Mb/s are needed to provide DVD-quality pictures. The requirements for HD video are higher (in the region of 5-10Mb/s) and much higher still to match the quality of Blu-ray discs (50-100 Mb/s). 7. For these reasons, the rollout of superfast broadband in the UK will have a significant effect on the film sector. This brief submission responds to the issues raised by the Call for Evidence that are of greatest concern to the BFI. We would be pleased to provide further information to the Select Committee on any of the matters discussed, on request. Responses to individual questions Overall communications infrastructure 1. What communications infrastructure does the UK ultimately need to remain competitive and meet consumer demand over the next 20 years? The BFI believes that the UK needs a broadband infrastructure that is (a) universally available, and (b) sufficiently fast to provide the full range of digital media services that people will demand. We discuss these points in relation to other questions in greater detail below. 2. To what extent will the advent of superfast broadband affect the ways in which people view, listen to and use media content? Will the broadband networks have the capacity to meet demand for new media services such as interactive TV, HD TV and 3D content? For films, in particular, the availability and quality of superfast broadband services will have a significant impact on levels of consumption in the home. The success of DVDs relative to their predecessors, VHS cassettes, indicates how much consumers value superior picture and sound quality, and how this can drive levels of consumption. The growth in demand for large flat-screen HD TV sets in people’s homes has led to the increased popularity of Blu-ray discs in recent years, offering even higher levels of quality, including the ability to offer films in 3D (this also requires special TV sets and glasses, although glasses-free 3D technologies are expected to come to market in the near future). Audiences increasingly want to watch feature films at home with the highest levels of picture and sound quality. New VOD services linked to connected TVs can potentially bring vast libraries of films to people’s living rooms. But such services can only deliver HD-level (or higher) sound and vision with superfast broadband. Reliability of service is also very important. At peak times of day, delivered broadband speeds can be substantially less than advertised rates. This has a disproportionate impact on video streaming services. As with other utilities, fit-forpurpose broadband networks need sufficient capacity to be able to meet demand at all times of day. More generally, superfast broadband opens up the potential for a broader range of consumer, business and educational services, particularly those that require two-way 25 British Film Institute – written evidence interactivity or which involve the use of moving images. One area of particular interest to the BFI, given its educational remit, is the potential for new services to be developed that facilitate learning in schools and in higher education. Given the rapidly growing demands for bandwidth for audiovisual and other kinds of content that we can expect over the coming years – which will be exacerbated by the development of cloud-based services and by the proliferation of new kinds of internet-enabled devices – we agree with the comment in the Call for Evidence that broadband speeds of 1Gb/s may be needed by 2020, if not sooner (see also para 4 below). Digital divide 3. Several questions in the Call for Evidence relate to the digital divide, and regional variations in service. The BFI welcomes the focus on the digital divide in the Call for Evidence. A key public policy goal of the BFI is to ensure that audiences all over the UK have access to a rich diversity of films. As we noted in the introductory remarks, VOD services potentially have an invaluable role to play in making a rich and diverse range of films available to rural and remote populations. There is a risk that – if the digital divide is not adequately addressed – the same people who do not live close to independent cinemas or other cultural venues that offer films other than those programmed by the main multiplex chains will likewise be denied of access to VOD services that would expand the range and kinds of films available to them. 4. Is a universal service obligation necessary to avoid widening the digital divide? We believe that the Government’s commitment to ensuring universal access to standard (2 Mb/s) broadband represents only a modest start. As ever more audiovisual content is distributed online, and in particular as the demand for access to feature films grows, the BFI believes that such speeds will rapidly come to seem as outdated as dial-up internet access now is. We believe that the universal access provisions should be extended, over a sensible time frame, to superfast broadband, to ensure that feature films are not excluded from the types of content that are able to benefit from this new means of delivery. We would welcome greater clarity in the definitions of broadband speeds, as different levels of what are loosely referred to as “superfast” broadband will have very different implications for the range of services that are feasible. Speeds of 1Gb/s (which the South Korean government aims to achieve in all homes by the end of this year) will enable a much richer range of services than speeds of 100Mb/s, for example. We would suggest that different tiers of “superfast” broadband should be clearly defined (e.g. 1-10 Mb/s, 10-100 Mb/s, etc), and that the government should set an ambitious but realistic series of targets to achieve universal access for each successive tier of broadband over the next decade. 5. The Government have committed £530 million to help stimulate private investment – is this enough and is it being effectively applied to develop maximum social and economic benefit [in locations where the commercial investment case is weak]? 26 British Film Institute – written evidence While the BFI is not in a position to comment on the effectiveness of the deployment of the £530 million of public funds, we believe that sufficient funds should be made available to ensure that the universal service obligations can be met, given that it will not be commercially viable to serve the most remote parts of the UK. Impact on creative industries 6. How might superfast broadband change the relationship between providers and consumers in other sectors such as content? The BFI believes that superfast broadband can stimulate a series of positive changes in the film industry, to the benefits of audiences and the industry alike. On the supply side, as noted above, it becomes feasible to offer much wider selections of films than are typically offered in cinemas and video rental stores. This means that, where most multiplex cinema chains mostly show films from the major studios, there is far more potential for VOD services to make available films from a wider selection of producers and distributors. This can have positive benefits for UK plc, helping British filmmakers get their films to audiences. Of particular importance to the BFI is the ability for a wider range of current and archive British films to be made available to the public, including those in the BFI National Archive. On the demand side, audience tastes need no longer be constrained by the range of films on offer at their local multiplex. These changes can trigger a virtuous circle: by expanding audiences’ horizons, it can stimulate demand for a more diverse range of films, making it easier for British filmmakers to raise funding for new projects. 7. What impact will enhanced broadband provision have on the media and creative industries in the UK, not least in light of the increased danger of online piracy? What is the role of the Government in assuring internet security, and how should intellectual property (IP) best be protected, taking into account the benefits of openness and security? Our responses to previous questions have covered the impact of broadband provision on film, focusing primarily on ensuring the potential opportunities can be realised. Alongside this, online copyright theft and infringement is a major concern, as we noted in the introduction. As an organisation which invests public money in the production, distribution, exhibition and archiving of films, the BFI is keenly aware that copyright infringement and theft is damaging to the interests of citizens generally as well as to rights-holders and the creative community. It is crucial that rights holders are able to make their films available to audiences secure in the knowledge that there is a robust legal framework in place which is designed to significantly reduce copyright infringement and theft – both online and offline. In previous submissions, the BFI has welcomed the announcements by Government regarding the next steps for the implementation of the Digital Economy Act (DEA) in respect of measures to curb online copyright infringement, and we wish to see rapid implementation of the measures to significantly reduce online copyright infringement that are contained within the Act. Conclusion 27 British Film Institute – written evidence 8. Film is the most “bandwidth hungry” of all kinds of content, and demand for films via new VOD services will play a significant role in setting overall levels of demand for bandwidth from UK consumers. The BFI believes that the Government’s superfast broadband policy should seek to ensure universal access across the UK, closing the digital divide over time. This will enable audiences across the country to access the rich heritage and diversity of films – and information about them – with an ease never previously available. Measures to combat online piracy should remain a priority for the Government, to enable legal services to develop and viable business models to emerge. March 2012 28 British Recorded Music (BPI) – written evidence British Recorded Music (BPI) – written evidence The BPI (British Recorded Music Industry) is the representative voice for the recorded music industry. Our membership comprises 426 record companies and associates including over 350 independent labels and the four major record labels – Universal Music, Sony Music, EMI Music and Warner Music. Together, these account for more than 85 per cent of the sound recordings sold in the UK every year. The BPI welcomes this inquiry as a sensible way to look at broadband development in the round, considering all of the potential economic benefits but also the costs. Higher speeds of broadband ensure that consumers and businesses can access large audio visual files, enabling the speedy consumption, distribution and use of content. Much of the economic benefits of wider access to broadband will accrue to those countries that produce the best content and in this the UK has a comparative advantage as a world leader in creative content. Within this submission we will give some context of the economic success of the UK music industry and highlight the opportunities and challenges of superfast broadband. The submission makes several recommendations to ensure a healthy, growing digital economy that allows the UK to maintain its comparative advantage in content. The BPI recommends that: • • • • • • ISPs in the UK that are publicly subsidised sign up to voluntary agreements with rights holders, based on the US model, to implement graduated response to copyright infringement by subscribers on the network. This should be a condition of the subsidy and should be contracted for through any intermediary. Subsidised broadband networks must offer software filters to subscribers that allow parents to make decisions about access to content by children using the metadata from schemes such as Parental Advisory. Government sets a target to reduce illegal distribution of content on UK networks. The distribution of subsidy should be connected to this target, so that increased speeds go hand in hand with increased security. Government does not extend a format shifting exception to cloud services, and makes it clear that cloud services should seek licences for storage and access to copyrighted material. Ofcom be given both a general duty to tackle infringing content online to ensure customers have confidence in safety and legality online, particularly when using trusted brands. BPI also recommends that the Ofcom media literacy duty includes a duty to educate about copyright and the importance of using legal sites. BPI recommends that the Intellectual Property Office is re-established as a body to champion the UK copyright industries, with clear statutory duties to protect and promote the interests of UK intellectual property in the UK and overseas and to coordinate effective enforcement of UK rights domestically and internationally. The Intellectual Property Office should also have a duty to educate consumers on the value of ideas and intellectual property and the importance of respecting intellectual property rights The Digital World and Music 29 British Recorded Music (BPI) – written evidence 1. The growth of online means that the UK music industry can sell content in many different ways to consumers and faster broadband access makes it much easier for consumers and businesses to access and share content. However, it also allows the widespread uploading and downloading of content illegally. 2. Music has embraced digital markets, and the UK is a world leader in innovation in digital music services. However, Internet piracy remains a huge problem for the future development of the UK digital music market as faster speeds make it harder for legitimate businesses to compete with illegal file sharing sites and prices are constrained by free illegal content. Faster broadband speeds mean it is possible to illegally download all 24 of the Beatles albums (compiled as a discography) in less than an hour. The BPI ran a test on the Adele discography whilst compiling this response and all of it could be obtained and downloaded illegally in fewer than 30 minutes. 3. Without effective measures to combat piracy, legitimate business models will always be competing with illegal, free content. Revenues lost to UK content industries are an economic loss that means jobs, growth and opportunity for world class UK creative talent. The lack of implementation of the Digital Economy Act is a stumbling block to the ability of the creative community to enforce their own rights. The Act was passed almost two years ago in April 2010 and has not yet been implemented. As a result, rights holders continue to lose revenue which is vitally important in the investment of future generations of musical talent. British Music and the Economy 4. The British music industry is the second largest exporter of music in the world with a 12% share of global sales of recorded music. This is significantly higher than the UK’s average share of trade in goods (3%) and services (7%). 5. Following in the footsteps of an exceptional heritage of global superstar artists, British performers still punch above their weight: • Adele’s album 21 was the biggest selling album in the world in 2011. The top-selling global artist album also came from a British act in four of the last five years; 2 • in 2011, for the fourth year running, British artists accounted for around one in 10 of every artist album sold in the US, with cumulative share of sales totalling 11.7% (up from 9.8% the previous year); • In March 2011, the UK claimed the top 3 positions in the US Billboard Album chart with Adele, Mumford and Sons and Marsha Ambrosius for the first time in over 25 years; and • Adele’s album 21 had the longest run at the top of the US charts by a UK album this century (overtaking the Beatles 1 album in 2000). 6. The trade in invisible services for music is a significant net benefit to the UK economy. Taking income abroad and payment made overseas from UK record companies for public performance royalties, synchronisation and licensing for use on sound carriers, 2 Amy Winehouse - Back to Black, 2007; Coldplay - Viva la Vida, 2008; Susan Boyle - I Dreamed a Dream, 2009. 30 British Recorded Music (BPI) – written evidence and digital income, the trade surplus for the industry in 2009 was £137.7m, the highest annual total since 2001. 7. 8. The British music industry is both a major employer and in the main is a business based on a significant number of very small businesses: • Music & Visual and Performing Arts are the largest employers in the Creative Industries with 300,000 employed in 2009 (1% of UK employment). • In the middle of difficult times for the UK economy, employment in music and visual and performing arts went up by nearly 13,000, from 279,636 in 2009 to 292,536 from in 2010. • In 2011, Music & Visual and Performing Arts sector had the greatest number of enterprises for the Creative Industries (30,500, 1.5% of the UK). As an industry it reinvests over 20% of its revenue in artist development with 47% of this expenditure provided upfront in the form of advances. As a comparator biotech considered to be a significant R&D based industry in the UK – typically invests 15% of its revenue in R&D. An innovative sector in the digital age 9. The record industry has worked hard to create and licence new business models for the digital age. There are more than 70 legal digital music services in the UK, more than any other country in the world. 10. More than £1bn has now been spent on digital music in the UK since the first legitimate services were launched in the UK in 2004 and digital retail sales in the UK grew by 18.2% to £316.5m, accounting for 26% of sales in 2010. Strong growth continued in 2011, pushing digital sales to 41% of revenue in Q3 2011. The Challenge from Broadband File Sharing 11. Internet piracy remains a huge problem for the future development of the UK digital music market as faster speeds make it harder for legitimate businesses to compete with illegal file sharing sites and prices are constrained by free illegal content. As mentioned above, entire discographies can be searched for online and downloaded in a short amount of time. Search engines will almost exclusively put infringing links on the first page of search, and advertising by recognised brands fund sites that earn money distributing infringing content. 12. Recent research from Harris Interactive shows that three quarters of all digital music obtained in 2010 was done so illegally and that the retail value of single tracks downloaded from unauthorised sources in the UK totalled £984,000,000 during that year. In the face of this challenge the legal digital market is doing extremely well, but it cannot hope to compete fairly with the illegal market. BPI recognises, of course, that every track downloaded illegally would not be substituted with a legally purchased track. Taking this into account, Jupiter (now Forrester) Research estimates the lost 31 British Recorded Music (BPI) – written evidence revenue of the recorded music industry in 2011 to illegal music downloading to be £236 million, at retail values. 13. Despite the exceptional creative achievements of UK artists and the expertise of UK labels in marketing their music abroad, the UK recorded music sector faces difficult times as increasing illegal downloading has deprived the industry of revenue which is essential to ongoing investment. Revenues of UK record labels have fallen by 32% since 2004 from £1,220.4m to £823.8m in 2011. 14. The UK risks falling behind its competitor nations when protecting and enforcing the rights of creators. The Hadopi law in France has been in effect for more than a year and the industry is seeing positive results in the decrease of peer-to-peer filesharing. In the United States, voluntary discussions have led to an agreement between rightsholders and major ISPs - the “Progressive Copyright Alert System” allows rightsholders to detect infringement and ISPs to send an electronic alert or message to the internet user which must be acknowledged by them. The alert informs the user that they have violated the Terms and Conditions of the contract between the user and the ISP. More recently, in Spain, we’ve seen the introduction of the Sinde Law (Law on Sustainable Economy) which provides for an expedited procedure for the blocking of illegal websites and the removal of illegal links. South Korea and Superfast Broadband 15. In South Korea the Government took an interventionist approach to the roll out of fibre optic based broadband, with targets that more than 80 percent of households would have access to fast connections of 20mbps or more by 20073 . The South Korean recorded music market began to contract in 2002 as illegal downloading soared, driven by the rapid adoption of broadband. This decline continued to the end of 2007. During this period, the number of physical record stores in the country fell from around 2,000 to fewer than 200. 16. In April 2009, however, new legislation was introduced establishing additional measures to tackle online piracy, including graduated response procedures. The legislation became effective in July 2009 and was accompanied by major educational and public awareness campaigns initiated by the government. 17. The South Korean music market increased by 10% in value in 2009 and then by a further 12% in 2010. A range of legitimate services have developed, offering consumers easy and low-cost access to music. Record companies increased their rosters of local artists, laying the foundations for a boom in K-Pop that has spread across Asia. South Korea moved from being the 19th largest recorded music market in the world in 2007 to the 12th largest in 2010. Specific questions in the call for evidence The Government have committed £530 million to help stimulate private investment – is this enough and is it being effectively applied to develop maximum social and economic benefit? 3 Borland and Kanellos, 2004 32 British Recorded Music (BPI) – written evidence 18. BPI believes that maximum social and economic benefit for the UK will only come from the development of legal markets for the production and distribution of content online. Superfast broadband is a significant opportunity for the UK’s world leading content industries. However, superfast broadband is also a great threat if it is not used to develop legitimate online industries and instead allows a portal to piracy. 19. Two years on from its enactment, the Digital Economy Act has not been implemented. The measures within the Act require content holders to pay the costs of the system, yet large amounts of public money are being used to subsidise the superfast broadband networks that will increase the amount of illegally distributed content. Without a legal framework that secures a legitimate market, the subsidy will hasten the decline of the UK content industry and cause great economic harm. 20. A very small proportion of that money, say £20m, would be enough to fund both the measures under the Act and an extensive education campaign around the importance of copyright and the economic cost of theft of content. This would be a small contribution by the Government compared to a broadband subsidy that could have a high impact on the behaviour of consumers. 21. When allocating public money the BPI believes it is in the interests of the taxpayer to only offer subsidies to internet providers that are prepared to take measures to secure those networks against illegal activity. Where public money is used, networks must implement the highest possible standards of consumer protection. 22. BPI believes it should be a condition of public subsidy to ensure that networks block access to sites that are involved in the facilitation and distribution of illegal content and measures in place to tackle copyright infringement through connections to their networks. This should include blocking websites notified to the ISPs as dealing in illegal content and by allowing rights owners to send notices to subscribers that are using networks to distribute and download infringing content. 23. BPI recognises that the subsidy may not be given directly to an internet service provider, but through an intermediary. However, the subsidy should bring with it an obligation to place contract terms with any suppliers to ensure that networks are secured against illegal distribution of content. 24. BPI recommends that the ISPs in the UK that are publicly subsidised sign up to voluntary agreements with rights holders, based on the US model, to implement graduated response to copyright infringement by subscribers on the network. This should be a condition of the subsidy and should be contracted through any intermediary. 25. There are also issues over harmful content. The BPI has a digital scheme in place for Parental Advisory to help parents protect children from viewing and listening online to music that is unsuitable for children. The BPI makes this scheme available for all legal services. 26. BPI recommends that subsidised broadband networks must offer software filters to subscribers that allow parents to make decisions about access to 33 British Recorded Music (BPI) – written evidence In fact, are there other targets the Government should set; are there other indicators which should be used to monitor the health of the digital economy? What communications infrastructure does the UK ultimately need to remain competitive and meet consumer demand over the next 20 years? 27. Speed of broadband alone is not an indicator of economic wellbeing. The BPI believes a healthy digital economy would focus on the growth of legal digital markets for content, products and services. 28. BPI recommends that Government sets a target to reduce illegal distribution of content on UK networks. The distribution of subsidy should be connected to this target, so that increased speeds go hand in hand with increased security. How will individuals and companies use cloud services for distributed storage and computation? What network properties are required to enable efficient provision and use of such services? 29. Cloud services offer a great service for consumers to store and access their files and information; they also are a significant opportunity for rights holders for commercial licensing of innovative services. However, cloud services also offer a significant threat to lawful sale of content through the opportunities they offer for copyright infringement through the uploading of music and sharing of links. The case of Megaupload has shown the difficulties with the oversight and operations of cloud locker services. 30. The Government is currently consulting in its copyright consultation on measures that will weaken the ability of UK content industries to license and police cloud services. Through making it clear that the uploading of music to cloud services is subject to license, the Government could ensure that consumers have absolute clarity that the services that they are using are legitimate and properly secured. 31. A vibrant economy of cloud services would not distinguish, as the Government is proposing in its consultation, between value added services and cloud services that are purely for storage. BPI believes that they are broad substitutes, and the price of innovative services that are being licensed by BPI members would be constrained if there were another category of services that the Government had explicitly opted out of licensing arrangements. There would undoubtedly be harm if Government pursues such a twin track approach of a clearly licensed market and a grey market for cloud service storage of content. 32. BPI recommends that the Government does not extend a format shifting exception to cloud services, and makes it clear that cloud services should seek licences for storage and access to copyrighted material. To what extent will the advent of superfast broadband affect the ways in which people view, listen to and use media content? Will the broadband networks have the capacity to meet demand for new media services such as interactive TV, HD TV and 3D content? How will superfast broadband change e-commerce and the provision of Government services? 34 British Recorded Music (BPI) – written evidence 33. The UK has the most competitive and the most advanced market for digital music services in the world. There are more legal digital music services in the UK than in any other country, including the United States, with over 70 available to UK consumers. There are as many as 20 million recorded music tracks available on the larger of these services, covering almost the entirety of the catalogue of music commercially released in the UK. 34. Digital has transformed the music landscape in the UK. The Official Charts Company began measuring its impact at the start of 2004, when MyCokeMusic launched in the UK. By the end of the year – during which time the iconic iTunes store had opened – almost 5.8m songs had been legally downloaded, equivalent to 17.9% of all singles sold. 35. By the end of 2011, the singles market has been completely revitalised, with sales now at highest ever levels (175.1m in 2011) and over 750m digital singles bought since 2004. The digital album is also making impressive headway, with more than 80m sales since 2006 when sales were first recorded. In 2011 they accounted for 23.5% of all albums sold in the UK. Sales of Digital Downloads in the UK (units millions) Single Track Downloads 2004 5.8 2005 26.4 2006 52.5 2007 77.5 2008 109.8 2009 148.8 2010 158.6 2011 175.1 Source: Official Charts Company 36. Albums N/A N/A 2.8 6.2 10.3 16.1 21.0 26.6 This has had a large impact on record company revenues which have diversified enormously. By the end of 2010 all digital income streams accounted for 27.4% of industry income and year end data from 2011 will show a further increase. Trade Income from Digital Music 2004 – 2011 (£ millions) 2004 2005 2006 2007 2008 2009 2010 2011 Source: BPI Surveys. Tracks & Albums 2.7 12.4 25.2 71.6 101.1 162.6 193.5 241.1 Other* Total 17.8 26.2 32.3 40.6 71.6 117.9 188.8 225.8 281.7 35 British Recorded Music (BPI) – written evidence * Other includes ringtones, subscriptions, ad-supported income and other digital music income. 37. 38. The legal digital music landscape in the UK has evolved at breathtaking speed, entirely based on current licensing practices. The most significant landmarks in the history of digital music have been: • The licensing of digital “a la carte” services with the unbundling of album products into constituent parts (tracks): from 2004 onwards major stores such as iTunes, Amazon mp3 and 7Digital have offered catalogues of many millions of tracks; but there are also smaller “niche” stores specialising in certain genres or particular business models, e.g. Juno Records 4 ; Trackitdown 5 , Boomkat 6 , Fairsharemusic 7 ; • The removal of all digital rights management technology around download to own; • The development of “all you can eat” subscription models models e.g. Napster 8 from 2004 with millions of tracks available on-demand on the consumer’s computer and mobile devices; • The launch of free to user, ad-funded, unlimited streaming models e.g. We7 9 from 2007 as a direct competitor to piracy, and massive scale platforms for professional and user generated content like YouTube and professional music video content such as Vevo 10 , launched in the UK in 2011; • The bundling of music services with other products e.g. Virgin Media broadband 11 and Spotify; and • Launch of iTunes iCloud and iMatch in 2011. iCloud allows a user to download all the songs they have purchased from iTunes onto any mobile device; iMatch extends this functionality to any song in a user’s collection, even if not purchased from iTunes, for a modest annual fee 12 . The use of music produced by UK labels goes beyond use for music services, into cross-media offerings, games and brands and the UK has been at the forefront of innovative digital service launches. How might superfast broadband change the relationship between providers and consumers in other sectors such as content? What aspects of this relationship are key to enabling future innovations that will benefit society? 4 5 6 7 8 9 10 11 12 http://www.juno.co.uk/ http://www.trackitdown.net/ http://boomkat.com/ http://www.fairsharemusic.com/ http://www.napster.co.uk/ http://www.we7.com/ http://www.vevo.com http://shop.virginmedia.com/broadband/broadband-extras/spotify.html http://www.apple.com/uk/icloud/features/ 36 British Recorded Music (BPI) – written evidence 39. As described above, the UK has a very vibrant digital music market with the highest number of legal digital services in the world, with nearly 80 services. Consumers will consume music digitally in many different ways, and will have much more power as a consumer as to what they buy and how they build up their collection. However, it is important that Government helps educate consumers of the importance of paying for content for future investment in new music. Innovation requires risk, but it also requires the ability to make a return. 40. The BPI set up a digital innovation panel in the autumn of 2010 to help foster innovation in the provision of digital services using music. The panel was put together to promote partnership in creating and developing digital music services, primarily through shared customer insight and to ensure early label input into proposed consumer propositions. The panel consists of influential executives from within various record label and publisher business functions - digital, commercial and insight & strategy. It has commissioned and managed a comprehensive programme of consumer research and digital market mapping, which has revealed a plethora of potential opportunities for digital music services. 41. The panel has held a series of 'Open Session' brainstorms involving a range of service providers including Tesco, We7, MFlow, eMusic and BT. Its members have also experimented with digital partners via API's, hack days and 'sandbox' developments such as EMI Open and Universal Open - where the labels open up parts of the catalogue to developers via API's for better music discovery apps and other new services. One example of such an app is Discovermusic 13 . 42. Innovation is very vibrant in technology that uses copyright, but there are many factors that cause problems with investment in the UK, not least problems of access to finance for small businesses. What impact will enhanced broadband provision have on the media and creative industries in the UK, not least in light of the increased danger of online piracy? What is the role of the Government in assuring internet security, and how should intellectual property (IP) best be protected, taking into account the benefits of openness and security? 43. One significant problem with the current internet model is that many of the major companies take a neutral view of illegal activity. Consumers are taken across networks by reputable companies, pointed by search engines that have global recognition to sites that have advertising by established brands and offer payment by world renowned payment providers. Yet the content they could be consuming on that journey is entirely illegal, and the money passing through advertising, payment and search is going to people profiting from business models built on infringement of copyright. 44. At the moment the companies involved – ISPs, search engines and payment companies, do not take enough responsibility for their role in the illegal online economy. The resulting system is bad for consumers and bad for legitimate content businesses. UK jobs, growth and content production will suffer. BPI has asked for the industries involved to take simple steps to help consumers online, including: 13 http://www.discovermusic.com/ 37 British Recorded Music (BPI) – written evidence 45. • search engines ranking legal services above illegal services – at the moment Google, the most used search engine, tends to serve almost wholly infringing sites on its first page of results; • ending the financial support for illegal sites by not placing advertising on them, or profiting from infringement by selling key words associated with piracy or by selling mobile applications which facilitate infringement; and • not to allow payment to infringing sites from credit cards and payment services. Whilst it has been shown now in court that sites that are facilitating illegal distribution of content may be blocked through the Copyright, Designs and Patents Act 1988 (through the Newzbin II case) the process is still too slow and expensive for rights holders. BPI believes a court process is important but it should be done in the applications court or another procedure which can be cheaper and quicker (i.e. less than the 6 months to a year) than the current process. 46. BPI recommends that Ofcom be given both a general duty to tackle infringing content online to ensure customers have confidence in safety and legality online, particularly when using trusted brands. BPI also recommends that the Ofcom media literacy duty includes a duty to educate about copyright and the importance of using legal sites. 47. The UK content industries are world class, but the influence of non UK technology companies in Government is clouding the debate over the importance of property rights. The overall agency with responsibility for IP in the UK Government, the Intellectual Property Office, has a weak understanding of the digital business models of the creative industries and their reliance on the copyright framework; and is pursuing policies that consist primarily of weakening creators’ rights to benefit third parties (in particular technology companies) at the expense of UK creative industries. The future health of our world class content industries requires co-ordinated effective and supportive measures across Government. 48. BPI recommends that the Intellectual Property Office is re-established as a body to champion the UK copyright industries, with clear statutory duties to protect and promote the interests of UK intellectual property in the UK and overseas and to co-ordinate effective enforcement of UK rights domestically and internationally. The Intellectual Property Office should also have a duty to educate consumers on the value of ideas and intellectual property and the importance of respecting intellectual property rights. 2 March 2012 38 Broadband Stakeholder Group (BSG) – written evidence Broadband Stakeholder Group (BSG) – written evidence Overview • BSG welcomes the opportunity to input to this timely inquiry. • UK consumers are amongst the heaviest users of the Internet and e-commerce globally, driven by one of the highest levels of broadband take-up in the EU. • The UK communications market is highly competitive, and is going through a period of investment in both fixed and mobile services – to meet rising demand/use of bandwidth, and to provide new and improved services to end users. • This is being complemented by a programme of activity by government to ensure that those households that are not served by market investment have access to the best range of services possible. o This includes a subsidy available for ensuring that superfast broadband is available to 90% of all households, as well as a coverage obligation for the next generation of mobile broadband services to ensure coverage of up to 98% of the UK. o BSG has expressed its concerns over how the subsidy is being made available through the BDUK procurement process and the policy environment facing investors, and ultimately whether the current approach will achieve the optimal outcome. o Increasing take-up of broadband, regardless of speed, will generate most economic and social value in the short to medium term. Therefore, it is important that a focus is maintained on ensuring that all households have access to a minimum level of broadband service, and that government continues efforts to get more and more households online. • The market for superfast broadband is still at a nascent stage. Superfast services have only been made available to consumers relatively recently and it is difficult to predict what the level of demand for these services will be. Evidence from other countries where superfast broadband was made available earlier suggests that the adoption rate for superfast tends be slower than it was for first generation broadband. The reason for this may be that first generation services are currently sufficient to meet most consumers’ needs at this time. However, continued innovation in content, services and applications will drive consumer demand for higher speed access services over time. 39 Broadband Stakeholder Group (BSG) – written evidence • . It is important that policymakers have realistic expectations of the likely levels of take-up that superfast broadband will achieve in the UK in the short-medium term, and draw appropriate lessons and comparisons with other markets across the world. Specific questions • What is being done to prevent a greater digital divide occurring between people who can access superfast broadband and people in areas where the rollout of superfast broadband may not be commercially attractive? How does the UK communications market vary regionally and what is the best way to connect the areas that the market alone cannot reach? Is a universal service obligation necessary to avoid widening the digital divide? The government has established a programme to ensure that superfast services are made available to a minimum of 90% of households within each county or nation in the UK. This policy is addressing most of the new divide between those with access to superfast and those without. However, more important is resolving the continued old divide between those with access to basic broadband and those without. The government’s programme also plans to ensure that the remaining 10% of homes receive the best broadband possible for the funding available, with a minimum service of 2Mbps being available. It is unlikely that these homes will receive fibre-based superfast broadband, as these services are too expensive for operators even with the subsidy that is available. Therefore, it is crucial that sufficient consideration is given to the solutions deployed to these homes by successful bidders in the current BDUK procurement process. Meanwhile it is also important that the efforts of both government and industry continue to encourage the take-up of broadband by non-adopting households. There are regional and, particularly, national differences in the UK communications market – in particular in terms of take-up. However, the key difference in service provision is between urban and rural areas, rather than between distinct geographic regions. More dense areas improve the economics of service provision for operators, and are therefore more likely to see increased competition, through investment in exchange unbundling by ISPs, cable service availability, and investment in fibre-delivered superfast broadband by the incumbent (or in some instances a new entrant). 40 Broadband Stakeholder Group (BSG) – written evidence • The government have committed £530m to help stimulate private investment – is this enough and is it being effectively applied to develop maximum social and economic benefit? The government investment is likely to be sufficient to enable the market to deliver superfast broadband to 90% of households, though it is likely that this level of funding was based on the deployment of a fibre to the cabinet (FTTC) solution, which uses the existing copper network from the cabinet to the home, rather than delivering fibre to the home (FTTH). However, the question of whether it is being effectively applied raises many issues, including the policy and regulatory environment, and procurement design; BSG has raised a number of concerns with DCMS and BDUK at various stages of the programme’s process. At this time, a number of public policy issues remain outstanding that, if resolved, would enable the funding to go further by reducing the costs of deployment and operation to industry. In particular: • • • there remains a lack of clarity regarding the application of business rates to subsidised fibre-based networks (an issue the BSG continues to work on with the Valuation Office Agency); government is in the process of establishing revised regulations regarding the deployment of overhead cables, but which are not yet final and about which industry still have some issues to be addressed; infrastructure sharing discussions with utility infrastructure operators have yet to come to a conclusion; a positive outcome could lead to reduced deployment costs There also remain industry concerns regarding some aspects of the regulatory landscape. Alternative operators consider that the sub-loop unbundling product (SLU) from Openreach is not sufficiently usable at scale to allow for investment by operators in their own fibre in the access network. This issue has been highlighted by Digital Region Limited, a regional FTTC network in South Yorkshire, and despite reviews by both Openreach and Ofcom has not been resolved to the satisfaction of alternative operators. Alternative operators have also raised concerns about the pricing of, application of, and processes involved in using Openreach’s passive infrastructure access (PIA) product, which enables the sharing of BT’s ducts and poles. PIA is still in the early stages of development, and further trials with alternative operators are required in order to develop the product further. However, PIA is likely to be an important enabler of competition for BDUK projects; until such time as alternative operators consider it to be fit for purpose, a lack of commercially viable infrastructure sharing options will remain an obstacle for competitors wishing to investment in rural superfast broadband. 41 Broadband Stakeholder Group (BSG) – written evidence Industry has also raised issues with the procurement approach. BDUK, the DCMS unit leading on the procurement, has taken an approach that focuses on local authority areas as individual project areas, and uses the local authorities themselves as the lead procurement bodies. This approach was heavily influenced by the government’s localism agenda. In the view of the BSG, these projects are of too small a scale for the sector, resulting in too many procurements and insufficient network sizes to be sustainable. Paradoxically, by attempting to create local projects for local communities, government has created too many projects in total, which carries too high a cost to bid in the view of smaller players, resulting in limited competition across all projects. The local approach also has implications for consumers in terms of their choice of service provider. Currently, the major ISPs that account for nearly 90% of the broadband market (BT, VM, TalkTalk and Sky) either provide services over Openreach’s access network or, in the case of VM, over their own access network. Non-national networks, such as KCom in Kingston-Upon-Hull, do not benefit from the presence of the major national ISPs due to the costs to those ISPs of integrating with a different network, and so consumers miss out on the benefits of choice and competition. Digital Region also faces this problem in its FTTC network in South Yorkshire, on which none of the major ISPs provide service. By breaking up the procurement in to small, local networks, there is a risk that islands of connectivitywill be created that fail to provide consumers with the choice of ISP found in the rest of the market. Ultimately, this reduces take-up of services which in turn would undermine the commercial sustainability of these networks. In terms of achieving maximum social and economic benefit from broadband, in the short and medium term the biggest prize is not in achieving widespread superfast broadband availability, but in ensuring everyone has access to basic broadband as a minimum, and that we continue to push for non-adopting households to adopt broadband services. In the longer term, achieving value from this intervention will require high levels of availability and adoption of superfast broadband on the networks that are funded; this will be best achieved through competition between service providers, which leads to lower prices, higher take-up, and sufficient penetration in order that innovation in Internet-based services will be stimulated. The government’s current programme recognises the importance of the demand-side, and requires local authorities to undertake demand stimulation. Government should also continue to focus on moving public services to digital delivery, aligning this with policies and programmes that encourage non-adopters, some of whom are heavy users of public services, to adopt broadband services. 42 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 43 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. 44 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. 45 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. 46 Broadband Stakeholder Group (BSG) – written evidence • What impact will enhanced broadband provision have on the media and creative industries in the UK, not least in light of the increased danger of online piracy? What is the role of the Government in assuring internet security, and how should intellectual property (IP) best be protected, taking into account the benefits of openness and security? It is not clear what the relationship might be between piracy and superfast broadband; one view is that improved infrastructure may better support attractive legal services that would entice the consumer away from illegal services; another is that more bandwidth will purely support more piracy. In any event it is probably not helpful to link the two issues too closely and instead focus on the current remedies being pursued now in relation to the protection of IP online. About the Broadband Stakeholder Group (BSG) The BSG is the UK government’s advisory group on broadband. It provides a neutral forum for organisations across the converging broadband value-chain to discuss and resolve key policy, regulatory and commercial issues, with the ultimate aim of helping to create a strong and competitive UK knowledge economy. Further information about the BSG can be found at: www.broadbanduk.org March 2012 47 Broadband Stakeholder Group – oral evidence (QQ 550-622) Broadband Stakeholder Group – oral evidence (QQ 550-622) Evidence Session No. 8. Heard in Public. Questions 550-649 WEDNESDAY 13 JUNE 2012 Members present Lord Inglewood (Chairman) Baroness Bakewell Lord Bragg Lord Clement-Jones Baroness Deech Lord Dubs Baroness Fookes Lord Gordon of Strathblane Earl of Selborne Lord Skelmersdale ________________ Examination of Witnesses Mr Richard Hooper CBE, Chairman, Mr Antony Walker, CEO, and Ms Pamela Learmonth, CEO designate, Broadband Stakeholder Group Q550 The Chairman: A warm welcome to both of you from the Broadband Stakeholder Group. Richard Hooper, you are the chairman, and Antony Walker, you are the chief executive. Antony Walker: That is correct. Richard Hooper: Behind me is the chief executive designate. Antony Walker is demob happy—he is going to become the deputy director of Intellect, so he is in his last couple of weeks. The Chairman: Would the chief executive designate like to come and get into practice? Come up to the front. You are rather lonesome back there. Richard Hooper: We will basically delegate difficult questions to Antony and very difficult ones to the chief executive designate, Pamela Learmonth. The Chairman: Obviously we are most grateful to you for coming. Thank you. The meeting is being broadcast so, before we formally start, could you just each say who you are? If you would like to make a brief opening statement, please feel free to do so. Richard Hooper: I am Richard Hooper, chairman of the Broadband Stakeholder Group, known to some of your members for the work on the Royal Mail, which I am not going to talk about today. The Chairman: And digital copyright. 48 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 49 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 50 Broadband Stakeholder Group – oral evidence (QQ 550-622) small-scale project areas has rather worked against the economics of network build. It has meant that, for a new entrant coming into this, they face a real risk of perhaps only winning one or two essentially sub-scale projects, which could be very difficult to turn into long-term profitable businesses. The risk of only coming away with one or two wins is actually quite significant. Q557 Lord Gordon of Strathblane: If I could add in a supplementary question on that, since there are some areas that are hopelessly uneconomic, whatever the size of the region, you are perhaps more likely, are you not, to get somebody to take them on if they are part of a larger franchise than a smaller one? Antony Walker: Yes, and certainly that was some of the input that we gave back to DCMS and BDUK at an early stage. That was that larger franchise areas, at a sub-regional level, would have been more attractive to larger, broader consortia, which might then have been able to take on a higher level of risk in bidding to win those projects. Richard Hooper: I have done advisory work in New Zealand and Singapore, and know Australia extremely well, and what is very striking about those three is that they are basically the first-mile local loop. Superfast broadband is one provider, the same provider across the whole country, and it is significantly subsidised to do it. It is not as if we are out of step. Q558 The Chairman: Do you think then that Defra’s approach through the Rural Community Broadband Fund is, in a sense, misplaced, because it is encouraging small communities to come forward, which are proposing pretty small “parish pump” type networks? Are they ever going to manage to look after them and do it properly? Antony Walker: There are some quite serious challenges around being very small, not least the challenge of getting larger-scale service providers on to your network. If you are very small and local, it may well be that the local population is not too concerned about that, because they are happy to work with a small local ISP that is locally known. In a sense, if the Defra fund is, in a way, used to mop up the remaining areas that are perhaps left un-served post the BDUK process, that could actually be quite useful and effective. One thing that has been very clear to me over the last 10 years has been the extraordinary level of interest and commitment that you get at the local level. Broadband is something that local communities care hugely about, and they are willing to put a lot of effort and work into ensuring their communities are served. Harnessing that is something that could produce benefits, but they are likely to be individual isolated solutions. I do not think it is a blanket solution for the whole final third. Q559 Lord Gordon of Strathblane: The final point of criticism of the method for distributing public funding that has been put to us is that going for the gap-funding model also favours BT, because they have better knowledge of the market and have been an incumbent operator. Is there any validity in that? Antony Walker: I think that is a challenging one. Partly the NYnet pilot project was designed to test out the gap-funding model versus other models. NYnet eventually went for the gap-funding model. If at the outset your objective is to get the most efficient use of public funds to deliver a network for the needs of that local area, gap funding is probably the most efficient way to go forward. If you had another objective, for example trying to really encourage a new entrant into that part of the market, you might have gone for something different. From the pure perspective of an efficient route to procurement, I think gap funding is probably the right way to go. 51 Broadband Stakeholder Group – oral evidence (QQ 550-622) Richard Hooper: One of our concerns about procurement is the speed of it; it has been a very slow process. One of our messages from BSG would be that speed is very important in this. It is about economies of scale, network effects, driving usage and driving penetration. I gather now that we have another round of concern about state aid involvement. If BT were to win all those franchises, there is another state aid issue. In the city areas—and we will perhaps talk about connected cities—you have more state aid issues, which is slowing it down yet again. Q560 Lord Gordon of Strathblane: Do you in fact agree with the observation that has been put to us that the real benefits of the internet only come about when you have 100% penetration? Richard Hooper: I do not think it is 100%, but clearly the network effect is vital for the Facebooks, Googles and big service providers, because your costs are spread out among large numbers of users. Antony Walker: If you look at the history of the first generation of broadband, all the big innovations in services and applications took place once the market had hit about 30%, 40% or 50% penetration. There are very few markets anywhere in the world that have hit 100% penetration. It is when you hit mass-market numbers that you have the scale there that enables people to invest in innovation in services and applications. Q561 Earl of Selborne: We heard from BT how they favour point-to-multipoint cabinets, which serve an area rather than individual premises. The complication appears to be that they use a technology called gigabit passive optical network—GPON—which effectively makes it difficult to unbundle. There is therefore a competitive disadvantage for servers like TalkTalk, which gave evidence to us. Is it inevitable that this GPON technology should be used, given its limitations? Incidentally, it makes it incompatible with the requirements of state aid obligation to provide open access to publicly funded fibre access networks. Richard Hooper: Let us just take, first of all, fibre to the cabinet—FTTC—which is what you are talking about. The problem with unbundling at the cabinet level, which is the sub-loop unbundling idea, is that, by its very nature, you have a smaller number of potential customers than when you unbundle at the exchange, as we have done historically, because that is a much larger area. There is a really serious business difficulty about unbundling at the cabinet level, irrespective of the technology. As you rightly say, TalkTalk, which is a member of BSG, is really quite critical of that notion of sub-loop unbundling and is finding it quite difficult to justify. In terms of the technology, what about point to point? Do you want to talk about that and its advantages? Antony Walker: Yes. We have done a lot of detailed cost modelling around various different technologies. In fact, it was our cost modelling that came up with the concept of the final third and so on. In terms of all the modelling we have done, it makes strong commercial sense. If you have existing networks, ducts, and copper and fibre in those ducts, a point-to-multipoint deployment makes sense from both a cost and practical perspective. BT has behaved in an entirely logical way in terms of the investment that it has made, and actually that is what has happened in many countries elsewhere in the world. This was an issue that everybody was aware of right from the outset, when we started talking about fibre, and it was something that Ofcom was very aware of—hence the focus by Ofcom on other routes to wholesale competition, including active line access and so on. The active wholesale products that have been developed with Ofcom, and then with the industry, have 52 Broadband Stakeholder Group – oral evidence (QQ 550-622) 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 53 Broadband Stakeholder Group – oral evidence (QQ 550-622) 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. 54 Broadband Stakeholder Group – oral evidence (QQ 550-622) 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 55 Broadband Stakeholder Group – oral evidence (QQ 550-622) 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? 56 Broadband Stakeholder Group – oral evidence (QQ 550-622) 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. 57 Broadband Stakeholder Group – oral evidence (QQ 550-622) 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 58 Broadband Stakeholder Group – oral evidence (QQ 550-622) 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 59 Broadband Stakeholder Group – oral evidence (QQ 550-622) 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 60 Broadband Stakeholder Group – oral evidence (QQ 550-622) 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 61 Broadband Stakeholder Group – oral evidence (QQ 550-622) 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. 62 Broadband Stakeholder Group – oral evidence (QQ 550-622) 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? 63 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 64 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 65 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? 66 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. 67 Broadway Partners – written evidence Broadway Partners – written evidence A Modest Proposal To Unleash Increased Investment and Higher Returns For All 14 Summary The UK is an acknowledged leader in the global knowledge, media and creative industries, both old and new. Yet with regards to the local broadband infrastructure that supports these and other information-intensive industries, the UK is lagging behind many competitor countries. And within towns and cities, but most particularly in the countryside, the digital divide is only getting wider, given the ever-increasing richness of Internet content. This has direct economic and social policy implications, none of which are positive. This paper’s focus is principally ‘the final third’, although the core proposal has equal applicability throughout the UK. Rather than dwell on the issues, the paper proposes constructive solutions which will, the author believes, deliver multiple benefits, including: • Increased investment in the final third; • A more dynamic regulatory, competitive and financing model; and • Empowerment of local communities and Local Government. At a stroke, the UK could be transformed from laggard to leader in global telecoms, unleashing a wave of infrastructure investment, stimulating the information and creative industries, promoting social cohesion, and enhancing the UK’s status as a destination for inward investment. Introduction While this paper’s main purpose is to present constructive ways forward, some acknowledgment of current shortcomings is necessary to provide context. 1. The rural broadband initiative is not delivering the desired results, with only one serious bidder emerging from an 18-month framework negotiation process, and very little in the form of genuinely ‘new’ investment. 2. Local network upgrade is concentrated on incremental upgrades to the existing network – serving the incumbent’s purpose, but not that of wider stakeholders. It is widely recognised that the current proposed technological solution, fibre-to-thecabinet (FTTC), is but a temporary ‘fix’, and will require further rounds of investment within a few years. 3. Meanwhile, demand remains unsatisfied throughout large swathes of the ‘final third’ and, nationally, there seems little likelihood that the UK will meet its European Digital Agenda Next Generation Access (NGA) targets15 . 14 15 The opinions expressed herein are those of the author, Michael Armitage. 100% coverage of 30 Mbps broadband, and 50% subscribed to over 100 Mbps, by 2020 68 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 69 Broadway Partners – written evidence consequent need to develop detailed and prescriptive ‘ex ante’ regulatory remedies, the effect of both of which is to create uncertainty and to discourage long-term investment. 3. Institutional blockage - The coalition Government’s well intentioned Localism agenda reverses decades of centralisation, and it is little wonder that many local authorities feel under-resourced to carry out many of the tasks expected of them. This manifests itself in numerous ways – an excessive fear of legal challenge by the incumbent regarding the interpretation of State aid and public procurement rules; an inability or reluctance to engage meaningfully with local communities, and therefore an inability to draw up coherent local broadband plans; and a lack of experience of financial markets as a source of alternative financing. Perversely, this institutional tendency to do too little is exacerbated by a Central Government tendency to intervene too readily: while the ground-rules remain flawed, no amount of tinkering will make them appreciably better. And direct Government intervention, albeit with the best of intentions, but nevertheless seemingly random, simply throws an already fractured industry into paroxysms of redundant activity – of which the only beneficiaries are industry consultants – while confusing and deterring long-term investors. So, the answer is…..? For the UK’s broadband problem to be resolved, policy makers need to accept only two basic premises – from which much good will flow. First, that fibre represents the future of telecommunications, and is worth investing in; and Second, that in the local access network, only one physical network needs to be and should be built, and that the passive elements of this network – duct and cable – do not need to be owned by any one operator. Indeed, ownership should be open to all stakeholders – including the community which, at least in rural areas, will necessarily be putting up a significant part of its financing. The co-investment model is well described elsewhere 17 , both in concept and detailed practice, and follows well established precedent across Europe 18 . Just as with the longestablished practice of mast-sharing in the mobile industry, the conceptual logic underpinning the co-investment approach is clear: to share, or pool, investment in that part of the value chain where there is least benefit to be derived from competitive tension or duplication. And it is the local, passive access network, typically comprising more than 80% civil work, which offers the least benefit from competitive duplication, and the greatest benefit from investment pooling. 17 18 See ‘How a co-investment model could boost investment in NGA networks’, by Oxera consultants http://www.oxera.com/main.aspx?id=10068 See: http://www.broadbandeurope.eu/Lists/Competences/EU%20Guide%20on%20Broadband%20investment%20models.pdf 70 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. 71 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 72 Broadway Partners – written evidence 1997, and led the European Telecoms research effort and latterly headed the Global Telecoms team. During this time, he was lead analyst on many of the major telco privatisations in Europe, as well as on numerous private sector IPOs. Since leaving Morgan Stanley in 2002, he has been advising and raising money for technology companies. In the last two years he has been devoted to the development of the UK broadband opportunity, and in 2011 co-founded Broadway Partners, a business dedicated to bringing communities, operators and investors together. He was educated at The Edinburgh Academy, Université de la Sorbonne, and Reading University, has a BA (Honours) degree in English, and an MSc (Sloan) from London Business School. 29 February 2012 73 BT Group plc – written evidence BT Group plc – written evidence Introduction 1. BT is pleased to respond to this Inquiry. This issue is at the heart of our business as well as being an important focus for government policy. We have already committed £2.5bn of our own funds to roll out the fibre optic cable required for superfast broadband (defined as broadband at speeds in excess of 24 megabytes per seconds or Mbps). This network will deliver superfast broadband at speeds of up to 80 Mbps to two-thirds of UK premises by the end of 2014, with speeds of up to 300 Mbps available on demand. We are bidding for public funds and working with local authorities to extend that roll-out into areas where the commercial case for investment is more challenging. If successful in most of these bids, we believe we can get superfast broadband to more than 90% of UK premises. We are working on other solutions to improve speeds for remaining properties. 2. It should be noted that 99% of UK premises currently have access to some sort of broadband connection. For broadband availability, the UK already leads Europe. 90% of premises already have access to speeds of more than 2 Mbps, enough to stream standard quality television or video pictures. The challenge is to increase speeds and take up to drive economic activity. Work on this is well under way. 3. The commercial roll-out of fibre is proceeding well, with more than seven million of the UK’s 28 million premises now passed by a BT fibre optic connection. We are deploying the fibre network very rapidly, passing more than one million premises a quarter. The number of homes passed should reach 10 million later this year, with two-thirds of UK properties being passed by BT fibre by the end of 2014. 4. BT’s fibre network is available to all communications providers to access on an open wholesale basis – providing consumer choice in service provider and choice wherever BT deploys its network. BT’s is the only fibre network deployment in the world that proactively seeks to offer wholesale access to encourage plurality and competition in retail provision of superfast broadband. 5. Our fibre deployment is primarily by means of “fibre to the cabinet” (FTTC), with the broadband signal travelling over copper wire from the local cabinet to the home. Currently, this enables speeds of up to 40 Mbps downstream and up to 10 Mbps upstream. These speeds will roughly double from April 2012 to 80 Mbps downstream and 20 Mbps upstream as a result of technical innovations which we are introducing. In some areas, particularly greenfield sites, we deploy “fibre to the premises” (FTTP), enabling speeds of up to 110 Mbps downstream and 10-15 Mbps (depending on service taken) upstream. FTTP will offer downstream speeds up to 330 Mbps from April 2012. We have also recently announced plans under which FTTP will be available “on demand”. This means that all premises in our commercial deployment in two thirds of the country will be able to receive FTTP by spring 2013. This will be a premium product offering very fast speeds and will be aimed primarily at SMEs. Businesses which want especially high speeds will be able to request that fibre be installed from the cabinet to their premises. 74 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) 75 BT Group plc – written evidence 10. McKinsey’s “Internet matters” report of May 2011 named the UK and Sweden as “leveraging very strong internet usage across the board.” More recently still, the Boston Consulting Group reported that for the UK, the internet economy was worth £121bn in 2010, or more than £2,000 per person - the largest value in the G20 group of nations. 11. Although the UK scores well in these reports and on the EU measures above, there is no dispute that more can be done to help people, especially the socially and economically disadvantaged, to get online. BT has been helping people get online since 2002. Our digital inclusion campaign, Get IT Together, is designed to get 100,000 people online in 2012. We work with a broad range of partners, such as schools, community groups and other companies to reach those who need help, and we are a leading partner of Race Online 2012. BT is leading on Get IT Together, a pilot partnership with Citizens Advice to help their often marginalised clients to get online. 12. As fibre optic cable is rolled out across the UK to enable superfast broadband, the main mechanism for limiting any digital divide is central government funds. A total of £530m is being made available by central government this parliament, disbursed through BDUK to help connect the so-called “final third” – the parts of the UK where no company currently sees a commercial case for deployment, given population density and topographical factors. 13. This funding is to a large extent being matched by local authorities, further enhancing the ability to deliver superfast broadband to rural areas. If this central and local authority money is spent effectively, we estimate that fibre optic connections can be made available to more than 90% of UK premises. 14. We are testing technical solutions that will enable us, with suitable funds, to deliver improved broadband to the remaining properties, which lie mainly in very rural areas. Wherever possible, we shall examine innovative ways to work with local communities on delivering fibre based solutions. However, rolling out fibre optic cable may not be viable in some of these areas, even with the BDUK funding. Alternatives are likely to involve radio based solutions. 15. In Bute, we are testing a solution in which broadband signals are carried over unused parts of the TV airwaves spectrum. Households receive a broadband signal through the TV aerial. This trial of broadband over TV “white space” is delivering enhanced broadband speeds to areas of the island that were previously broadband “slow spots.” The speeds may be sufficient to enable households to, for example, stream high definition TV over broadband. We intend to trial the “white space” solution in Cornwall as a next step. 16. In Cornwall, we are already trialling a solution which envisages delivering enhanced broadband speeds over mobile telephone frequencies. This trial of the use of LTE wireless technology (so called 4th generation wireless) is in partnership with Everything Everywhere. The trial has successfully connected areas which were previously broadband “slow spots”. When trials are complete, we can compare the effectiveness of “white space” against LTE solutions. 17. There are regulatory issues to be resolved around use of these radio based options. Decisions would be required from Ofcom before these solutions could be deployed more widely, but our trials are showing they have the potential to deliver improved 76 BT Group plc – written evidence 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 77 BT Group plc – written evidence 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. 78 BT Group plc – written evidence 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. 79 BT Group plc – written evidence 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 80 BT Group plc – written evidence would further accelerate the business need and policy justification for fibre-based access networks. This trend is already anticipated in the new fibre based products BT is deploying, which have increased the upstream data rate significantly compared with current broadband networks. To what extent will the advent of superfast broadband affect the ways in which people view, listen to and use media content? Will the broadband networks have the capacity to meet demand for new media services such as interactive TV, HD TV and 3D content? How will superfast broadband change e-commerce and the provision of Government services? The extra speed of superfast networks will help enable business models that have been applied to audio content e.g. i-Tunes to be potentially extended to video content including High Definition services. The real economic advantage to government services is likely to be through increased takeup and use of the networks, particularly by the socially and economically excluded. 37. The impact on consumer use of media content is the most obvious current shift in behaviour brought about by higher speed broadband networks. The way users consume media content has, changed significantly over the last decade due to current generation broadband speeds, underpinned by very high levels of availability of broadband in the UK. 38. It is likely that this transformation will continue to accelerate. The advent of YouView, two-way services and communication (especially potential interest for Government interaction with citizens) and growing concurrency of usage will require higher bandwidth. We would also expect other services to develop and evolve that will utilise higher bandwidth once the capability is widely available. 39. In terms of e-commerce and government services, superfast broadband has potential to create new service opportunities and accelerate the transition to truly on-line applications in the areas of tele-health and tele-presence etc. The biggest transition and impact on Government services is still likely to be found through increasing take-up of broadband, whatever the speed. Providing users with the skills and opportunity to access and utilise those services online will, therefore, be at least as influential as the speed of the connection they use to do it. Will the UK's infrastructure provide effective, affordable access to the 'internet of things', and what new opportunities could this enable? Any move towards an “internet of things” will be facilitated if the UK is connected by an open-access broadband network or networks – so that a range of companies can buy access to broadband connectivity on a wholesale basis. 40. The “internet of things” is a term coined to sum up the idea of properties and devices being connected over the internet, enabling – for example – boilers to switch on and off in order to exploit off-peak energy supply. 81 BT Group plc – written evidence 41. A ubiquitous UK broadband infrastructure, providing access for competing service providers on fair and equal terms, will help in the fulfilment of this vision. Such a network would encourage innovation and experimentation in a similar manner to that experienced on the wider internet. 42. The “internet of things” will need broadband connections which are reliable, secure and ubiquitous, to enable innovative providers to compete and flourish regardless of scale. All of these features are possible via the Openreach platform and would continue to be delivered if Government funds are invested in this platform. How might superfast broadband change the relationship between providers and consumers in other sectors such as content? What aspects of this relationship are key to enabling future innovations that will benefit society? The way superfast broadband networks impact this relationship is likely to be shaped by the ability of those networks to support and enable effective competition. It is important that any Government investment in superfast networks maintains the competitive choice and effective service provider engagement that has driven change on current broadband networks. 43. The way users consume media content has changed significantly over the last decade due to the emergence of broadband networks as an effective delivery medium. This has driven changes to the relationship between consumers and content providers in a number of ways. For example, we have seen the changed business models for content distribution as a result of services such as i-Tunes; the growth of user-generated content through sites such as YouTube; and a marked shift to non-linear TV with services such as i-Player. In the UK, these changes have been brought about by current generation broadband speeds, underpinned by very high levels of broadband availability and the high degree of supplier choice offered by the competitive market. 44. Superfast broadband offers the potential for these changes to continue to accelerate – for example, seeing changes that have impacted audio content evolve so that video content can also be distributed online and at high definition rates. 45. This view assumes, however, the open access broadband network(s) continue to predominate in the UK, so that rival communications providers compete to offer affordable superfast broadband services. What role could or should the different methods of delivery play in ensuring the superfast broadband network is fit for purpose and is as widely available as possible? How does the expected demand for superfast broadband influence investment to enhance the capacity of the broadband network? Superfast broadband is unlikely to be effectively delivered without the extensive use of fibre in the access network. Other technologies are unlikely to be able to deliver the current and future demands for higher speeds and increased data volume across all users. Deploying fibre will require significant investment, particularly in rural areas or areas of dispersed population. In these areas, costs have to be effectively shared across all network users and service providers by providing effective wholesale access to the network. A flexible and expandable approach to deploying this accessible fibre or other technology network will enable it to respond to demand for superfast services as they materialise. 82 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 83 BT Group plc – written evidence ducts and poles. Nor is there any bar on them making such networks available to others on a wholesale basis. 52. The UK has the most competitive broadband retail market in the world. The commitments to equivalent wholesale access from Openreach and the presence of alternative network providers in key commercial areas together provide the platform enabling hundreds of communications providers to offer services to homes and business. There are 6 large providers of broadband services across the UK, with no single provider having more than 30% of the market. This level of competition has delivered genuine competitive choice to UK consumers, along with some of the lowest prices and greatest take up rates for broadband in the world. This market context has delivered benefits across the entire economy. In particular:- The UK broadband price is virtually the lowest monthly price of all major developed countries according to Ofcom. - The UK has the highest level of broadband penetration amongst OECD major nations at 75%. - More than twice as many UK users buy content online than other major EU countries, according to Eurostat figures. - Significantly higher % of UK employees with ICT skills than major EU competitors. - The UK is expected to show the biggest increase in NGA coverage, to over two thirds by 2014, of any major nation, even without government intervention. - The UK scores highest of all major EU nations on the EU Broadband Performance Index. - According to McKinsey this contributed 5.9% to UK GDP in 2009, higher than the US, South Korea, Japan, Germany, France, India and China. 53. BT believes replicating this competitive market in the future fibre broadband world is critical. The Government needs to ensure that effective wholesale access is maintained wherever public funding is available. It should not allow islands of single operator monopolies to develop. Without such a focus, consumers can be effectively locked into one retail provider or compelled to go through complex network changes and risk of service losses to make such a change. What impact will enhanced broadband provision have on the media and creative industries in the UK, not least in light of the increased danger of online piracy? What is the role of the Government in assuring internet security, and how should intellectual property (IP) best be protected, taking into account the benefits of openness and security? 54. Widespread availability of broadband has been and will continue to be one of the key enablers of growth for the media and creative sector. In particular, it stimulates market entry by fresh, new micro-enterprises which are well -attuned to the demands of “digital native” consumers. Greater bandwidth provides this sector with opportunities to develop new and exciting products and services, and allows it to distribute these quickly and to the widest possible audience. 84 BT Group plc – written evidence 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 85 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. 86 BT Group plc – oral evidence (QQ 466-549) The fourth is that it is very important to understand that investing in fibre access networks is a high-risk investment. Our fibre business case has a pay-back period of about 12 years. That is to say we do not get our money back for 12 years, and that is on the assumption that we achieve the volumes of customers we hope to achieve in our business case. That is a long-term investment that most commercial organisations would not tolerate, and many of the choices we have made and some of the things that have been called into question in your inquiry are really about making sure that what we do delivers a really good customer experience and makes the business case stack up. The fifth and final point is that we are committed to supporting the Government’s objectives to have the best superfast broadband network in Europe by 2015, and indeed to uplift everybody’s broadband lines to at least two megabits or more. We are willing to spend a further £1 billion or so of BT’s capital to match Government funding to do that, to roll it out into the final third, and to get as far as we possibly can into the final third, and we will do that in a way that brings the entirety of the retail market and brings that all to be available to all households, so that what we are delivering here is an identical service at an identical price to all parts of the country, which will be available to every ISP and every end user. I think these points are a matter of great pride for BT and, I hope, will provide the context for this discussion. The Chairman: That is very helpful and wide-ranging introduction, so thank you very much for that. Perhaps Lord Razzall would like to start. Q467 Lord Razzall: I think I am going to start with probably the most aggressive question, and indeed the fact that I have to leave after your answer is not because I know what you are going to say, so I should say that straight away so you do not think I am leaving because of what you have said. I want to ask a question about the whole broadband delivery UK procurement process. As far as we are aware, there are only really two people who are bidding for here. There is you and there is Fujitsu, and Fujitsu does not bid for very much. We have had quite a lot of evidence that the whole process does really benefit BT, and that is what I would like to ask you. You may not be willing to answer the first bit, which is: in how many of the broadband delivery UK procurement processes has Openreach bidding been uncontested? If you do not want to answer that, I understand, but I think it would be quite useful for us because we have had evidence that only Fujitsu had a few and all the rest is you. How do you explain your ability to bid for all these funds when the majority of your competitor suppliers have found themselves unable to do so? Do you think that the targeting of funds at councils rather than larger franchise areas raises barriers to competition in this area? How do you respond to the view that we have had expressed to us that the adoption of the gap funding model has given Openreach a competitive advantage? It is quite a difficult question, I understand. It is a rather controversial question. Sean Williams: No, I am very happy to tackle it. None of our bids is uncontested. It is important to understand that, at a level of the BDUK framework, all of the prices and proposals that we put forward in the BDUK process have been the subject of a tough competitive tendering process. There were nine bidders to start with, three were taken through to the final evaluation, and as you say, two ended up qualifying—ourselves and Fujitsu—and all of the prices and proposals that we have put in are on the basis of that competition. 87 BT Group plc – oral evidence (QQ 466-549) 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 88 BT Group plc – oral evidence (QQ 466-549) 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. 89 BT Group plc – oral evidence (QQ 466-549) 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. 90 BT Group plc – oral evidence (QQ 466-549) 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 91 BT Group plc – oral evidence (QQ 466-549) 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? 92 BT Group plc – oral evidence (QQ 466-549) 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? 93 BT Group plc – oral evidence (QQ 466-549) 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? 94 BT Group plc – oral evidence (QQ 466-549) 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 95 BT Group plc – oral evidence (QQ 466-549) 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? 96 BT Group plc – oral evidence (QQ 466-549) 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 97 BT Group plc – oral evidence (QQ 466-549) 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 98 BT Group plc – oral evidence (QQ 466-549) 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? 99 BT Group plc – oral evidence (QQ 466-549) 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. 100 BT Group plc – oral evidence (QQ 466-549) 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 101 BT Group plc – oral evidence (QQ 466-549) 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, 102 BT Group plc – oral evidence (QQ 466-549) 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. 103 BT Group plc – oral evidence (QQ 466-549) 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. 104 BT Group plc – oral evidence (QQ 466-549) 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. 105 BT Group plc – oral evidence (QQ 466-549) 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 106 BT Group plc – oral evidence (QQ 466-549) 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. 107 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 108 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 110 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. 111 Buckinghamshire Business First – written evidence 4. In fact, are there other targets the Government should set; are there other indicators which should be used to monitor the health of the digital economy? What communications infrastructure does the UK ultimately need to remain competitive and meet consumer demand over the next 20 years? 4.1 Whilst speeds are important and do determine the actual availability of superfast infrastructure, the Government needs to take a holistic view as to the value of its investment in next generation connectivity. As such, this should include a greater insight and assessment into the application of superfast services and the associated benefits linked to wider policy objectives; this could include job creation, economic development, social equity, local authority service transformation, emerging work/travel patterns. The Government must ensure that it has a cohesive strategy for delivering superfast infrastructure – fibre-based broadband is just one element of this. The allocation of the 4G spectrum and associated auctioning, as well as other investments in telecommunications will also have a significant role to play in providing universal next generation access to consumers and businesses. 5. How will individuals and companies use cloud services for distributed storage and computation? What network properties are required to enable efficient provision and use of such services? 5.1 We are already seeing evidence in Buckinghamshire of the increasing use and adoption of cloud-based services for storage, computation and wider network use. This trend is likely to continue as next generation access will enable a growing number of users the opportunity to maximise the benefits associated with cloudbased services such as reduced costs, greater efficiencies and the ability to genuinely transform working patterns and the need to travel. 5.2 A sufficient superfast network, both fibre and wireless, must be in place to enable this wider adoption of cloud-based services. Government policy and action will need to reflect this commitment with sufficient investment and cohesive infrastructure delivery at the core of a 21st century broadband network, inclusive of all appropriate technologies. We are working hard in Buckinghamshire to ensure that 4G is an integral component of this strategy, for instance. 6. To what extent will the advent of superfast broadband affect the ways in which people view, listen to and use media content? Will the broadband networks have the capacity to meet demand for new media services such as interactive TV, HD TV and 3D content? How will superfast broadband change e-commerce and the provision of Government services? 6.1 We are already seeing the influence of superfast connectivity on technology and interaction with digital media – the capacity of next generation access brings a wealth of opportunity linked to the way we go about our daily lives, both socially and commercially. New television formats such as HD and 3D represent a wave of technological developments that will be fuelled by superfast broadband access; each bringing new benefits and experiences to the new user. This is ably demonstrated in Buckinghamshire where the development of tele-health products is at the forefront of this technology, heralding a new age in patient care. Next generation 112 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 113 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. 116 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, 117 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 118 Francesco Caio – oral evidence (QQ 115-135) model, and one of my concerns is that convenience could be described as necessity from a technology point. Therefore, policymakers and regulators need to be very clear, in my view, to understand where the endpoint is, to get back to your question, my Lord Chairman. The endpoint, in my view, ought to be a world where anybody and anything can be connected to anybody and anything, without limitation of speed, without limitation of latency in response time and without limitation of symmetry. Therefore, when you deal with these things it is important to recognise that people with a vested interest—and I would add a legitimate vested interest—have very differing views and it is difficult, perhaps naïve, to think that one country can go through transition without some degree of perhaps heated debate on who is doing what and why. I think it is important for me to have this framework in mind. We are going to a world where the economic role for the companies that have been in place so far has been questioned and is being put in question. The Chairman: I can understand that point well. Q553 Lord Gordon of Strathblane: Is there any merit in looking at the model of the actual infrastructure being provided as a public utility? Mr Caio: Yes. I think I have the good fortune of not being a politician and not running a telecom company these days, and that somehow puts some kind of a free perspective. I think of broadband as electricity. I am not sure that it is the right and the only way in which you can think about it, but there is no doubt that the separation between physical infrastructure and the services you run on that puts that kind of infrastructure very similar to water and electricity. Q554 Lord Gordon of Strathblane: The alternative of letting the market determine it will give us increased competition and increased speeds in the 50% of the country that Virgin and BT overlap but absolutely no progress whatsoever in the other parts of the country, or very little. Mr Caio: Back to the discussion you were having before, I think there might be more ways that you can think in creating conditions whereby other forms of networks and other forms of investment into those networks can flourish beyond the high-density regions. Q555 Lord Gordon of Strathblane: There was also a point made earlier on. You alluded to the BBC iPlayer and how everyone thought that was going to create huge demand. There is another development that is due in the next few weeks, YouView, and we understand the BBC are going to be playing 70 channels covering every event in the Olympics, virtually. One thinks that might create a huge demand and certainly there might be thought to be a sense of deprivation among some citizens who cannot watch because the physical capability of doing so is not there. Mr Caio: There is no doubt. I think that the notion of divide or differentiation across access to this network is becoming, and will become, an increasingly visible issue. Q556 Lord Gordon of Strathblane: Are we getting hung up on this idea of superfast? Should we be concentrating more on universal provision? Mr Caio: Three years ago I emphasised here, and to a certain extent in Italy, the notion that again it is a policymaking decision. Do you want to go deeper with quality broadband, or would you rather have universal access to provision? I think it is a function of the policymaking objective. For instance, to have e-government applications and to have a real 119 Francesco Caio – oral evidence (QQ 115-135) 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? 120 Francesco Caio – oral evidence (QQ 115-135) 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 121 Francesco Caio – oral evidence (QQ 115-135) 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 122 Francesco Caio – oral evidence (QQ 115-135) 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 123 Francesco Caio – oral evidence (QQ 115-135) 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. 124 Francesco Caio – oral evidence (QQ 115-135) 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? 125 Francesco Caio – oral evidence (QQ 115-135) 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. 126 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 127 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? 128 Click4Internet – written evidence 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 129 Click4Internet – written evidence ensure that investments in continued speed improvement are considered an attractive proposition by government and industry alike. 10. Does the UK, for example, have a properly competitive market in wholesale fibre connectivity? What benefits could such a market provide, and what actions could the government take to ensure such a market? 11. What impact will enhanced broadband provision have on the media and creative industries in the UK, not least in light of the increased danger of online piracy? What is the role of the Government in assuring internet security, and how should intellectual property (IP) best be protected, taking into account the benefits of openness and security? 13 March 2012 130 The Coalition for a Digital Economy (Coadec) – written evidence The Coalition for a Digital Economy (Coadec) – written evidence The Coalition for a Digital Economy (Coadec) is a non-profit organisation that works to support legislation and other government policies that foster a vibrant, innovative and sustainable digital economy for Britain. We are made up of a wide range of members of the UK innovation community, including entrepreneurs, leaders of tech-driven startups and SMEs, inventors and developers, and many others who believe that the future of Britain lies in the success of its digital economy. In responding to the call for evidence of the committee we do this as representatives of some of the tech-driven startups, entrepreneurs and SMEs developing services dependent upon broadband, and so in the interest of brevity we have responded on the issues most pertinent to the individuals and businesses we work with. Growth The potential of the UK’s digital economy is huge. In 2009 the Internet was already worth 7.3% of GDP and it is predicted to grow to 10% within 3 years 20 . Both businesses and consumers have been able to benefit from access to services and content delivery methods provided on the Internet, and most importantly the Internet has benefited society by providing greater access to information and communication. The numbers of devices within a home that utilise the Internet are increasing. While just as there used to be only one phone line in a house there are now multiple computers, laptops, smart phones, tablets and many other devices connected to the Internet. Tablets are now becoming so common that they been added to the office of national statistic’s inflation index 21 . As highlighted in the call for evidence, there is a growing development in the ‘ of things’, or machine to machine communications. This is an emerging technology but is becoming increasingly common with WiFi technology being incorporated into printers, cameras, and fridges. In research conducted by Cisco they predicted that the bandwidth occupied by mobile communication between objects, machines or sensors will increase 22fold between 2011 and 2016 22 . As well as the number of devices there are many new innovative technologies that are driving the demand for faster Internet connections. A core demand on bandwidth is content streaming services. These are the services that deliver content like films, TV programmes, games and music on demand through the Internet either on a PC, through a Smartphone, on a games console or a number of other ways. These services often need a large amount of bandwidth to deliver these, particularly when they are high definition. The BBC iPlayer was introduced in 2007 and since then a number of video streaming services have developed including Netflix, Blinkbox, Lovefilm, HMVon-Demand, YouTube, and YouView and BSkyB are due to launch later this year. In music a number of services provide distribution services for downloading music including Spotify, Last.fm, Mixcloud, We7 and others. Increasingly 20 21 22 Boston Consulting Group, 2010 http://www.bcg.com/documents/file62983.pdf iPad and Galaxy added to inflation index, Financial Times, Tuesday 13th March 2012, http://www.ft.com/cms/s/0/04f825d4-6cfa-11e1-a7c7-00144feab49a.html#axzz1p0JA58cu Cisco predicts machine-to-machine traffic will increase 22-fold, ComputerWeekly, Thursday 16th February 2012, http://www.computerweekly.com/news/2240117424/Cisco-predicts-machine-to-machine-traffic-will-increase-22fold 131 The Coalition for a Digital Economy (Coadec) – written evidence games are also being delivered solely in download format, with individuals who are able to use the same consoles that are able to stream films and music, also able to purchase and download a new game to their console without having to leave the home. All of these demand high speeds to be able to access these services in a useable way. A further pressure on current bandwidth levels is the growth of ‘cloud storage’. Cloud storage allows individuals to store all their files remotely and access them not only on multiple PCs but also on multiple devices. This technology is vital in an environment where people are increasingly working on the move or from home. This is particularly pertinent this year during the Olympics. Under “Operation Stepchange” which took place in February this year, civil servants practiced working from home in preparation for the Olympics utilising remote computer networks. As businesses increasingly provide flexible working arrangements the speeds available to home Internet connections will need to compete with those available in large inner city office buildings. There are many emerging technologies that intersect across different aspects of commerce and communication that rely upon the ability to obtain adequate bandwidth, and we have run through some here, but the application of Internet technology is limited almost purely by imagination and new innovations are frequently demonstrating this. However we do know that the current speeds users are receiving are not sufficient for today’s needs. BBC’s iPlayer requires 3.2Mbit/s of data to stream content, however rural areas are receiving average speeds of just 3.6Mbit/s which leaves very little room for any additional devices utilising an Internet connection, which is increasingly common and will grow with the development of ‘machine to machine’ communications. It is important to remember that while there are larger platforms we have mentioned here, there are thousands of other startups and entrepreneurs working on innovative new ways to enter the market. To this end another measure the committee may wish to consider in this discussion is preserving the principle of net neutrality. The European Parliament recently passed a resolution which described net neutrality as “a significant prerequisite for enabling an innovative Internet ecosystem and for securing a level playing field at the service of European citizens and entrepreneurs” 23 . Startups and SMEs rely upon an open Internet, in which businesses large and small are able to provide their content to consumer on a relatively equal footing. This is crucial to innovation by digital businesses and consistent with the role of the Internet as a marketplace and a communications system. Some types of traffic shaping are unavoidable, but we oppose commercial discrimination in traffic management by ISPs, whereby businesses pays ISPs to prioritise their traffic. In increasing the speeds available to users we continue to preserve the principle of net neutrality. Copyright Our core motivation in responding to this call for evidence was to highlight how improving the provision of superfast broadband could contribute significantly to growth in the economy due to the number of currently available services that utilise bandwidth, and the potential for new ones to develop. Therefore, considering the nature of the inquiry, we were extremely surprised to find the following question included in the call for evidence; 23 http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P7-TA-20110511+0+DOC+XML+V0//EN 132 The Coalition for a Digital Economy (Coadec) – written evidence What impact will enhanced broadband provision have on the media and creative industries in the UK, not least in light of the increased danger of online piracy? What is the role of the Government in assuring Internet security, and how should intellectual property (IP) best be protected, taking into account the benefits of openness and security? As the focus of this inquiry is on investment in superfast broadband, we will not run through the discussions on copyright that are taking place elsewhere so as not to dilute the debate. However we wanted to highlight briefly that contrary to the suggestion of the question, the Internet and increasing access to superfast broadband presents no net threat to copyright, and will facilitate its legitimate access through licensed services that will help to combat piracy. Time and time again studies show that when legitimate access is made readily available consumers will turn away from pirated material. Being able to easily access and legally stream high quality content for a fair market price is far preferable to any user. Piracy is only made appealing to consumers when it is more convenient than legally accessing material. This is not just anecdotal evidence and there are direct comparisons to when legitimate, easy to access, services have persevered to obtain licensing agreements and deliver consumers legal access to copyrighted content at competitive prices, they actively reduce copyright infringement. Within a year of Spotify’s launch Sweden saw a 25% drop in music piracy 24 . The pie charts below indicate peak bandwidth consumption in the US and the EU. As the chart indicates in the US the percentage of bandwidth that Netflix (a legal film and television online streaming service) takes up the same bandwidth as the peer-topeer sharing systems do in the EU (despite there being no block or legislation against peer-to-peer sharing in the US) 25 . US Peak Bandwidth Consumption EU Peak Bandwidth Consumption We understand that there have been some strong discussions between those operating in the Internet economy, and those who are holders of copyright but we feel that this is a discussion that falls outside the realms of Government investment in broadband infrastructure. To include it in this call for evidence implies that because some users abuse 24 25 Musiksverige Svenskarnas Internet Van Or Q2 20111, Available online http://www.pdfkiwi.com/doc/66658516/Musiksverige-Svenskarnas-Internet-Van-Or-Q2-20111 Envisional, Technical Report: An estimate of Infringing Use of the Internet http://documents.envisional.com/docs/Envisional-Internet_Usage-Jan2011.pdf 133 The Coalition for a Digital Economy (Coadec) – written evidence the privilege of Internet access the Government should reconsider investing in superfast broadband, despite the benefits to businesses, consumers and the public as a whole. Long-term While we can speculate on the growth of current services it really is impossible to accurately predict future demand on bandwidth, as it will not be dependent just on an increased access from a number of users, but also on differentiated usage as new innovative platforms are developed. Just 5 years ago we could not have predicted the popularity of streaming services, but since iPlayer, now multiple players are quickly entering the market putting more strain on the current bandwidth provision. The current plans will ensure that the majority of the UK will be able to stream multiple high quality videos. In the short term (which is very short in the Internet economy) significant increases in demand are likely to be driven by bandwidth intense content delivery systems such as high definition videos. Virgin Media are currently developing their TiVo system which utilises an Internet connection. As they are also Internet Service Providers, it is in their interest to increase the provision for this service. It would be logical that once a basic level of provision is provided using government investment, this will encourage providers expanding their services to also invest in improvements to existing infrastructure. Indeed on the day of submission, BT and TalkTalk announced their intentions to launch 80MBit/s services 26 . We are very supportive of the Government’s commitment to improving broadband speeds across the nation, as this recognises the importance of the Internet not only as a facilitator of communication and the dissemination of knowledge, but also as a facilitator of growth and business development in many different sectors. 13 March 2012 26 TalkTalk launches 80Mbps service as BT plans the same, ZDNet, 13th March 2012 http://www.zdnet.co.uk/news/networking/2012/03/13/talktalk-launches-80mbps-service-as-bt-plans-the-same40095248/ 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 135 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. 136 Dr Peter Cochrane OBE – oral evidence (QQ 29-74) 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 137 Dr Peter Cochrane OBE – oral evidence (QQ 29-74) 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 138 Dr Peter Cochrane OBE – oral evidence (QQ 29-74) 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. 139 Dr Peter Cochrane OBE – oral evidence (QQ 29-74) 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 140 Dr Peter Cochrane OBE – oral evidence (QQ 29-74) 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 141 Dr Peter Cochrane OBE – oral evidence (QQ 29-74) 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 142 Dr Peter Cochrane OBE – oral evidence (QQ 29-74) 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 143 Dr Peter Cochrane OBE – oral evidence (QQ 29-74) 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 144 Dr Peter Cochrane OBE – oral evidence (QQ 29-74) 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, 145 Dr Peter Cochrane OBE – oral evidence (QQ 29-74) 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. 146 Dr Peter Cochrane OBE – oral evidence (QQ 29-74) 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 147 Dr Peter Cochrane OBE – oral evidence (QQ 29-74) 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 148 Dr Peter Cochrane OBE – oral evidence (QQ 29-74) 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. 149 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. 150 Communication Workers Union (CWU) – written evidence 1. What is being done to prevent a greater digital divide occurring between people who can access superfast broadband and people in areas where the roll-out of superfast broadband may not be commercially attractive? How does the UK communications market vary regionally and what is the best way to connect the areas that the market alone cannot reach? Is a universal service obligation necessary to avoid widening the digital divide? 1.1 The CWU is concerned that both the geographic and educational ‘digital divide’ is closed as quickly as possible. To do this broadband access needs to be extended to the rural and remote areas of the UK and internet literacy must be increased. The Government’s target is to reach 90% of UK homes and businesses with superfast broadband - with a speed faster than 24Mbps and 100% with a speed of at least 2Mbps - by 2015 27 . The Government has committed funding of £530 million (through Broadband Delivery UK) along with a £20 million rural broadband fund, £100 million of super-city funding between now and 2015, and a further £300 million earmarked for spending between 2015 and 2017. The CWU believes this level of funding is insufficient to achieve the Government’s goals for two prime reasons. First it is a low sum compared to the amounts the UK’s competitors are spending on broadband infrastructure within existing networks as they are upgraded and second the market cannot provide a robust business model to complete end-to-end connection. 1.2 At a Westminster eForum 28 event in 2010 it was pointed out that around 10% of the UK (the most remote and rural areas contained in the ‘final third’ of premises for whom a market-led approach will not deliver next generation broadband access) will not be able to receive superfast broadband in the next decade and that the funds set aside by Government are insufficient to address these ‘not spot’ areas. Fujitsu who originally promised in April 2011 that it would offer a fibre-to-the-home (FTTH) network to those homes bypassed by commercial broadband roll-outs and has now reversed its commitment for both the Scottish Highlands and Islands and for Wales stating that the sums did not add up to make the business case work even with Government funding. Similarly Cable & Wireless has also withdrawn from the pilot in Cumbria and GeoNetworks has withdrawn from previous commitments in Wales on the same basis. The CWU considers that the Government ought to consider speeding up the pace of broadband roll-out by making the process more cost effective through increased public investment and by making the bidding process for licenses easier and less cumbersome. 1.3 Given these recent developments it is manifestly clear that the market alone cannot provide the ‘final third’ with superfast broadband fibre-to-the-home (FTTH) access if left to its own devices. Only those telecoms operators who possess ‘significant market power’ (SMP) can utilise their considerable economies of scale supported by public investment, to deliver a truly national FTTH network that is not prone to interconnectivity and operability problems. By contrast the Government’s preferred solution to reach its objective of a 100% of homes with a broadband speed of at least 2Mbps by 2015 is to allow mobile operators to plug the gap so that superfast broadband can instead be accessed via mobile and satellite technology rather than 27 28 Britain’s Superfast Broadband Future’, December 2010, Department for Culture, Media and Sport (DCMS). ‘Delivering the UK’s Broadband Future’, 10th November 2011, Westminster eForum. 151 Communication Workers Union (CWU) – written evidence FTTH. This is evidenced in Ofcom’s current consultation 29 which posits two options: the first to increase the service obligation on the license holders to 98% coverage of the UK by population; and second to require that one 800MHz operator provides 4G coverage that not only matches existing 2G coverage but also extends into mobile ‘not spot’ areas of the UK and must be in place by 2017. 1.4 The CWU is concerned that the Government’s proposals for investment in the new high-speed broadband internet structure and mobile phone ‘not-spots’ still assumes high levels of private investment for which there is no guarantee. Most significantly this affects Scotland where the not-spot areas account for 15.5% of the nation’s total. 1.5 The CWU considers that a Universal Service Obligation (USO) is necessary to avoid increasing the digital divide between those parts of the UK that have superfast broadband and those that do not. If left with only a commitment and not an obligation to universal service, the market will concentrate only on profitable and niche areas, with remote areas suffering greater economic disadvantage. The Federation of Small Businesses (FSB) supported this objective by calling upon the Government to make minimum broadband speeds a universal service obligation rather than merely a commitment. 30 Similarly the International Telecommunication Union (ITU) reported31 that of 82 countries around the world that had adopted a national broadband strategy, over 40 include universal service/universal access as a requirement (e.g. USA, China, India, Brazil and Spain) through a FTTH network. Finland for example became the first country in the world in July 2010 to adopt a USO with legal force. This is why the CWU has consistently argued that there should be a USO which builds on the current USO for basic fixed line services and introduces a legal requirement for universal availability of broadband services. 2. The Government have committed £530 million to help stimulate private investment – is this enough and is it being effectively applied to develop maximum social and economic benefit? 2.1 The CWU does not consider that the Government’s strategy for the rollout of superfast broadband is being applied in a way that will develop maximum social and economic benefit. The Government’s ambition is to create thousands of jobs, to add to GDP, build a fairer and more prosperous society, and for the UK to have the best broadband system in Europe by 2015. However in comparison with other countries the money committed by the UK Government is meager. UK Broadband deployment ranks sixth in the world behind China, USA, Japan, Germany and France according to Broadband Forum. 32 It cites India as investing £8.13 billion to extend superfast broadband to rural areas by 2014 all of which will be paid for by Government funds and loans. The French Government has invested £1.7 billion already with a further £570 million each year until 2025, and the US Government is investing £7 billion until 2018. Unfortunately the UK has been ranked 14th in the world in terms of broadband 29 30 31 32 ‘Second consultation on assessment of future mobile competition and proposals for the award of 800 MHz and 2.6 GHz spectrum and related issues’ – 12th January 2012, Ofcom. ‘Broadband: Steps for an Incoming Government’ - November 2010, FSB. Yearbook of Statistics Telecommunication/ICT Indicators 2000-2009 - February 2011, ITU. ‘India in Top Three Countries for Global Broadband Growth’ – March 2011, Broadband Forum. 152 Communication Workers Union (CWU) – written evidence and telecoms infrastructure. 33 This is primarily because the other countries are investing more in a FTTH network. 2.2 The Government has already recognised the insufficiency of its own investment in a letter sent to MPs on 14th June 2011 by the Culture Secretary, Jeremy Hunt MP. In the letter Mr Hunt stated that: “We will then provide 50% of the public funding required to make the necessary investments viable to commercial providers. Local authorities and the Devolved Administrations will need to provide the remaining funding from their own resources, European programmes, or other funding sources.” We do not believe that this is a realistic expectation, especially at this time of economic downturn, cutbacks in local authority funding and turmoil in the Eurozone. 2.3 A study for the Organisation for Economic Co-operation and Development (OECD) 34 found that through a fully funded FTTH network financial savings of between 0.5%1.5% could be made over a 10-year period particularly in the electricity, health, energy and transportation sectors. The benefits of higher productivity, increased innovation, improved access to new markets and new business opportunities will be lost without sufficient public investment. It has been estimated by the London School of Economics 35 that increased employment from investment in superfast broadband would be 280,000 jobs. The EU Digital Agenda Commissioner Neelie Kroes has made it abundantly clear that universal broadband offers benefits well beyond the telecoms sector (such as reducing the number of car journeys made, both through home working and areas like online shopping) and as such there is a significant role for public sector funding to ensure a rapid deployment of a universal service. 3. Will the Government’s targets be met and are they ambitious enough? What speed of broadband do we need and what drives demand for superfast broadband? 3.1 The Government’s targets might well be met if more public money is invested. The CWU considers that the current targets are not ambitious enough if the UK is to remain globally competitive. The EU targets by comparison for 2020 are for 50% of the population to enjoy 100Mbps and 50% to have 30Mbps or over again primarily on a FTTH network. The total of up to £830 million of UK public funding could be spent on networks that deliver only half the minimum speeds of our European competitors. Recent research by Akamai 36 (the US computer technology company) revealed that the UK is placed in 17th position for broadband speeds in Europe with an average connection speed of 5.1Mbps. In February 2012 Ookla (a web-based speed testing and diagnostics firm) found that the UK came in 32nd place globally for downloading speed and 57th place for uploading with an average of nearly 12.4 Mbps and 2.11 Mbps respectively. This leaves the UK lagging behind countries with faster speeds such as Rwanda, Kyrgyzstan, Kazakhstan, Russia and the Ukraine. 3.2 Demand is driven by the services on offer and a good level of knowledge of what is available; demand will increase when speeds are faster and more content can be accessed over those services. This can only be delivered through a FTTH network; the 33 34 35 36 ‘2010 Digital Economy Rankings’ – June 2011, Economic Intelligence Unit. ‘Developments in Cable Broadband Networks’ – March 2010, OCED. ‘The UK’s Digital Road to Recovery’ – April 2009, LSE and The Information Technology and Innovation Foundation. ‘State of the Internet Report 3rd Quarter 2011’ – 1st February 2012, Akamai. 153 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 154 Communication Workers Union (CWU) – written evidence problems of offering a high standard quality of service. Therefore the CWU would wish to see the introduction of minimum standards based on the ‘end-to-end’ principle through regulatory enforcement. A minimum prerequisite is for network wholesale carriers to demonstrate that they are not favouring their retail operations in the priority and carriage of network traffic. This will support an increased number of internet services and will work to further reduce cost. 7. Will the UK's infrastructure provide effective, affordable access to the 'internet of things', and what new opportunities could this enable? 7.1 No response. 8. How might superfast broadband change the relationship between providers and consumers in other sectors such as content? What aspects of this relationship are key to enabling future innovations that will benefit society? 8.1 In relation to content the CWU recognises that network providers and communication providers have more potential with superfast broadband to increase and expand their range of content provision. Already BT through BT Vision and Virgin Media through its Tivo product are offering customers a greater variety of choice to access content. What is currently lacking in the industry is a level-playing field especially for premium content. The CWU is concerned in this regard about the potential for unfair competition or market share abuses by Sky TV through the monopoly power it exercises through Pay-As-You-View television. 9. What role could or should the different methods of delivery play in ensuring the superfast broadband network is fit for purpose and is as widely available as possible? How does the expected demand for superfast broadband influence investment to enhance the capacity of the broadband network? 9.1 The CWU’s preferred delivery method for superfast broadband is FTTH deployment by those telecoms operators who possess significant market power and are able to realise considerable economies of scale and deliver a truly national network. The CWU is concerned by the Government’s preferred option of the sale of 4G spectrum licences, as mentioned in response to question one, which proposes to implement ‘spectrum floors’ which allow each bidder to emerge from the auction with a reasonable amount of new capacity. This will allow bidders to acquire spectrum at a knock-down rate which Ofcom itself has estimated as a cost to the taxpayer of £1 billion. 9.2 The Government is giving winning bidders a public subsidy by driving down prices, a move which is anti-competitive against fixed broadband technology. The House of Commons Culture, Media and Sports Select Committee argued on 22nd June 2011 that following Ofcom’s decision to allow network operators to trade mobile airwaves the money realised from such sales should be invested in the FTTH deployment of superfast broadband to rural areas. This is because companies such as Everything Everywhere benefited from having these airwaves given to them for free back in the 1980s and they stand to make a profit of over £300 million. This profit should instead be re-invested into superfast broadband FTTH deployment. 155 Communication Workers Union (CWU) – written evidence 10. Does the UK, for example, have a properly competitive market in wholesale fibre connectivity? What benefits could such a market provide, and what actions could the Government take to ensure such a market? 10.1 The CWU does not consider there to be a properly competitive market in wholesale fibre connectivity because obligations are placed only on those telecoms providers that have significant market power across the whole market. However the CWU strongly argues that obligations ought to be placed on other providers and executed through commercial contracts recognising a reasonable rate of return for the assets used. For example Virgin Media (as its cable network now covers just under half of the UK) and other providers should have to provide open access to their ducts and infrastructure, as BT, if competition is not to be distorted in their favour and against BT’s or any other operator. 11. What impact will enhanced broadband provision have on the media and creative industries in the UK, not least in light of the increased danger of online piracy? What is the role of the Government in assuring internet security, and how should intellectual property (IP) best be protected, taking into account the benefits of openness and security? 11.1 No response. 13 March 2012 156 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) Evidence Session No. 4. Heard in Public. Questions 136 – 249 TUESDAY 24 APRIL 2012 Members present Lord Inglewood (Chairman) Lord Bragg Lord Clement-Jones Baroness Deech Baroness Fookes Lord Gordon of Strathblane Lord Macdonald of Tradeston Bishop of Norwich Lord Razzall Lord St John of Bletso Earl of Selborne Lord Skelmersdale ________________ Examination of Witnesses Mr Chris Holden, Chair, Policy and Regulation Experts Group, FTTH Council Europe; and Mr Robert Kenny, Founder, Communications Chambers Q136 The Chairman: Well, good afternoon, and a warm welcome to Chris Holden and Robert Kenny. Thank you both for coming along and talking to us this afternoon. As I think you know, we are adopting a slightly unusual procedure here in having two witnesses whose perspectives are, I think, different in some respects—although perhaps not as different as they may look at first blush—giving evidence simultaneously. I trust the experiment will work smoothly, and please feel free, if you think something is going slightly out of sync, to interject. First, before we start, I will just ask each of you, if you would—and I will take you in alphabetical order, to start with anyway, for as good a reason as any—to introduce who you are and your background. That is as much for the benefit of those who will be reading the transcript. We are on the internet, we are on the feed, and there will be, I suspect, many more people watching outside than there are inside the room. Perhaps without any further ado—we have had CVs from you and we have read the evidence that has been submitted already, so I hope you can take that background as read—I could just start with Chris Holden, if you could just tell us all who you are and make any opening remarks you might wish to make, and then we can go on into the hearing proper. 157 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) Mr Holden: Okay, fine. Up to last month I was President of Fibre to the Home Council for the last two years which is a member organisation containing 150 member companies, all of which are in the telecommunications industry. After two years we have to change presidency. In those two years, I was doing quite a bit of work with the European Commission as well as looking at funding issues and regulation and policy. Now, at the end of that term, I have moved on to the regulatory and policy advisory group within the Fibre to the Home Council of Europe to carry on moving those things forward. The Fibre to the Home Council is really there to accelerate the adoption, promotion and communication of fibre to the home networks. It is not unsurprising, because it is the Fibre to the Home Council, that our main raison d’être is fibre to the home rather than other solutions, so you will have to excuse me for that one, but I think we have good reason for saying that. Every year we complete a panorama of the whole of the world. There are three other key Fibre to the Home Councils in the world. There is the APAC Council and the North American Council, which includes South America, and the Middle East. Together we look at what the environment is like. It is interesting as of the end of last year the US have 9.7 million subscribers to fibre to the home; APAC has 58 million, and Europe in total only has 5.7 million, so we are falling behind a reasonable amount. But if we also look at other areas, what we see actually is Eastern Europe is growing faster than Western Europe for a number of reasons. In particular, Russia now has 4.5 million subscribers. They have leapt up the league chart very rapidly. The Middle East is starting to grow now where they have seen a recognition, so they now actually have just over half a million subscribers. What is also significant in Europe—I know we are about the UK, but just to put the climate around it—is when we look at that league there are some countries that are not doing very well. In particular, there are three countries that have not actually made the ranking yet. Now, if you take the ranking is any country with more than 200,000 households and actually more than 1% penetration, if you do not meet that you do not actually hit the target. Three countries in particular—Germany, Spain and the UK—are still not on that ranking, which is very disappointing, but actually we see Spain probably will be on the ranking the next time, we do them every six months. So, how is the UK doing anyway? We also think it is slipping a little bit behind on upload. We have a target of being the best country in Europe by 2015, but if we look at upload targets and capabilities then actually we rank 56th at the moment in the world, which is a long way behind everybody else. That is based on driving out targets based on what the European Commission has set in what they call their digital agenda. In that they have set two targets. They have set a 30 Mbps target available to all households by 2020, but the more significant one is the 100 Mbps target for 50% of households subscribing to that by 2020. Now, we believe there are a few things missing. One is it is a very open target and there is no reference at all to upload. Upload we see as being significant in the future when you look at some of the new services that are coming along. There is also one extra thing I am just going to mention, and that is the fund that the European Commission has talked about of basically setting out capabilities of funding for Europe for building networks. It is effectively state aid. That has been talked around at the moment. It is €7 billion probably to infrastructure; €9.2 billion is the fund. The Commission have been talking of leveraging, using financial instruments, pushing that up maybe to 50 billion. At one time they talked of €100 billion, but let us say €50 billion. That is also additional funding that could be available to meet infrastructure. Subject to it being approved in Europe, then one of the things to get that approved in Europe is obviously going to be the 158 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) ability of them to get it through the parliaments and then the national Governments themselves need to actually endorse that as well. We see a reluctance from national Governments to endorse telecoms. They would rather spend more money on other infrastructures, which we think is perhaps a little bit short-sighted. Q137 The Chairman: Thank you very much for that very helpful opening statement, and if I can now turn to Robert Kenny and give you your opportunity to do whatever you would like similar. Mr Kenny: Thank you. My name is Robert Kenny. I am a founder of a telecoms and media strategy and policy consultancy called Communications Chambers. I have spent pretty much the entirety of my career in the telecoms industry working for companies such as Hong Kong Telecom, which was one of the first companies in the world to take fibre to the home, though not at that time for the internet. I also worked for Level 3, the largest internet backbone provider in the world, and I worked for Reach, which at the time was the largest internet backbone provider in Asia. I was also founder of a venture capital fund that invested in the internet, so despite my views on superfast I am in general quite an internet enthusiast. I guess my particular interest in this topic of superfast broadband and Government interventions around it crystallised in a paper I wrote with my brother, who is an economist, about 18 months ago called Superfast Broadband—is it really worth a subsidy?, which set out our stall as to why we felt perhaps it was not. The paper ended up attracting quite a lot of attention and, indeed, quite a lot of citations and good reviews. The relevant journal named it the paper of the year yesterday, which was very flattering. That is just very briefly how I come to be interested in this topic. Let me just pick up a couple of things in what Chris just said. First of all, I should say I am grateful to the FTTH Council for those annual surveys they report. They are some of the solidest data on what is going on internationally with FTTH and are very helpful in that regard. He said he was not entirely happy with the Commission’s targets. Nor am I, although perhaps for slightly different reasons. I am not happy with them because they are mad. They are mad for two reasons. Firstly, because they are completely unrealistic. There is an infinitesimal chance that we will have 50% of households subscribing to broadband speeds in excess of 100 Mbps, which is the target. It is just not going to happen by 2020. We can certainly talk about why I think that in more detail later if that is of interest to you. Secondly, they are mad because they are a completely technology-out view of the world. It is a besetting sin of the telecoms industry, of which I have been a participant, that we tend to start with technology and work back to what consumers or end users might actually like. The companies that have been really successful have worked the other way round. That is companies like Apple, for example. A hundred megabits per second is a completely arbitrary target and I have not seen anything solid that says why 100 Mbps is the target. If somebody were to make me an EU Commissioner—perhaps not imminent—I would start with thinking about what do we actually want to be able to do with the internet and then say, “Okay, given that set of ambitions for the internet, for applications for the internet, I think we need a bandwidth of X”. For what it is worth, my number probably would be closer to 10 Mbps than 100 Mbps. Again, I can perhaps talk about that in more detail later. But that does not seem to be what has happened. We have just been given this 100 megabit number, which sounds good but does not seem to be anchored in any particular set of applications; in particular, any application with externalities. 159 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) I will say one final thing before I stop. In considering Government intervention in the realm of superfast, for me there are three acid tests. I think we can all quickly agree it is not actually about a physical connection to the home; it is about the applications that ride on top of it and what you can actually do with that connection, not the fact that you have an arbitrary amount of traffic moving back and forth. For applications to justify Government intervention, if you are subsidising superfast to the home, that application must pass three tests. Because you are subsidising it, it must bring externalities. For instance, you cannot be talking about HDTV or 3D TV when you are trying to justify Government intervention because it does not bring externalities. There is no particular reason to expect the taxpayer to pay for that rather than the consumer end user. Secondly, if you are subsidising superfast, it has to be an application that absolutely needs superfast broadband in order to work. You cannot be talking about applications that work on superfast but would also work on basic broadband. This is an error that is made time and time again. Indeed, I am afraid the DCMS paper, Britain’s Superfast Future, is rife with this muddlement, where they talk extensively about the things that basic broadband can do and say, “That is why we need superfast”. That is just bad logic. Thirdly on subsidising superfast to the home, if you are subsidising telecoms networks to the home, it has to be applications that take place in the home. You cannot fold in wonderful things that hospitals may be able to do with great connectivity or wonderful things that schools may be able to do with great connectivity because there is no earthly reason to wire up suburban residential streets because you can do something wonderful in a hospital. Hospitals, many of them, already have fibre connectivity. It is quite separate. As you all wade through the voluminous material that there is on this debate, I would encourage you to have those three acid tests in mind as you read justifications for fibre. Is it an application that truly brings externalities? Is it an application that not just can ride on superfast but depends on superfast? Thirdly, is it an application that depends on connectivity to the home? Q138 The Chairman: Thank you both very much. Perhaps it would just be helpful to the Committee if each of you just say quickly what your background is. You described your brother as being an economist and you have said you have worked in the industry a long time. Are you scientifically based or economically based? Just where do you come from, like that? Mr Holden: I have been 20 years in telecoms, basically, starting with the copper side of the telecoms and then moving to the optical fibre midway. Most of that has been in technology, so it is technology driven as far as passive infrastructure is concerned. Q139 The Chairman: You are a scientist, are you, by background? Mr Holden: I am an engineer, not a scientist. It is the practical implementation of the passive infrastructure mostly. I worked for Corning, which is on the list, and Corning obviously is the inventor of the fibre, and so are the leader in this field. Q140 The Chairman: Robert Kenny, are you an engineer as well? Mr Kenny: I have no such expertise, I am afraid. No, my background is strategy, so the commercial side and also the policy and regulatory side of telecoms. Q141 The Chairman: All right; fine. Thank you very much. If I could just get the debate we are going to have underway by asking each of you—we talk about superfast broadband 160 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) 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. 161 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) 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. 162 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) Mr Kenny: To disaggregate your question a little, it depends what kind of technology we are excited about here. There is the physical telecoms technology—the smart and ever smarter bits of equipment that sit at either end of the fibre or the copper as it may be—in the physical connections themselves. The fibre itself is also quite sophisticated technology, so all sorts of stuff, if you like, in the physical layer of the network is one kind of technology. Then the other side of it is the applications layer, which is the stuff that is going on on top— everything from Facebook to Spotify to doing your taxes online—which involves quite different kinds of technology with quite different drivers. Now, the UK does not have a particularly strong position in the first, given that the big manufacturers are Alcatel out of France, Corning out of the States and Cisco out of the States. For a lot of the stuff that is about moving packets from A to B, it is a big challenge for us to capture a market-leading position in that particular market, and there is no particular reason, even if we threw a lot of money at fibre, that we would. We would create a UK customer for that kind of product, but would we as a matter of industrial policy say, “Build that fibre, oh and by the way, buy equipment from a nascent UK industry in that sector”? That seems like a surprising approach to take and, even if we did, we would still be a small part of the market overall globally because this is a fundamentally global market. These technology companies work globally. I am not sure it brings much benefit there. On applications, one of the ironies here is we worry about how good we are on the access network, but on the applications level we are actually doing very well. There is work by BCG—and I will try to get these rankings right but forgive me if I am just slightly astray— which, from memory, looked at 34 OECD countries. They rated them in three different ways: how they were doing in various elements of telecoms infrastructure, including broadband; how they were doing in economic use of the internet, so the level of e-commerce and the level of online advertising and so on; and, thirdly, how they were doing in what I think they termed “engagement”, which was kind of a catch-all category for just how much stuff the country does on the internet. There was a range of applications. It was civic, government, social, a whole set of things. We did pretty rubbish on access speeds, upload and download. I will check the numbers, but let us just say we were about 23 out of 34. We were down the bottom of the pack. That sounds pretty bad, but that is an input—it is an input. The reason you have the telecoms infrastructure is not so you can admire your shiny bits of telecoms equipment but so you can do stuff with it. On those other two dimensions, the economic and engagement ones, we were, from memory, second in both. We are doing very, very well in our use of the internet. There just is not a simple correlation between quality of fixed-line broadband connectivity and how much a country is getting out of the internet in terms of its applications. That link is just not there. To take another example, in the US, which I think we could all agree leads the charge on internet applications—Facebook and Twitter and Google and all the amazing stuff that many of us use—the internet actually does not have a particularly good fixed broadband infrastructure. Again from memory, they were around about 13th, I think, in the rankings, behind countries like Latvia and Belgium. Indeed, Silicon Valley itself, even within the US, does not have a particularly good broadband infrastructure. There is no simple cause and effect where, if you have great internet infrastructure, you suddenly get great applications coming. The final thing I will say on this is: take a look at Korea and Japan. The two countries that fibre enthusiasts have greatest superfast envy of are Japan and Korea. How many global internet application companies can we name out of Japan and Korea? It just has not done it for them. It has not delivered that kind of technological advantage in the applications layer. Indeed, one of the fascinating things—and this is from an Informa report I saw this week—is, 163 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) 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. 164 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) 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 165 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) 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 166 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) 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 167 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) 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 168 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) 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. 169 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) 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. 170 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) 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 171 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) 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 172 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) 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. 173 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) 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. 174 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) 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 175 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) 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. 176 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) 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 177 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) 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. 178 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) 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. 179 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) 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 180 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) 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. 181 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) 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 182 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) 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 183 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) 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. 184 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) 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 185 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) 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. 186 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) 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 187 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) 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? 188 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) 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? 189 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) 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. 190 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) 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 191 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) 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. 192 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) 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 193 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) 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. 194 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) 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 195 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) 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. 196 Communications Consumer Panel – written evidence Communications Consumer Panel – written evidence Summary ¾ The Panel believes that everyone should have access to a good level of broadband service so that consumers and small and medium-sized businesses (or SMEs) in all parts of the UK have equal opportunity to carry out essential online activities in a reliable and consistent way. A robust broadband infrastructure must be inclusive and aim to maximise digital participation; ¾ The Panel has developed a Consumer Framework for Digital Participation that brings together all the different elements that are needed to provide the help and support that people need to get online, stay on-line and get the most value and benefit from the internet; ¾ 20% of UK adults say they do not use the internet at all. The most frequent reason for not getting the internet at home relates to a perceived lack of need. 16% of respondents from the Federation of Small Businesses report that they don’t use current generation broadband - 27% of those respondents reported that they had no business need; ¾ The drive to attain greater speeds must be complemented by work to convince people who are currently offline of the benefits of going online and to enable them to gain the necessary skills; ¾ There are a number of important safeguards required if the Universal Service Commitment (USC) is to be implemented in a way that meets the needs of consumers; ¾ There is particular concern for SMEs that fall within the 10% likely to be unable to access speeds significantly greater than 2MB and that 2MB may be insufficient for consumers in future as new, bandwidth hungry, services become the norm; ¾ Around 5% of residential UK broadband connections had a headline speed over 24Mbit/s in November 2011. Enders Analysis estimate that only 15% of households with a broadband connection would be willing to pay an additional £5 a month for higher connection speeds; ¾ Value for money and concurrency were the most important reasons for consumers choosing their current super-fast broadband service. New services will drive uptake but this also requires empowered consumers. People will need to understand what these new services offer and their potential to improve their lives compared to current generation broadband; ¾ The Panel’s current research looks at how people in low digital participation groups across the UK can get the most out of being online and how they might increase their 197 Communications Consumer Panel – written evidence breadth of usage. This will specifically look at the issue of low uptake in areas of Glasgow. ¾ In-home hardware and set-up will also affect the speed experienced by the end-user; ¾ Enabling consumers to make an informed choice between the packages and service offered by different providers, and making it easier to switch between them, encourages competition and investment; and ¾ Effective mobile coverage is essential for growth in rural communities and businesses. Introduction 1. The Communications Consumer Panel welcomes the opportunity to contribute to the House of Lords Select Committee inquiry into the Government’s superfast broadband strategy. 2. The Communications Consumer Panel 37 is an independent group of experts established under the Communications Act 2003. Its role is to provide advice to Ofcom to ensure that the interests of consumers, including small businesses, are central to regulatory decisions. The Panel also provides advice to Government and champions consumers' communications interests with industry. The Panel has members representing the interests of consumers in Scotland, Wales, Northern Ireland and England. 3. In this response we address levels of take-up in the UK, the Panel’s work on a consumer framework for digital participation and communications services for the future. Broadband availability 4. The Panel believes that everyone should have access to a good level of broadband service so that consumers and SMEs in all parts of the UK have equal opportunity to carry out essential online activities in a reliable and consistent way. The UK Government’s aim for 90% of UK homes and businesses to have access to super-fast broadband by 2015 and the commitment to ensure that virtually all homes will have access to a minimum level of service of 2Mbps by the same date provide a sound framework for progress. While 2MB may provide an adequate baseline residential user experience, there is concern for those SMEs that fall within the 10% likely to be unable to access speeds significantly greater than 2MB. Also 2MB may become too low for acceptable service to consumers as new, bandwidth hungry, services become 37 http://www.communicationsconsumerpanel.org.uk/ 198 Communications Consumer Panel – written evidence 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: 199 Communications Consumer Panel – written evidence • • • be in line with consumer needs, as set out in the Panel’s principles; be equitable across the nations; and be future-proofed so that consumers are not left behind. 8. Ofcom published information relating to national broadband measures in its Infrastructure Report 38 in November 2011. The key metrics are summarised in the table below. 9. The information in Figure 4 is based on data collected from the UK’s broadband infrastructure providers (BT Openreach, Virgin Media and Kingston Communications and from the largest retail ISPs) about modem synchronization speeds – and as such, represents the line capabilities, or maximum speeds which consumers are able to receive. 10. In Ofcom’s research on actual broadband speeds published in February 2012 (and based on data collected in November 2011), the average actual UK residential broadband speed was 7.6Mbit/s. 39 Broadband take up 11. A robust broadband infrastructure must be inclusive and aim to maximise digital participation. It must ensure that disadvantaged groups can access and utilise digital communications, particularly as more and more public services migrate online. 12. The Communications Market Report (CMR) data from Ofcom 40 show that compared to 2010, broadband take-up across the UK has increased from 71% to 74%. Latest 38 39 40 http://stakeholders.ofcom.org.uk/binaries/research/telecoms-research/bbspeeds2011/infrastructure-report.pdf http://media.ofcom.org.uk/2012/02/02/jump-in-uk-broadband-speeds/ Communications Market Report, Ofcom 2011 http://stakeholders.ofcom.org.uk/market-data-research/marketdata/communications-market-reports/cmr11 200 Communications Consumer Panel – written evidence data 41 shows UK take-up at 76% (October – December 2011 fieldwork). However, the CMR highlights that there are significant variations in levels of take up across the UK - 61% of Scottish homes have broadband access (either fixed or mobile), compared to 71% in Wales and 75% in Northern Ireland. 13. Broadband take-up is not evenly distributed throughout the population. Looking at groups that have lower levels of broadband take up across the UK: • • • Of the over-55s, 55% have broadband at home in the UK Among DE socio-economic groups across the UK, 55% have broadband at home Of households with incomes less than £17.5k per annum, 52% in the UK have broadband at home 14. According to the Communications Managers Association/Federation of Small Businesses Internet Opportunity Survey, 16% of respondents from the Federation of Small Businesses report that they don’t use current generation broadband. Although this is partly explained by geographic availability, the survey found that there was also a lack of knowledge of the benefits of broadband – 27% of those respondents not using current generation broadband reported no business need. 15. The Panel’s concern therefore focuses not so much on issues of availability, which are nonetheless important, but rather on take-up. These lower levels of broadband take-up mean that people are at an increased risk of exclusion from the social and economic benefits of being online, particularly as more public services are put online. Take-up of super-fast services remains low 16. Despite the growth in availability of super-fast services and the range of services that are available, Ofcom research into broadband speeds found that in November 2011 only around 5% of residential UK broadband connections had a headline speed over 24Mbit/s. 17. Ofcom analysis indicates that a premium of at least £5 a month is generally charged for super-fast broadband services. Enders Analysis42 estimate that only 15% of households with a broadband connection would be willing to pay an additional £5 a month for higher connection speeds. 18. At present, concurrency appears to be a key driver of the take-up of super-fast broadband. The CMR notes that “The range of internet-connected devices available to consumers has increased significantly in recent years. Indeed, our research into the reasons for taking super-fast broadband services found that the desire for “good 41 42 http://stakeholders.ofcom.org.uk/binaries/research/statistics/2012jan/Ofcom_Technology_Tracker_Wa3.pdf UK residential high speed broadband outlook: leading the horse to water, Enders Analysis July 2011 201 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. 202 Communications Consumer Panel – written evidence 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. 203 Communications Consumer Panel – written evidence 25. Ofcom’s recent Infrastructure Report 44 states that the use of mobile networks for data is increasing, driven by the take-up of mobile broadband ‘dongles’ and smartphones. It reports that there are now 33m subscriptions to 3G services and 7% of homes in the UK rely solely on mobile broadband services (rather than a fixed line).The CMR notes that of the 17% of households that had a mobile broadband connection in Q1 2011, the majority (10% of all households) also had a fixed-line broadband connection. 26. Recent Ofcom data 45 shows that 40 per cent of UK adults now own a smartphone. Some 34% of UK adults use their mobile phones for internet access. The CMR found that a third of smartphone users agreed that their smartphone was more important to them for accessing the internet than any other device, with the proportion rising for younger users. 27. According to Ofcom’s media literacy research 46 , only 2% of adults in the UK who go online only access the internet by a means that is not a PC/laptop at home. Therefore, the majority of mobile internet usage is complementary to home access rather than replacing it. 28. Take-up of mobile broadband lies at 17% in the UK overall – although again there are significant variations across the UK. People who remain offline at home 29. The CMR found that 20% of adults in the UK say that they do not use the internet in any location. 30. While costs are undoubtedly a barrier to take up for some, the most frequently stated reason related to a lack of perceived need. The table below examines the top four main reasons given by people in the UK who said they would not get the internet at home in the next 12 months. No need Too old to use the internet Don’t want a computer Don’t know how to use computers/the internet 44 45 46 UK - % of those not intending to get the internet in the next 12 months. 29% 15% 15% 14% http://stakeholders.ofcom.org.uk/binaries/research/telecoms-research/bbspeeds2011/infrastructure-report.pdf http://stakeholders.ofcom.org.uk/binaries/research/statistics/2012jan/Ofcom_Technology_Tracker_Wa3.pdf http://www.ofcom.org.uk/static/stats/MLAudit2010Adult.pdf 204 Communications Consumer Panel – written evidence 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 205 Communications Consumer Panel – written evidence Panel would be pleased to share the results of this work with the Select Committee when it is published in Spring this year. Decision making 34. Broadband users must also be able to easily switch between services and competing suppliers. Enabling consumers to make an informed choice between the packages and service levels offered by different providers encourages competition and investment. Consumers can make such informed choices only if they can easily compare the different packages and providers. However, the Panel does have a concern that greater transparency is too often seen as a panacea to meet all kinds of consumer concerns. Whilst transparency is very important, there are a number of limitations to transparency for both consumers and citizens. Transparency relies on consumers being able to access, understand and compare information about actual broadband speeds (as opposed to advertised “up to”) and traffic management weigh this up against other information relevant to their purchasing decision and potentially switch their communications provider. If successful, transparency (although not by itself) facilitates individual consumer choice. However, the aggregate of individual choices, while possibly appropriate for each individual concerned, may not result in outcomes that are beneficial for society as a whole. 35. It is important that research is carried out to examine the way consumers and citizens make decisions about broadband services and the extent to which they understand the information provided to them about such services. It is important that policy makers take into account the way consumers make decisions and use information about broadband generally, to ensure that any remedies are useful to people in the round. In considering how best to present information to consumers, policy makers should bear in mind that consumers need clear explanations about the content and services they will – or will not - be able to access and when. Small businesses are also likely to experience many of the same issues as consumers. Both need a clear understanding of post-sales service commitments and provision. 36. The Panel has welcomed the improvement in average broadband speeds reported by Ofcom in new research, but remains concerned that many people with ADSL-based broadband connections continue to experience much lower average download speeds than the headline “up to” advertised speeds. New advertising rules 48 were issued in September (and will come into force in April) relating to broadband speed claims and the use of “unlimited” claims in telecoms advertising with a two-fold aim; to help advertisers comply with UK Advertising Codes, and to protect consumers from misleading claims. The guidance requires that at least 10% of an internet service provider’s (ISP) customers achieve the ISPs speed claims. Only where a significant 48 http://bcap.org.uk/Media-Centre/2011/Changes-in-advertising-of-'unlimited'-and-broadband-speed-claims.aspx 206 Communications Consumer Panel – written evidence proportion of people are unlikely to receive a speed close to the one advertised will further qualifying information be included. 37. The Panel believes that the additional qualifying information should be equally prominent to consumers when they are thinking about which broadband package to buy. The Panel will continue to monitor developments in this area closely. Communications services for the future 38. The Communications Consumer Panel is campaigning for major improvements to mobile and mobile broadband coverage. The two go hand in hand and the Panel argues that effective coverage is essential for the growth of rural communities and businesses. The Panel has been concerned for some time about poor or non-existent coverage creating significant problems for small businesses, as well as for people living in not-spots, the people passing through them and passengers on the rail and London tube networks. This concern embraces broadband availability and usage. 39. To tackle the problem, last year in response to Ofcom’s consultation on the 4G mobile spectrum auction, the Panel asked Ofcom to consider setting coverage obligations for each of the UK nations and some English regions, or for money to be retained from the spectrum auction and a reverse auction run to upgrade rural coverage. Earlier this year, Ofcom set out a number of new proposals for making 4G mobile spectrum available in the UK. This includes introducing new measures expected to extend coverage to at least 98% of the UK population (coverage obligations relate to indoor coverage by population). The Panel also welcomes the Chancellor’s recent pledge to inject up to £150m of new funding into extending mobile coverage, but waits to see the detail of how the intervention will work. Depending on the extent of this first intervention, it may still be necessary to use some of the money raised by the 4G spectrum auction in order to raise mobile coverage in the UK to a level that satisfies the reasonable aspirations of citizens and communities. 40. Research from the Communications Consumer Panel found that consumers and small businesses in the UK have persistent problems making even basic voice calls. Over half of consumers questioned (56%) had difficulty with mobile coverage – 33% on a regular basis 49 . Almost all small business 50 respondents in the UK overall (91%) had experienced problems with reception, over a third of them (34%) regularly. Conclusion 41. In summary, the Panel would highlight that: 49 50 http://www.communicationsconsumerpanel.org.uk/Mobile_coverage_consumer_perspective.pdf http://www.communicationsconsumerpanel.org.uk/Mobile_coverage_small_business_perspective.pdf 207 Communications Consumer Panel – written evidence ¾ The Panel believes that everyone should have access to a good level of broadband service so that consumers and small and medium-sized businesses (or SMEs) in all parts of the UK have equal opportunity to carry out essential online activities in a reliable and consistent way. A robust broadband infrastructure must be inclusive and aim to maximise digital participation; ¾ The Panel has developed a Consumer Framework for Digital Participation that brings together all the different elements that are needed to provide the help and support that people need to get online, stay on-line and get the most value and benefit from the internet; ¾ 20% of UK adults say they do not use the internet at all. The most frequent reason for not getting the internet at home relates to a perceived lack of need. 16% of respondents from the Federation of Small Businesses report that they don’t use current generation broadband - 27% of those respondents reported that they had no business need; ¾ The drive to attain greater speeds must be complemented by work to convince people who are currently offline of the benefits of going online and to enable them to gain the necessary skills; ¾ There are a number of important safeguards required if the Universal Service Commitment (USC) is to be implemented in a way that meets the needs of consumers; ¾ There is particular concern for SMEs that fall within the 10% likely to be unable to access speeds significantly greater than 2MB and that 2MB may be insufficient for consumers in future as new, bandwidth hungry, services become the norm; ¾ Around 5% of residential UK broadband connections had a headline speed over 24Mbit/s in November 2011. Enders Analysis estimate that only 15% of households with a broadband connection would be willing to pay an additional £5 a month for higher connection speeds; ¾ Value for money and concurrency were the most important reasons for consumers choosing their current super-fast broadband service. New services will drive uptake but this also requires empowered consumers. People will need to understand what these new services offer and their potential to improve their lives compared to current generation broadband; ¾ The Panel’s current research looks at how people in low digital participation groups across the UK can get the most out of being online and how they might 208 Communications Consumer Panel – written evidence increase their breadth of usage. This will specifically look at the issue of low uptake in areas of Glasgow. ¾ In-home hardware and set-up will also affect the speed experienced by the enduser; ¾ Enabling consumers to make an informed choice between the packages and service offered by different providers, and making it easier to switch between them, encourages competition and investment; and ¾ Effective mobile coverage is essential for growth in rural communities and businesses. March 2012 209 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 210 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 211 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 212 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 213 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. 214 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). 216 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. 217 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 218 Cotswold Community Networks Ltd – written evidence Cherhill, Wiltshire. Population approx 900, number of premises estimated at 300. Connected to Calne exchange (LLU enabled) Current broadband speeds ADSL < 1 – 1.5Mbits. Distance from Exchange > 4616m Cherhill has a CE primary school that benefits from a 100Mb EAD point to point fibre connection provided by South West Grid for Learning (SWGfL). There is a PCP by the school which supplies 114 subscribers. The remainder are connected directly back to the exchange. A wireless network here would therefore be able to supply >20Mb broadband to those houses and businesses in and around the village whose lines are not connected to the PCP. We estimate a 'cell' radius of 5-10km could potentially benefit up to 200 more properties. For national backhaul, allow £25,000 p.a which would serve both fibre + copper connections and fibre + wireless connections. Split the cost on a pro rata basis for each connection type. This approach gives 294 connections and backhaul costing £7.08 / month / subscriber. Eliminating the costs per km of duct and fibre by using the School's connection, the PCP could be unbundled at the cost of a DSLAM, electrical and ground work and a tie cable to the school's connection. Allow approx £20,000 plus £78 per connection x 114 = £19,000. On a 5 years depreciation model £39,000 capital cost equates to £5.71 p.m for 114 subscribers. Fibre + copper cost / month /subscriber is £12.79 inc backhaul. For 180 premises connected via wireless an estimate of £2000 for wireless network infrastructure and £12,600 for connection charges (based on £70 per subscriber) gives us a total monthly cost per subscriber depreciated over 5 years of £8.43 inc backhaul. No gap funding is required and if subscribers pay a market rate of £15 - £20 p.m this will adequately fund fibre to the premises over time. 8. Spectrum To deliver effective wireless services we use frequencies in the 5.8GHz Fixed Wireless Access (FWA) band that are lightly regulated by OFCOM, subject to payment of a £50 annual licence fee. However FWA has effectively only 4 discreet 20MHz channels. With the growth of road traffic monitoring, CCTV and other wireless applications, this spectrum could become rapidly overcrowded in semi rural areas. It is essential that any process to deliver rural NGA comes with protected but affordable wireless spectrum, and that creative solutions are put in place to reuse analogue TV spectrum as well as the 2.6GHz frequencies. The process of auctioning to the highest bidder should be dropped in favour of an expansion of the OFCOM FWA frequencies, or the registration process suggested by OFCOM where a database is kept of frequencies used in particular areas to avoid one operator’s service from interfering with another. OFCOM issued a spectrum consultation document 12 months ago to which we responded, taking the above position. 9. Community Interest Companies 219 Cotswold Community Networks Ltd – written evidence Taking a Big Society approach to delivering rural NGA will require a formal framework that community groups must follow. We envisage the use of community interest companies which will be formed by local communities to manage and purchase high-speed network services. A community interest company exists in a niche between a charitable organisation and a normal for-profit business. A community interest company can be constituted in any of the forms that a normal company could take, so for example it could be a cooperative or be a limited company. The key differences appear in the articles of association. These limit certain things that the company can or cannot do, chief amongst these is the requirement to reinvest any profit generated into the local community. In terms of the use of these organisations in bringing high-speed networking to rural areas, we envisage that they will be formed to undertake three tasks: Firstly, to give some concrete expression to the demand in the community for high-speed services by registering interest and potentially taking deposits for the provision of services. Secondly, to provide some economies of scale, which should allow the purchase of goods and services at realistic prices that the community can afford. Thirdly, to enter into agreements for the supply, implementation and maintenance of highspeed data networks for their communities with providers such as ourselves and others. 10. Conclusions We have concluded that BDUK is failing to deliver an effective solution due to the following: • Local Authorities are engaged in lengthy consultations leading to duplication of effort and unnecessary costs. • Local Authorities are taking a conservative approach by offering match funding to large incumbent network providers (BT, C&W, Fujitsu etc) rather than encouraging them to deliver wholesale points of presence to supply local providers who deliver the ‘last mile’, where costs are highest for the traditional fixed line network providers in sparsely populated areas. • The BDUK approach was too open and market driven, which led to local providers being excluded from the process early on. Now we have the big companies pulling out of difficult areas, putting the whole process in doubt, or the scenario looked at in case study 1 where the majority of subscribers get no benefit from the NGA project, thus worsening the digital divide. 12 March 2012 220 The Country Land & Business Association – written evidence The Country Land & Business Association – written evidence Summary • • • • • • • • • • The Country Land & Business Association (CLA) is the only organisation representing rural business and lobbying for effective and affordable universal access broadband of at least 2Mb/ps; There is a clear and undeniable business case for broadband for rural communities; However, the rural-urban digital divide is still very much in evidence which the CLA believes is completely unacceptable; Rather than seeking to implement a Universal Service Commitment (USC) there should instead be a Universal Service Obligation (USO) which has the force of law; It appears likely that the Government’s objective of providing 2Mb/ps to all will not be met by the 2015 deadline; The CLA does not believe that the broadband strategy adopted by Government – where funding is allocated to local authorities and then to a successful procurer – will actually achieve its set objective; Even with match-funding from local authorities, it is likely that the Government’s commitment of £530m will be insufficient to build a future proofed superfast broadband network, fit for purpose; The CLA believes that Defra’s Rural Community Broadband Fund is targeting the wrong objective of superfast broadband in rural areas and is a missed opportunity (some rural areas will never get superfast broadband); The CLA is advocating a patchwork quilt model where different broadband technologies are deployed where they are needed in order to meet the 2Mb/ps objective; The strategy of allocating funds to local authorities has been cumbersome and not without its difficulties, particularly where there is little knowledge of broadband in the local community; and The CLA believes that the broadband strategy should have been centrally coordinated to prevent mis-allocating funding at the local level which will invariably lead to delay. Introduction 1. The Country Land & Business Association (CLA) represents over 34,000 members in England and Wales. All of the CLA’s membership will have an interest in, and be affected by, the Government’s strategy to put in place a superfast broadband network. 2. The CLA has been at the forefront of the broadband debate for the last ten years. Indeed, we have played a pivotal role in the first rollout of broadband to rural areas and we have been instrumental in lobbying both government and the industry to put forward a coherent strategy for the rollout of superfast broadband. We believe that the House of Lords inquiry is timely and we welcome the opportunity to engage in the debate. 3. The CLA’s submission will focus on a number of areas identified by the Select Committee as they affect rural areas. 221 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 222 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/). 223 The Country Land & Business Association – written evidence concern is the perceived lack of understanding as to the needs of rural areas. The CLA believes that the key is universal coverage. Whilst many rural businesses, at present, do not need speeds associated with superfast broadband in order to operate efficiently, this will change in the future and this is why it is essential that any broadband network is future proofed. 15. The CLA’s goal is to help ensure universality by 2015. We do not believe that the strategy advocated by Government through BDUK will work. The policy is too fragmented and there is a strong argument that the contracts awarded by local authorities will actually go to the biggest and most powerful players in the market. Irrespective of whether there is adequate transparency, by the very nature of the procurement process and the methods used by local authorities, the system appears badly skewed. 16. The CLA also remains to be convinced that the £530m committed (or £1.06 billion when including match funding) is sufficient. Government and industry studies agree that the costs of putting together a superfast broadband network are closer to £15 billion and this indeed may be a significantly optimistic figure. Given this, too great a pressure is being placed on the private sector to finance a superfast broadband network when broadband needs to be regarded as a benefit to all in society. The future needs of rural areas 17. The CLA accepts that greater speeds will be required in the future. The increasingly sophisticated applications that are available today will undoubtedly increase in the future meaning that more bandwidth will be required. In a sense, the concern is not so much speed as to adequate infrastructure. 18. One of the CLA’s primary concerns relates to access. Even if superfast broadband was made more widely available, there is every likelihood that rural areas will miss out simply due to the costs of putting in a superfast broadband infrastructure. Infrastructure providers will not fund projects in remote rural areas because there is no economic return. Even the Government has recognised that 10% of rural areas – those living in the remotest rural areas – will never be able to gain access to the superfast network. This means that alternative broadband provision will need to be developed but the CLA sees no evidence that this is being considered. 19. The CLA is not wedded to the idea of solely relying on a universal fibre network as the best solution although we do accept that this must be considered the ultimate objective. What is required today is a patchwork quilt model whereby other technologies, such as wifi and satellite become widely available and widely used. As we have stated above, the essential objective must be the availability of at least 2Mb/ps. We are not unduly concerned that this has to be delivered through a fixed broadband network – what we want to see is that all in rural areas have the opportunity to be connected. 20. It is on this basis that the CLA has serious misgivings regarding Defra’s Rural Community Broadband Fund. We believe that it has missed a major opportunity by its reliance on seeking only a superfast broadband solution. Quite simply, the effect will only be to reduce the numbers in rural areas who have no connection rather than considering how to ensure universal coverage. 224 The Country Land & Business Association – written evidence 21. The CLA believes that providing a stable platform for infrastructure providers who are seeking to develop superfast broadband networks in rural areas is crucial and we fully recognises that the industry has to play its part. That is why we are engaged in discussions with the National Farmers Union, subject to agreement from the Office of Fair Trading, with regard to putting in place a national broadband wayleave agreement as soon as is possible. Conclusion 22. The CLA’s key objective is to ensure that all rural areas receive at least a 2Mb/ps broadband connection that is both effective and affordable as soon as possible. That is why we have supported the Government’s principles set out in its broadband strategy. 23. However, the CLA believes that, although progress is being made, there is still no cast iron guarantee that the Government’s broadband objectives, both in terms of superfast broadband and the Universal Service Commitment, will be met on time. We remain concerned that the actual mechanics being employed to roll-out superfast broadband will not be fit for purpose and the aim of Britain having ‘the best superfast broadband network in Europe by 2015’ will not be realised. 13 March 2012 225 Creative Coalition Campaign – written evidence Creative Coalition Campaign – written evidence 1. Introduction 1.1. The Creative Coalition Campaign (CCC) welcomes the chance to respond to the Committee’s call for evidence on this important issue. We particularly welcome the Committee’s decision to explore the potential implications of superfast broadband roll out on the creative content sector in the UK, especially in light of continued high levels of online copyright infringement. 1.2. By way of introduction, the CCC is a partnership comprising trade unions representing workers in the creative industries and businesses in the music, video, film, TV, publishing and sports sectors. We have come together to articulate our member organisations’ shared view of the threat that online copyright infringement poses to jobs in the creative industries. 1.3. The UK has the largest creative sector in Europe and probably the largest in the world in GDP terms. 53 It accounts for 1.5m jobs and contributes more that £36bn to the economy in terms of value added. 54 However, a report by TERA Consulting found that up to a quarter of a million jobs will be at risk in the UK by 2015 if nothing is done about copyright infringement. 55 1.4. We fully support the roll out of superfast broadband as it presents huge opportunities for content creators. However, there is a risk that a failure to take action against online infringement in parallel with superfast broadband roll out could exacerbate the risk posed to jobs and growth in the creative sector. 1.5. Below we have outlined our response to some of the questions raised in the Committee’s call for evidence. 2. How might superfast broadband change the relationship between providers and consumers in other sectors such as content? What aspects of this relationship are key to enabling future innovations that will benefit society? 2.1. The internet is one of the fastest and most exciting growth areas in our economy. It allows creators to reach entire new audiences in innovative ways and the content sector is embracing these possibilities with a wealth of legal content available online. 2.2. The UK is one of the world’s most advanced markets for digital music and video with well over 70 services legally offering music and almost more than 50 digital video and TV catch-up services including iTunes, Blinkbox, Xbox Live, Netflix, Lovefilm, BBC’s iPlayer, and 4oD to name a few. These services provide consumers with access to a huge library of material at a reasonable cost through a number of 53 54 55 CBI report: Skills in the creative industries http://www.cbi.org.uk/media/1055419/2011.09-cbi-creative-skills-brief.pdf Department for Culture, Media and Sport Economic Estimates: http://www.culture.gov.uk/publications/8682.aspx TERA Consulting: Building a Digital Economy: The Importance of Saving Jobs In The EU’S creative Industries http://www.iccwbo.org/uploadedFiles/BASCAP/Pages/Building%20a%20Digital%20Economy%20-%20TERA(1).pdf 226 Creative Coalition Campaign – written evidence different devices including smartphones, tablet computers, internet connected TVs, set top boxes and games consoles. 2.3. Increased household penetration of superfast broadband has the potential to provide a further boost to legal content offerings, making them more viable in themselves and greatly improving user access and experience, which would stimulate the demand for paid-for services. However, content providers need the right regulatory framework and technological tools to flourish. They simply can’t compete when illegal sites steal their content and offer it for free. If the continuing problem of online copyright infringement is not addressed alongside the transition to superfast broadband, the threat to jobs, growth, investment and innovation across the creative sector will continue to grow. 2.4. Without the continued investment and innovation of content creators, the very content which drives consumers’ demand for superfast broadband is put at risk. 3. Will the Government’s targets be met and are they ambitious enough? What speed of broadband do we need and what drives demand for superfast broadband? 3.1. One of the key drivers of demand for superfast broadband is creative content. Consumers increasingly expect to be able to access their favourite content online, whether that be films, music, books, games, sport or television drama. The expansion of superfast broadband will greatly expand the opportunity for consumers to easily access high value audio-visual content. This will be one of the key areas driving demand for internet services. This is illustrated by a report by ATKearney 56 which predicted that by 2014 video applications will account for 74 per cent of all internet traffic. Much of this video traffic is from illegal sources which take up valuable bandwidth to the detriment of quality for legitimate services. 4. What impact will enhanced broadband provision have on the media and creative industries in the UK, not least in light of the increased danger of online piracy? What is the role of the Government in assuring internet security, and how should intellectual property (IP) best be protected, taking into account the benefits of openness and security? 4.1. The internet is a vital engine for economic growth and the creative industries embrace its huge potential to reach new audiences and promote innovation. Our members do not just make movies, music and television shows, they innovate to create content using ground breaking technology in formats which consumers want. However, while criminals continue to steal the work of others and offer it for free online, the creative sector will never achieve its growth potential. 4.2. The advent of superfast broadband will make it easier and quicker for consumers to access content, both legal and illegal, more easily and quickly. This is a huge opportunity for content creators, but also has the potential to exacerbate the problem of online copyright infringement if decisive action is not taken by all 56 ATKearney: A Viable Future Model for the Internet http://www.atkearney.com/index.php/Publications/a-viablefuture-model-for-the-internet.html 227 Creative Coalition Campaign – written evidence relevant stakeholders, including internet service providers, search engines, advertisers and other intermediaries. 4.3. Online copyright infringement harms investment and costs jobs – from the CGI experts to scriptwriters and sound engineers who make British skills admired around the world. Without decisive action, infringement risks choking off continued future investment and innovation in new creative content. 4.4. The Government is committing £530m of public money to stimulate the roll out of superfast broadband, which will offer considerable benefit to internet service providers (ISPs). This significant public subsidy should be conditional on a strong commitment from ISPs to live up to their responsibilities to help ensure a fair and sustainable online environment. 4.5. This responsibility should include actively engaging with Government and content creators to implement the notice sending provisions of the Digital Economy Act as soon as possible and to take action against illicit websites which provide access to copyright infringing material. We are not asking ISPs to police the internet but simply seeking their assistance to deal with a major problem, which if tackled, will help drive the development of a sustainable internet for the benefit of society as a whole. 4.6. In addition to this, it is important that search engines, credit card companies and internet advertisers also play their part. Search engines in particular frequently direct consumers overwhelmingly to illegal websites in preference to legal services. Rights holders have suggested a code of practice to address this issue which is currently under discussion. Such a code would require search engines to live up to their responsibility to help ensure a sustainable internet. In addition to this, work is also continuing between industry and the Internet Advertising Bureau to reduce brand advertising which funds illegal websites. 4.7. Full implementation of the Digital Economy Act is estimated to cost in the region of £20m. This represents less than five per cent of the public money the Government has allocated for investment in superfast broadband. 5. In fact, are there other targets the Government should set; are there other indicators which should be used to monitor the health of the digital economy? 5.1. Most Government targets currently focus on the reach of broadband infrastructure. However, an environment where criminals are able to make other people’s content available for free for their own profit is not a healthy or sustainable situation. Under the provisions of the Digital Economy Act, Ofcom is required to monitor the levels of online copyright infringement. Implementation of the Act has so far been delayed but once Ofcom commences this function it should be used as one of the key indicators of the health of the digital economy. 13 March 2012 228 Creative Coalition Campaign – written evidence The membership of the Creative Coalition Campaign includes the following organisations: The Association of British Orchestras, The Alliance Against IP Theft, BECS, BECTU, BPI, British Video Association, The Cinema Exhibitors’ Association Limited, Design and Artists Copyright Society, Directors UK, Entertainment Retailers Association, Equity, Federation Against Copyright Theft, Federation of Entertainment Unions, Film Distributors’ Association, Independent Film and Television Alliance, Incorporated Society of Musicians, Motion Picture Association, Musicians Union, National Union of Journalists, Pact, Personal Managers Association, PPL, Premier League, PRS for Music, The Publishers Association, UK Screen Association, UK Music, Unite and The Writers Guild. It is also supported by the TUC. 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 230 Cumbria County Council – written evidence 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. 231 Cumbria County Council – written evidence 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 232 Cumbria County Council – written evidence 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, 233 Cumbria County Council – written evidence 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 234 Cumbria County Council – written evidence 3.19 Cumbria County Council is committed to working with partners to take opportunities to increase the efficiency of public services. This is clearly reflected in the superfast broadband strategy for Cumbria. Some of this work has already started and we aim to expand on this through the Connecting Cumbria project. Alston Healthcare uses next generation broadband to enable the remote diagnosis, treatment and monitoring of patients by medical staff. Patients can use their televisions to book GP appointments and order repeat prescriptions. Cumbria County Council and Cumbria Constabulary are using next generation broadband technology to enable the sharing of networks on the move. This means that Police Officers can access systems whilst on the move meaning that they can work in their cars rather than returning to their base, Ambition and Expectation work more efficiently and effectively and spend a greater proportion of their time actively ‘policing’ rather than travelling. 3.20 The outcomes that have been set out in our strategy focus on achieving economic growth, digital inclusion and public sector efficiencies. The ability of the market to support delivery of these is being evaluated in the procurement process through seeking innovation and application of technologies in, for example, telecare and educational attainment. 4.0 CONCLUSION 4.1 The opportunities provided by Cumbria’s pilot area status is welcomed and work is progressing well in ensuring that the best possible outcomes are achieved in the county to enable every individual, business, organisation and visitor to experience the benefits of access to superfast broadband. It is important for us to maintain that focus through the complexities of the planning and procurement processes. 4.2 We also recognise that being a pilot means that we are identifying and attempting to overcome some challenges and obstacles that we can now highlight to the Government so that steps can be taken to mitigate or remove these. 4.3 We hope this summary of our experience and some of the particular issues we have faced is helpful to the Committee and would welcome any further requests for information. 13 March 2012 235 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 236 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 237 David Hall Systems Ltd – written evidence Question 6) To what extent will the advent of superfast broadband affect the ways in which people view, listen to and use media content? Will the broadband networks have the capacity to meet demand for new media services such as interactive TV, HD TV and 3D content? How will superfast broadband change e-commerce and the provision of Government services? Response 6.1) This question raises many issues and it is likely that the situation will change significantly over time which reinforces our previous point that the networks should be capable of supporting any technology that may be developed. In future much more video content will be delivered online but currently it is not clear if this will reduce the demand for over the air broadcast services. If there is a reduction in conventional broadcast services then this could result in the release of spectrum which could be used for other purposes such as the provision of additional superfast broadband. However based on current trends it appears that there will be little reduction in demand for conventional broadcast services so there is a need to understand if this trend will continue and the longer term implications. 6.2) There is a need to consider the wider impact of e-commerce which could in some circumstances reduce or change the role of shopping in the traditional high streets. Already there is evidence that in some sectors the sales are greater online than in shops and the implications of this need to be considered. 6.3) Similarly the provision of Government services raises a number of issues. A key one is that many of these services could be targeted at the elderly who traditionally are less likely to be active online so there is a need to consider the implications of providing such services and the level of support required for these services. Question 7) Will the UK's infrastructure provide effective, affordable access to the 'internet of things', and what new opportunities could this enable? Response 7.1) We are not fully convinced that the current communications infrastructure is appropriate for the ‘internet of things’. We agree that the ‘internet of things’ will provide many opportunities and change many established processes. Thus we consider that there is a need to identify the resultant benefits so as to justify the required investment in providing the appropriate infrastructure. Question 8) How might superfast broadband change the relationship between providers and consumers in other sectors such as content? What aspects of this relationship are key to enabling future innovations that will benefit society? 238 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. 239 David Hall Systems Ltd – written evidence 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 240 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 241 Department for Culture, Media and Sport – written evidence We are also investing £150million to improve mobile coverage for consumers and businesses in areas where coverage is poor or non-existent. The Mobile Infrastructure Project (MIP) is aimed at improving voice and basic data coverage, however, it is absolutely clear that infrastructure installed will need to be forward compatible for the next generation of mobile equipment which is expected to become available after the upcoming spectrum auction. This project is based around bringing the benefits of mobile coverage to those who do not currently have it, ensuring that a similar level of service can be accessed by all. The market should be allowed to act, and only where the commercial investment case is weak should the state intervene. It would be costly to impose a broadband Universal Service Obligation and it may constrain private investment in networks. The current non-regulatory approach to deliver universal broadband is the most effective means of stimulating commercial investment while minimising costs to the public purse. 2. The Government have committed £530 million to help stimulate private investment – is this enough and is it being effectively applied to develop maximum social and economic benefit? Local Broadband Plans need to ensure that maximum benefit is created locally, reflecting local needs. It is far better for this to be done at the local rather than national level. We expect the creation of social and economic benefits to be central to these proposals. The £530million figure represents the national public funding element of the investment needed. This figure needs to be matched by local authorities, who will in turn need to secure similar levels of private investment to deliver the coverage levels required. This level of public funding is modelled on the level of investment needed to stimulate private investment to extend superfast broadband coverage to 90% of premises and universal access to 2Mbps broadband. The public investment will help bridge the gap where the commercial investment case is weak. Local authorities are matching their respective allocations in full, and we will be able to fully assess the impact of the public commitment once the procurements are completed. 3. Will the Government’s targets be met and are they ambitious enough? What speed of broadband do we need and what drives demand for superfast broadband? Content is key to driving demand for digital connectivity. Advances in technology enable the provision of innovative services like high bandwidth TV centric services, online gaming and entertainment, personal content exchanges and digital government in addition to current activities including browsing, email, ecommerce and blogs. Higher data volumes and content increases the demand for bandwidth to allow data transfer more quickly and efficiently. As services and applications that take advantage of the greater availability of bandwidth emerge, particularly those with data rich content like streamed video and large data files, demand will be even greater still. Our vision is of a world class communications network which can support economic growth. Consumers will have greater choice and costs will be reduced. The delivery of public services will be more efficient, cost effective and inclusive. Broadband is a top priority for this Government. Our clear vision is for Britain to have the best superfast broadband network in Europe by 2015: 90% of premises will have access to superfast broadband, and all premises will have access to at least 2Mbps. We have estimated this to be the level of speed 242 Department for Culture, Media and Sport – written evidence we need to 2015 based on current projections. Beyond that we are working towards the EU’s targets of universal access to 30Mbps and 50% of consumers subscribing to 100Mbps by 2020, countries across Europe will need to take great strides to achieve this. These are challenging goals but ones that we can and must achieve. In the Budget, the Chancellor will announce up to 10 Super-Connected Cities, with 80 to 100Mbps connectivity and widespread wireless connectivity. London, Belfast, Cardiff, Edinburgh, and up to six further cities will receive support under our £100million Urban Broadband Fund over the next three years to deliver these speeds. Transforming communities into super-connected cities will enable them to compete with the world’s top cities and help to ensure that the UK has a broadband network fit for the digital age. It will help them attract new jobs and new investment and make the UK a place where digital businesses look to come. But our targets are not simply about speed. Our aim is to have the best network also taking into account coverage, price and choice of broadband services. The Government will adopt a ‘best network in Europe’ scorecard focusing on these four headline indicators, with Ofcom expecting to publish its first annual assessment of the UK’s comparative position in the summer. Our goals are ambitious given the scale of the challenge, particularly in rural and other areas where the investment case is weak. Our use of the internet means that we need significant improvements to networks, and there are two million households that still cannot access a sufficient level of service. Infrastructure deployments are a major undertaking requiring significant investment and careful planning. Fibre to the home is particularly costly here, with only Ireland having more dispersed housing among major European partners. 58 Although local engagement in the plans adds complexity we see it as being is absolutely essential. We are making good progress. In terms of local broadband plans, 45 have been received, 20 of these have been approved, of which eight are in procurement. All plans will need to be approved by the end of April 2012, and procurement complete by the end of the year, enabling all projects to be completed by 2015. Overall, the UK is in a good position, with one of the most competitive markets in the world, and 58% of households already have access to a superfast broadband service. The market has been successful in delivering broadband at good speeds to much of the population and accommodating high take-up of mobile services. Private sector investment in superfast broadband is significantly increasing across the UK. BT has accelerated its plans and will bring superfast broadband to two thirds of the country by 2014; Virgin is on track deliver 100Mbps to its entire network by mid-2012; and Fujitsu is looking to make substantial investments in the final third. 4. In fact, are there other targets the Government should set; are there other indicators which should be used to monitor the health of the digital economy? What communications infrastructure does the UK ultimately need to remain competitive and meet consumer demand over the next 20 years? 58 IDATE 2011 243 Department for Culture, Media and Sport – written evidence The whole of the European Union is striving for better connectivity, and like other Member States we have committed to the EU’s target of all citizens having access to a basic level of broadband (2Mbps) by 2013. Beyond this we are also committed to EU targets to ensure 100% access of at least 30Mbps by 2020, and 50% subscribing to 100Mbps services by the same timescale. Fixed and mobile broadband services are now found in 74% of UK households59 . The UK is the largest online market in the EU with £44billion online sales in 2010.60 Over a quarter of adults are smartphone users and almost half of all 12-15 year olds have a smart-phone. 44% of people can now be described as next generation internet users, 61 people who routinely access the Internet on the move through an increasing number of devices, including mobile devices like smart-phones, tablets, and readers. These are all indicators of the health of the digital economy. As technology and digital consumption habits evolve we will continually review the way we monitor the health of the digital economy using a range of measures. Future requirements are to a large extent lead by data transfer needs and growth in mobile data traffic is currently exponential. Government has directed Ofcom to make spectrum available, through auction, later this year to enable the deployment of mobile services. However, fixed networks are still considered to be most effective way to meet the growing requirements, but the cost of replacing legacy networks is very high (for the UK investment of up to £29bn for fibre to the home has been suggested). Alternative technologies including mobile, wireless and satellite all have a role, particularly where the cost of delivering fixed networks is prohibitively high, like remote rural locations where it is expected the MIP infrastructure will be focussed, but these are not necessarily better deployment options. Each technology has its benefits and limitations. The key to keeping the UK competitive and meeting future consumer demand will be the flexibility of the infrastructure and markets to respond to emerging technologies and demands, a mixed provision is the key here. To ensure the communications industry remains innovative and competitive, Government is undertaking a wide-scale review of the regulatory framework for the sector, with a Green Paper due to be published shortly which will set out the Government’s aim to make the UK Europe’s technology hub. 5. How will individuals and companies use cloud services for distributed storage and computation? What network properties are required to enable efficient provision and use of such services? Cloud services provide cost effective remote data storage and access to ‘software as a service’ allowing individuals to access their data at no or little cost. For businesses, the ability to buy-in extra capacity, without having to make large capital intensive investments in hardware makes cloud computing a powerful tool with significant financial advantages. The availability of “pay as you go” cloud data storage services can be very cost effective since companies can scale up or scale down their requirements to suit their business needs. However, given the greater demands on connectivity that this will bring, savings gained by using these services need to be off set against potentially increased spending on broadband services required to access the data. Government is also adopting cloud technology to enable it to share commodity ICT products and services, enabling a move to low cost, standard, interchangeable services. 59 60 61 Ofcom (2011), “The Communications Market Report”, Page 33 Centre for Retail Research Oxford Internet Survey (2011), ‘Next Generation Users: The Internet in Britain 2011’, p4 244 Department for Culture, Media and Sport – written evidence Robust and secure data links that are always available with sufficient capacity to bring users items that they want to access quickly are essential to a good cloud computing experience. These links are required both when users are static and when they are on the move. Increased take up of these services will increase demands on network capacities, and is likely to drive demand for more symmetrical upload and download speeds. 6. To what extent will the advent of superfast broadband affect the ways in which people view, listen to and use media content? Will the broadband networks have the capacity to meet demand for new media services such as interactive TV, HD TV and 3D content? How will superfast broadband change ecommerce and the provision of Government services? We are already seeing a shift in the way that people listen to and view media content – services which provide on demand viewing giving the user control of what they watch and when, and which device they use to access the service. Some services even make recommendations about what content users might like to watch based on viewers’ previous selections. Network capacity and speed are crucial to keeping apace with this developing market. Of course these faster services will cost more, but there are cheaper options available to those who are content with slower speeds for the time being. Video underpins the tremendous growth in internet traffic, today equating to around a third of traffic, this is expected to rise to 70% by 2015. 62 A 2Mbps connection is sufficient to view standard quality TV. HDTV, 3DTV and Skype video calls drivers for higher bandwidths, 63 but it will be devices with even higher resolutions, such as 4K services (which is the current picture standard used in cinemas and can combine 3D content with HD picture quality), which cannot be transmitted using traditional broadcast methods, that will drive up the demands for greater connection speeds, and online video gaming is likely to be a key driver for this. Content providers will need to ensure that they use appropriate levels of coding to reduce data package sizes without compromising quality to reduce unnecessary burdens on the networks. Ecommerce is flourishing, and this growth, supported by superfast broadband, is set to continue. Increased competition brought about by superfast broadband will deliver even greater consumer choice, drive innovation and create efficiency savings. Companies marketing or selling their goods and services online are seeing overall sales growth significantly higher than those that do not. 10.7% of retail sales are now online in the UK (compared to an EU average of 5.9%).64 The UK is the largest online market in the EU with £44 billion online sales every year. Ebay predicts mobile shopping will deliver a £4.5 billion boost to the UK economy by 2016, and a further £13 billion by 2021.65 The rate at which consumers are adopting new technologies is increasing while the number of years new communications services take to reach 50% market penetration has dropped by over half in the last 10 years. 66 Ecommerce is intrinsically linked to a wide range of other sectors, facilitating growth in them as it expands. 62 63 64 65 66 AT Kearney, The Internet Economy in the United Kingdom. IDATE, FTTX Markets: Global Perspective Challenges and Drivers, 2011 Centre for Retail Research eBay Inc. Ofcom, Communications Market Report, 2011. 245 Department for Culture, Media and Sport – written evidence The delivery of public services will be more efficient and cost effective, as well as more inclusive. Superfast broadband can help improve the quality and delivery of public services, particularly to people in more rural areas. It enables a whole range of services to be offered online that were not previously possible, such as education, administration, law enforcement and the Big Society initiatives. It can also help improve healthcare services, particularly in rural areas where providers are coming under increasing pressure as the population ages and requires access to more services. 7. Will the UK's infrastructure provide effective, affordable access to the 'internet of things', and what new opportunities could this enable? Machine to machine communications is an important area of development that manufacturers and suppliers are beginning to define. Cisco predicts that there will be 15 billion connected devices by 2015, including mobile phones, tablets, connected appliances and other smart machines. 67 The Future Internet will have an infrastructure consisting of the ‘internet of things’ (IoT) and services, and will provide a network of converged services and shared data that will link people and machines to provide an on demand service anytime and anywhere in the world. It will be the engine for technologies like Smart Grid, Cloud computing and data management. The Future Internet, which provides huge market opportunities and has been described as the ‘socio-economic engine of mid-21st century’, will rely on IoT to create a pervasive network of internet connections. The new opportunities that IoT can bring are evolving technologies. But communications providers understand that a greater the number of devices needing internet connections will place a greater demand on networks. The key issue here is that each device connected to the Internet needs a unique address to identify it. Based on current trends, it is expected that the current scheme for this (Internet Protocol version 4) will not have any new addresses after summer 2012. A new scheme (Internet Protocol version 6) exists and will provide sufficient addresses for the foreseeable future, though it needs to be adopted more widely and speedily to work well. The Government is aware of this issue and has supported the creation of 6UK (6uk.org.uk) to stimulate this. 8. How might superfast broadband change the relationship between providers and consumers in other sectors such as content? What aspects of this relationship are key to enabling future innovations that will benefit society? Superfast broadband allows consumers to do the things they already do online but more reliably and quickly, and this encourages greater demand. Higher upload and download speeds allow the provision of new services and encourage innovation. Consumers will be able to choose more readily the type and time of delivery of services, such as video streaming and other on demand services. We are seeing an increased ability to offer individually tailored products giving consumers far greater control over the services they enjoy. The consumption of content becomes a more individual rather than collective experience. The concept of broadcasting the same thing to a large group of people could become more like sending it to individuals with slight nuances for each, for example, different angles and microphone pickups. The provision of superfast broadband will also bring wider social benefits. It will help people participate more in society and democracy and can bind communities together, regardless of their location, through social networking and shared experiences. It will influence how 67 Cisco's Visual Networking Index 246 Department for Culture, Media and Sport – written evidence people access and benefit from public services, helping more people access more services in ways not possible before. Education and future government services, like remote healthcare can also be delivered without the need to travel. 9. What role could or should the different methods of delivery play in ensuring the superfast broadband network is fit for purpose and is as widely available as possible? How does the expected demand for superfast broadband influence investment to enhance the capacity of the broadband network? UK internet traffic is expected to increase by 37% each year to 2015.68 World-class connectivity - with higher bandwidth and more reliable fixed broadband services combined with good coverage of high-quality, high-speed broadband to mobile devices – must embrace a wide range of technology solutions. Fixed, fixed-wireless, mobile and satellite communications networks all have a role as no single technology is suitable for all circumstances. Each technology has its own challenges, including financial, geographic, and capacity issues. The selection of technologies requires consideration of a whole range of factors, and suppliers are best placed to identify the appropriate mix to deliver commercially sustainable services. Our approach to delivery must be technology-neutral, although it recognised that high-capacity fibre is likely to be a key feature of the UK’s network going forward. Whether this is directly to homes, a street cabinet or to a mast will depend on local circumstances. 10. Does the UK, for example, have a properly competitive market in wholesale fibre connectivity? What benefits could such a market provide, and what actions could the Government take to ensure such a market? Ofcom has a duty to promote competition and ensure that a wide range of communications services are available throughout the UK. It does this by carrying out periodic reviews of competitiveness in these markets, as required under the European Framework for Electronic Communications, and by introducing remedies where competition is ineffective. In October 2010 Ofcom published its conclusions to its review of the wholesale local access market, which aimed to establish a framework to promote competition and to support continued investment and innovation in the deployment of next generation access networks that can support super-fast broadband. In December 2010 it published the outcome of its review of the wholesale broadband access market (which relates to the wholesale products that communications providers provide for themselves and sell to each other), which concluded that the market was not yet effectively competitive everywhere and regulation was imposed to address this. By Easter, Ofcom is expected to publish its Business Connectivity Market Review which examines the market for leased lines and backhaul circuits used by businesses and communication providers. 11. What impact will enhanced broadband provision have on the media and creative industries in the UK, not least in light of the increased danger of online piracy? What is the role of the Government in assuring internet security, and how should intellectual property (IP) best be protected, taking into account the benefits of openness and security? 68 AT Kearney, The Internet Economy in the United Kingdom. 247 Department for Culture, Media and Sport – written evidence Despite the significant benefits of increased broadband to the economy and individuals, it can also facilitate unlawful activity. One of the chief concerns of many in the creative industries, such as music, film, television and publishing, is the continuing high level of online copyright infringements. Intellectual property (IP) protection is an important consideration, regardless of broadband speed, and so the Government’s approach is unlikely to change substantially because of that factor. We are consulting on how we should take forward the Hargreaves Review (which proposed a change in the direction of IP policy to ensure the UK has a framework suited to supporting innovation and promoting growth in the digital age), and ensuring that we have the right balance that will promote growth. We are also looking at ways in which copyright owners themselves can work with others to make it more difficult for sites illegally offering content to thrive. We are also working towards the implementation of the online infringement of copyright provisions in the Digital Economy Act 2010. Rights holders themselves have a responsibility to ensure that the legitimate offer is compelling to reduce the attractiveness of illegal offers. The Video Games industry, unlike music and film, operates within a controlled infrastructure, and customers are more used to a need to accept digital rights management. Nearly all games platforms now include an online element, which require authorisation. Sharing the files alone does not provide users with access to play the game. Faster internet connections on the other hand improve the experience for all players, encouraging more online play. This leads to greater control for the industry and less piracy. March 2012 248 Department for Culture, Media and Sport – oral evidence (QQ 748-809) Department for Culture, Media and Sport – oral evidence (QQ 748809) Evidence Session No. 9. Heard in Public. Questions 650 – 809 TUESDAY 19 JUNE 2012 Members present Lord Inglewood (Chairman) Baroness Bakewell Lord Bragg Baroness Fookes Lord Gordon of Strathblane Bishop of Norwich Lord Razzall Lord St John of Bletso The Earl of Selborne ________________ Examination of witnesses Mr Ed Vaizey, Minister for Culture, Communications and Creative Industries; and Mr Robert Sullivan, CEO BDUK Q748 The Chairman: Can I apologise to the two of you, the Minister, Ed Vaizey, and Robert Sullivan? You are the Chief Executive Officer of BDUK, is that right? Mr Sullivan: That is correct, yes. Q749 The Chairman: I think you are doing a kind of two-man act, is that right? Mr Sullivan: We are. The Chairman: We are looking forward to it. Mr Vaizey: Laurel and Hardy. Q750 The Chairman: I will not ask which is which. I do not know if you want to make an introductory statement—you obviously know where you are coming from—but in responding to our questions, please feel free to range as widely as you like. We are being filmed, so if either or both of you would like to make a brief introductory statement, we would be very pleased. Mr Vaizey: I am Ed Vaizey. I am the Minister for Culture, Communications and the Creative Industries. I have responsibility within the Department for broadband policy, although it is led very strongly by my Secretary of State, Jeremy Hunt. Rob Sullivan is the Chief Executive of Broadband Delivery UK, which is an organisation that I think was in existence before the last election to help us deliver broadband to rural areas using public subsidy and public investment. Rob, you have been in post about 18 months, is that right? 249 Department for Culture, Media and Sport – oral evidence (QQ 748-809) Mr Sullivan: That is right, yes. Q751 The Chairman: Just so we are clear, BDUK is actually a part of DCMS—is it not?—although it has a different name. Mr Vaizey: That is a very good question. Rob, what are you? Mr Sullivan: Yes, we are completely part of DCMS. It is a specialised unit inside DCMS. The Chairman: That is fine. Thank you. Mr Vaizey: They were part of BIS originally. Q752 The Chairman: In simple terms, how do you see the scale of what the BDUK team is trying to do? Maybe you will wish to pass the second part of my question over to the Minister; do you think you have enough people to handle the task? Mr Vaizey: I am happy to lead off. I have read some of the evidence that your Lordships have been given during the hearings, and it is not strictly accurate to say that BDUK is a group of 10 people. There are 10 officials from DCMS based within BDUK, but the overall staffing is about 53 people, which includes additional technical staff skilled in the art of broadband rollout. So we have a pretty substantial body of people there. Q753 The Chairman: Are these the consultants we hear about, or are these other people on your books permanently? Mr Vaizey: No. These are people brought in to staff up BDUK, to make this particular project work effectively. There are 53 people working on that project under Rob’s able leadership. I noticed that one of your witnesses indicated that 500 local authorities were bidding for this money. That is also inaccurate. I think we have 46 procurement projects. We have given money to the devolved administrations, Scotland, Wales and Northern Ireland, and then within England 43 local authority consortia are bidding. We tend to do it at a county council level, and some county councils have come together. In that sense, in terms of the interface between people who are seeking the money and the people who are responsible for awarding it, it is a smaller pool than perhaps you might have imagined that BDUK has to deal with. I think they are doing an excellent job. It is very effective and of course it is stretching, and the team works incredibly hard and very effectively. In terms of our timeline and timescale, I feel we have not come to any bumps in the road. As far as BDUK is concerned—and I will bring in Rob at this juncture—we have certainly taken a position, as Ministers, that when BDUK come to us asking for additional resource with a justified case, we are happy to ensure that that requirement is fulfilled. Mr Sullivan: Yes, just to add to that. As the Minister says, we are essentially a specialist procurement team inside DCMS. We have specialised skills around procurement, legal aspects of procurement and then the technical aspects. There are three parts of the programme. One part is what we call “the rural programme”, which is essentially looking at the final third that you have been taking evidence on; the second part is around SuperConnected Cities; and then the third leg is what we call a “Mobile Infrastructure Programme”. In the round, that makes up the Government’s approach on the delivery side. Q754 The Chairman: I dare say we will have some questions about some of the component bits later, but just before we get on to that, obviously on the one hand BDUK is spending £500 million-odd on the rollout of infrastructure. On the other hand, what, if 250 Department for Culture, Media and Sport – oral evidence (QQ 748-809) anything, is the Government doing to try to support the demand side for all this? We gathered that, for example, about 8 million people in the country are not online at all. Mr Vaizey: I think we have made significant progress on that. The last Government put Martha Lane Fox in charge of a civic society project, Race Online 2012. It got its title from the fact that she was aiming to get as many people online as possible by the time of the Olympics. That has now morphed into Go ON UK because we obviously want it to continue. Also, when the new Government came in we very quickly made it clear that we wanted Martha Lane Fox to carry on doing that work. She has been absolutely superb as the Government’s digital champion in terms of including people, and we want as many people to get online as possible. There are a whole range of different businesses. I know that you have heard evidence from Three, where they have talked about some of the outreach projects that they do in terms of encouraging people to go online. They have come to my constituency and parked a very flashy bus outside Wallingford Library, and I have been to one of their shops in Oxford Street to see them engaging with people who have got online through their efforts. Also, a whole range of other civic institutions and charities, Help the Aged and so on, are also very much involved in the project. At the end of the day, you cannot necessarily force people to go online. For example, I did buttonhole a pensioner in my constituency and tried to force him into this bus in order to introduce him to the wonders of the Internet, but he had to catch his own bus home. But I think a lot more people are online. There are also, in individual areas, demand-led projects. For example, Cornwall is about to be one of the most wired-up parts of the country. Part of the funding, a lot of which came from Europe, involves demand stimulation. Certainly as part of the Super-Connected Cities Programme, demand stimulation is one way that the award money will be used. Q755 Baroness Bakewell: What do you think is the biggest barrier to this last number of people that you cannot get online? Age? Mr Vaizey: I think it is about whether or not you see it as essential to your life. For example, I went on to Facebook. I am now off Facebook. I do not regard Facebook as being an important part of my life. My wife, who scorned my entry on to Facebook, now cannot live without it. If you can find a way—and I think it could be somebody of any age or educational background who is not online—to make it relevant to them they will start to use it. It is about having access to the Internet in community facilities. I know that another part of Martha’s brief with Government is to make the interface with Government much simpler on the web, so that you can transact more easily with Government. Certainly Government is looking to how quickly it can move some of its services permanently online, which again will—I would hesitate to use the word “force”—encourage people to see the Internet as an essential part of their lives. Q756 Baroness Bakewell: Do you think there is a hardcore of resisters? Mr Vaizey: I would not call them “resisters”. I think they are people who go about their daily lives and do not necessarily see why the Internet should be relevant to them. It sometimes takes a particular trigger that will suddenly make them feel that this is an important part of their lives. Q757 Lord Gordon of Strathblane: All this would require universal availability as well, would it not? 251 Department for Culture, Media and Sport – oral evidence (QQ 748-809) Mr Vaizey: Yes. That is why we have this rural programme. We want to ensure that we can get 2 Mbps to everybody by 2015, and we want to get superfast broadband to 90% of the population by 2015. I hesitate to go down the road of whether or not the Internet is a human right, or whether there should be, by legislation, universal access to the Internet. But certainly it is the Government’s intention that everyone should have access to at least 2 Mbps by 2015. Q758 Lord Bragg: Can you finally lay to rest the BDUK procurement process? In all the evidence from BT last week we heard that none of our bids is contested, which is in contrast to other evidence we have received so there is a bit of confusion now. In how many of the BDUK procurement processes is Openreach effectively bidding uncontested, to minimise cost to the public purse? In all of this might it have been more efficient in the first place to procure a coherent national network from BT to begin with? Mr Vaizey: I will leave Rob to deal with the actual state of procurement, in terms of contested procurement. Mr Sullivan: The answer to that is that in every area the procurements have been open, transparent and strongly contested. There were existing procurements—Wales would be a good example—that were in train before BDUK kicked off. Almost in every case they started with quite a wide field, quite a strong field. It gradually narrowed down until there were perhaps one or two bidders, and in many cases BT has won—not in all cases. I think it is very simply that they have all been strongly contested. Certainly the BDUK framework process, which you have taken evidence on and which is what we run ourselves, that is also very strongly contested. I think 14 companies expressed an interest originally. We qualified nine companies, and we remain with two companies on the framework. Q759 Lord Bragg: Was it ever a thought to give it to BT in the final stage and say, “Look, this is a big company, really determined, lots of money. They will move faster. We will just go with them”? Was it ever a thought? Was it on the table? Mr Sullivan: One of the things that we started with, probably back in 2010, when the Government first ticked off the policy, was to run what we called the “theoretical exercise”. We brought in a very wide set. We had a wide industry day, with smaller companies and larger companies, just to look through at how we were going to tackle this complex problem. It has come through very strongly in the evidence that you have heard, and the Baroness said this is a very complex issue. We knew that right from the start and we knew this would be challenging. There were some stakeholders that said it would be a foregone conclusion, but there were others who said, “If you set up the circumstances right, there is a way through this that keeps open competition”. We took that on board. We did spend a lot of time, including conversations with countries across the world that are at various stages— we had a long teleconference with New Zealand and Australia—just to look at best practice across the globe. We felt that the right place with the framework was to have the benefits of, in a sense, an intense national negotiation, a really robust conversation and negotiation with the companies. Then this was allowed to essentially be delivered through the access of local authorities and I am very confident that that was the right approach. Q760 Lord Bragg: This is not sarcastic, but is it working out as well as you had hoped? 252 Department for Culture, Media and Sport – oral evidence (QQ 748-809) Mr Sullivan: We have a very robust plan. I think the important point the Minister made at the start is that BDUK are the specialist procurement team. We have a separate broadband policy team, and of course we have the regulator that you have already heard from. We work within that context, although, of course, we have looked very closely—and we work with the policy team at Ofcom, our colleagues—at any barriers, whether they are policy barriers or regulatory barriers to keeping strong competition in this market. Certainly, for the scheme in 2015, I think we have found the right sweet-spot. What might be the right approach, post 2015, for the final 10%, I think you have taken some very interesting evidence around— Q761 Lord Bragg: Yes, we have had 90% of the conversations on the part of the 10%. Mr Sullivan: Yes, whether the exact prescription that we have inside the framework is the right approach for the final 10% is probably open to further discussion. But the plan that we have up until 2015, I am confident it is the right one. Q762 The Chairman: In the context of the various contractors who “fell out of the process”, has any kind of pattern or theme emerged? Is there an underlying reason why a number of them decided not to go on, or was it all just individual circumstances? Mr Vaizey: It was whether or not companies felt confident they could make the investment and whether there was a business case for them actually being involved. You had a range of people who came to our open days to talk about the issue. Then you had nine who wanted to go to the next stage of it, a bit like the European cup, and they fell away. The closer you get to being at the point of signing a framework tender document, the businesses themselves have to think very hard, “Is this the game we want to be in?” Just going back to whether it was right to procure, effectively, at the local authoritydevolved level or national, I was a very strong champion of the process that we are now pursuing. That was for two reasons. One was for competition. Obviously, if we had gone down a national plan, there would have been an invitation to tender and there would have been a competitive element at the start, in the sense that some organisations might well have bid. But I do not anticipate there would have been more than are currently involved at the moment. Secondly, I was very keen on community broadband, and I wanted to give community broadband initiatives the chance to have a say and potentially procure for individual local authority areas. For example, Lord Inglewood, from where you hail from in Cumbria, I know there are very strong community broadband groups in Cumbria. Thirdly, and what is not said often enough is that by bringing local authorities to the table, we have actually leveraged an additional funding for rural broadband. I think almost as much again, something like £500 million, has now been put up, both by the devolved administrations and by individual local authorities. With each broadband plan there is I think a strong sense of ownership, bringing in business and local civic society to pursue this and to identify the areas where broadband is most needed and so on. In effect, you have a sort of implementation partnership at a local level between whoever wins the tender document and the local authority and civic society. That will also be very important, that ownership at a local level within a national framework, because, as you know, a lot of the costs are to do with engineering costs, digging up the roads and so on. I think with the local authorities as a partner—they put money into it—that process will also go much more smoothly than if it had simply been a national tender. 253 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. 254 Department for Culture, Media and Sport – oral evidence (QQ 748-809) 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 255 Department for Culture, Media and Sport – oral evidence (QQ 748-809) 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? 256 Department for Culture, Media and Sport – oral evidence (QQ 748-809) 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 257 Department for Culture, Media and Sport – oral evidence (QQ 748-809) 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 258 Department for Culture, Media and Sport – oral evidence (QQ 748-809) 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? 259 Department for Culture, Media and Sport – oral evidence (QQ 748-809) 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 260 Department for Culture, Media and Sport – oral evidence (QQ 748-809) 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. 261 Department for Culture, Media and Sport – oral evidence (QQ 748-809) 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 262 Department for Culture, Media and Sport – oral evidence (QQ 748-809) 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? 263 Department for Culture, Media and Sport – oral evidence (QQ 748-809) Mr Vaizey: It is going to the areas where private enterprise has not reached within cities but also areas where private enterprise would not necessarily put in the very fast speeds that we want to see for these cities. Mr Sullivan: Just to add something to that, I say that it is also important—the BDUK programme—because the whole portfolio is all capital investment. If you look at the SuperConnected Cities, we are expecting companies and the cities to contribute, since the ongoing funding for support for things like demand stimulation is an important part of that, so they are able to do that. We are not because we do not have capital funding ourselves. Q794 The Chairman: I am conscious we are running beyond the time allocated. If we were to go on for another quarter of an hour, would that be onerous or inconvenient? Mr Vaizey: We would be delighted. Q795 Bishop of Norwich: I was going to come on to the EU 2020 targets, and you have already made reference to 50% of the population subscribing to 100 Mbps. But of course the other side of that is 30 Mbps available to all. I think you referred to the first of those as challenging. Are these targets feasible? Mr Vaizey: It was Ofcom that referred to it as challenging in their previous evidence session. They are challenging targets and they have been set by a challenging European Commissioner, Neelie Kroes, who I think is a really excellent Commissioner in terms of raising the profile of the broadband agenda and pushing many of the member states to put together a coherent plan for broadband. I am pleased to say that, thanks to the work of people like Rob, I think the UK is very well positioned in the eyes of the Commissioner as being, I think, one of the leading nations in terms of a coherent programme of broadband rollout. We stand as an example to many other member states. Those are challenging targets, and I think when you take a step back we are talking about an eight-year period to get most of Europe wired up to 30 Mbps. That is going to be challenging, but I think it is good to set a challenging target in order to focus people’s minds on the importance of putting out these kinds of networks. Q796 Bishop of Norwich: What sort of proportion of the population will have fibre within 500 metres, and how would the rest be reached? We are talking about short distances between homes and the cabinet—are we not?—in relation to achieving these targets. Mr Vaizey: I think at least two-thirds to 75%. I am not sure whether I have the technical expertise to say whether that would be within 500 metres of fibre, but I certainly think that the market is going to deliver at least two-thirds of superfast broadband, which we tend to define as around the 24 Mbps speed. That will rise in terms of the market delivering it because I think BT and Virgin have seen huge success with their products. As I say, we want 90% of the population to have this superfast broadband by 2015. Whether that means they have to be 500 metres from the fibre connection. I am not sure is necessarily the case. Mr Sullivan: As the Minister says, it is difficult to answer that because the speeds have to be technology neutral, so companies could provide this with a mixture of fibre to the home, wireless and satellite. One way of answering it would be that if you had a fibre to the cabinet-only solution, then you would be close to 90% in that case. Just coming back to your question about the EU target, both parts, as the Minister says, are very challenging. They are designed to be stretch targets, and I think it is very helpful that 264 Department for Culture, Media and Sport – oral evidence (QQ 748-809) 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. 265 Department for Culture, Media and Sport – oral evidence (QQ 748-809) 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. 266 Department for Culture, Media and Sport – oral evidence (QQ 748-809) 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— 267 Department for Culture, Media and Sport – oral evidence (QQ 748-809) 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 268 Department for Culture, Media and Sport – oral evidence (QQ 748-809) 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. 269 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 271 Digital Outreach – written evidence who are online and those who are not, putting these groups at an even greater risk of being left behind by not being able to access the services that they rely on. Helsper says: “Gaps based on education and employment persist independent of age or other characteristics. They therefore represent a problem that is unlikely to go away even with better infrastructure”. 2.4 In their Statistical Bulletin, ‘Internet Access 2010: Households and Individuals’ the ONS has published a breakdown of internet use according to demographics, including: • 60% of people aged 65 and over have never used the internet, compared with 22% of those aged between 55 and 64 and just 1% of 16 to 24 year olds • Of those individuals who indicated they had an illness or disability which limited their activities, 39% had never used the internet compared with 14% of adults who either had no illness or disability, or were not limited by any illness or disability. 2.5 If local and regional roll-out of projects purely focuses on the technical, then we still won’t get the 8 million online because there needs to be some focus on demand stimulation as well as putting the physical infrastructure in place. We need to go out and support these people, raising their awareness and interests by demonstrating to them the benefits of being online for them personally. 3 Point 2: The Government has committed £530million to help stimulate private investment – is this enough and is it being effectively applied to develop maximum social and economic benefit? 3.1 The roll-out of superfast broadband is a massive technical undertaking and the economic benefit and cost savings of being able to provide access to services online rather than in other formats is significant. However, if all the focus is on the technical infrastructure, with little or no emphasis on demand stimulation and breaking down motivational and personal barriers to being online, there is the risk that people will not use the service available to them, resulting in both economic and social benefit not being maximised. For example, the simplicity of online car tax renewals removing the need to travel to a post office, or chat forums for carers helping to break down feelings of isolation. 3.2 Parallels can be drawn between the roll-out of superfast broadband and the digital TV switchover in the UK. The digital TV switchover is another huge technical undertaking, with an enormous investment in the physical work to be carried out to upgrade the infrastructure. Like services moving to digital by default, the TV channels were moving from 3.3 analogue to digital, and could not be accessed in the same way after switchover. As with the internet, it is often the most socially isolated individuals who need the most help in converting their TVs to digital and using the new technology. Digital UK recognised that it was necessary to invest in ensuring that people can cope with and use this new technology. Research was undertaken into the audiences who would need the most help with switchover, and groups were identified who were likely to be resistant to mainstream switchover messaging. For many of these 272 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 273 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 275 Directors UK – written evidence and has an impact on the future success of online content provision. The government should consider measures for assessing how this is being prevented and the impact it has on the health of the digital and creative economy. As an example, under the provisions of the Digital Economy Act, Ofcom is required to monitor levels of online copyright infringement. Although this has yet to be implemented once it is in place this could be used as one of the Government’s key indicators. How will individuals and companies use cloud services for distributed storage and computation? What network properties are required to enable efficient provision and use of such services? 5. Cloud computing covers a variety of services, including those based on protected content – including audiovisual works. This is a market that will grow in the coming years with the advent of “locker” services. It is essential that such services develop in full respect of authors’ rights. 6. Directors UK is a member of the SAA (The European Society for Audiovisual Authors), who in a recent paper to the ‘EC consultation into online distribution of audiovisual works’ 69 distinguished two types of services as follows: “Those which store one copy for all users (hence operating a service to users) and those where users copy their own files to a locker (making private copies). With regards permissions for use of works, the former has to be authorised by rightsholders, while the latter does not as it is an exception to authors’ rights (provided that copies are not shared with third parties beyond private copying exception limits). It does require fair compensation for authors, however. The 2001 Copyright Directive and the European Court of Justice’s jurisprudence authorises Member States to establish a ‘private copying levy’ for the purposes of financing fair compensation. This must be paid not by the end consumers, but by the manufacturers, importers or service providers of a copying facility (Padawan paragraph 46). In both cases, an additional problem relates to the copying by users of illegal files from their library to the service. Cloud services should not have the capacity to “legalise” these illegal files without due negotiation with rightsholders. Cloud services related to protected works must respect the IP rights attached to them and conform with the law.” 7. Directors UK supports the issues highlighted by the SAA and would urge that in developing services for cloud storage that issues of IP and authors rights are fully respected. To what extent will the advent of superfast broadband affect the ways in which people view, listen to and use media content? Will the broadband networks have the capacity to meet demand for new media services such as interactive TV, HD TV and 3D content? How will superfast broadband change e-commerce and the provision of Government services? 69 http://ec.europa.eu/internal_market/consultations/2011/audiovisual/registered-organisation/societe-des-auteursaudiovisuels_fr.pdf 276 Directors UK – written evidence 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 277 Directors UK – written evidence 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 278 Directors UK – written evidence should intellectual property (IP) best be protected, taking into account the benefits of openness and security? 17. The fast-changing nature of communications technology and services presents both new opportunities and challenges to the UK creative industries, and it is therefore very important to ensure that regulatory structures and policy initiatives remain appropriate and forward-thinking. 18. As highlighted previously, enhanced Broadband provision has had the contradictory impact of increasing opportunities for audiences to access audiovisual content whilst reducing revenues for the creators of this content. 19. Creative talent is crucial to the success of a thriving superfast-broadband culture and to the creative industry as a whole in the UK. Without a continuing flow of new creative works, there will be nothing for content providers to distribute and audiences to engage in. The innovation of creators drives growth in the AV industries and in the wider economies, both through the exploitation of AV works themselves and in spin‐off industries. 20. The greatest threat to continued innovation and growth in the audio-visual sector, and indeed elsewhere in the creative industries, is the infringement of copyright via internet dissemination (online piracy / IP theft). Without a commitment to ongoing support for copyright (and other IP protection) the content creating industrial sector is exposed to a further drain on revenues, increased threats to rights and, particularly in the case of audiovisual works, a disincentive to investment. The knock on effect will compromise new creative content, jobs and revenues for the UK Exchequer. 21. A 2009 study by Oxford Economics 71 for the audiovisual sector demonstrated that a commitment to strengthened enforcement of copyright would “provide direct gross revenue benefits to the AV sector of £268 million as well as benefits spread throughout the entire UK economy via ‘multiplier effects,’ creating a total of £614 million in revenues to all industries, £310 million in GDP, 7,900 jobs and £155 million in taxes to government”. 22. Online piracy is markedly different from the unauthorised release of physical copies. Once unlicensed works are released online the capacity for multiplication of such digital copies is unlimited - any return on investment can be fatally compromised. 23. Directors UK welcomes much of the recent Hargreaves Report, in particular its understanding of the need to sustain fair rewards for creators, and for the continuing fight against IP theft: ‘In copyright, the interests of the UK’s creative industries are of great national importance. Digital creative industries exports rank third, behind only advanced engineering and financial and professional services. In order to grow these creative businesses further globally, they need efficient, open and effective digital markets at home, where rights can be speedily licensed and effectively protected.’ 72 24. The solution to ensuring greater access to legitimately protected content across new 71 72 http://www.bva.org.uk/files/images/AV_Piracy_Final_Report_-_FINAL.pdf Hargreaves, Prof. Ian. Digital Opportunity: A Review of Intellectual Property and Growth. May 2011, p3 279 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 280 Directors UK – written evidence work to take the DCE forward. 31. Directors UK is also working with fellow societies in Europe to facilitate the development of a scheme that would enable licences to be granted for services operating across national boundaries in Europe. We would also urge the Government to support a multi-territory licensing system that incorporates the fair remuneration for authors in the EC Green Paper on Online Distribution of AV works 73 , so that we can arrive at arrangements that operate efficiently and seamlessly across Europe. Global Identification Systems 32. Furthermore, collective licensing would be more effective if there were a wider acceptance of global metadata and numbering identification systems such as the International Standard Audiovisual Number 74 . The ISAN is operated by mandated collecting agencies in different territories, and is compulsory in some countries (e.g. France, Spain). It is key to the tracking and monitoring of the usage of works. A mandatory metadata international system such as this would improve co-operation between licensing bodies and support better tracking of usage across the globe. Authors’ Remuneration Right 33. Online services represent a relatively new market where business models are still being formulated and tested. Revenues from these new services have been very small compared to traditional markets (consumer spending on VOD rental was £17m for internet VOD from a total of £207m in the VOD market in 2010 75 ), with correspondingly small shares coming back to copyright owners. 34. As far as pure on-demand service providers are concerned, the lack of experience in the field of audiovisual works’ rights clearance and of know-how in collective agreements for authors’ rights makes it difficult for them to understand the full challenges of services based on intellectual property protected works. It is equally difficult for individual creators to tap into the various different revenue streams found in the new digital markets and to deal with some of the very large ISPs. 35. In our view, this makes online a very good example of a new market where a remuneration right would represent a very effective and fair way to secure the right reward to copyright owners and at the same time to provide a secure and simple method of licensing content for service providers. It would also do so without being disruptive to existing rules. 36. We therefore support the SAA’s proposal in a recent White Paper76 for European legislation to establish a remuneration right for the audiovisual authors’ making available right - collectively managed, based on revenues generated from online distribution and paid by the on-demand services providers - which would simplify the understanding of these operators of which rights are involved and who should pay 73 74 75 76 http://ec.europa.eu/internal_market/copyright/copyright-infso/copyright-infso_en.htm#AV_greenpaper http://www.isan.org/portal/page?_pageid=168,1&_dad=portal&_schema=PORTAL Enders Analysis based on EVA, Screen Digest http://www.saa-authors.eu/en/news/32/SAA-White-Paper 281 Directors UK – written evidence for what. This entitlement should exist even when exclusive rights have been transferred and would secure a financial reward for authors proportional to the actual exploitation of the works. 37. Following this course could provide a boost to the VOD market – which is currently threatened by piracy, but by making it easier for consumers to access content easily, legal VOD platforms will provide an alternative legal and secure method. 13 March 2012 282 Everything Everywhere – written evidence Everything Everywhere – written evidence We welcome the opportunity to respond to the Committee’s invitation for views on the Government’s superfast broadband strategy. As the UK’s leading communications company we have the ambition to create the UK’s ‘digital backbone,’ and with our presence across the UK with over 15,000 employees and over 27 million customers we fully support initiatives to increase and improve connectivity. Under our Orange and T-Mobile brands we offer mobile broadband through handsets and dongles, and following our wholesale deal with BT Openreach we offer some of the most competitive home broadband and fixed line telephony products under our Orange Home brand to over 700,000 customers. The UK already enjoys the most competitive e-commerce market in the European Union, and with a large number of ISPs, both fixed and mobile, for consumers to choose from. What is required is a regulatory environment which continues to foster this choice, promote innovation in new services and to encourage both existing and new entrants to invest in new and innovative technologies. Broadband Takeup and Digital Divide Considering the two government broadband objectives – broadband uptake and availability of superfast broadband – we believe that uptake of broadband is just as important as the deployment and availability of superfast broadband. Whilst Ofcom’s 2011 Communications Market Report recognised that superfast broadband services were already available to around 50% of UK homes, and that this figure is increasing as further investment takes place, it remains important to address the digital divide. The most recent figures for internet usage amongst the adult population published by the Office of National Statistics showed that in Q4 2011 just over 16% of adults in the UK had never been online. Whilst this marked a 1% reduction of offline adults over Q1 2011, strong and continued encouragement from the Government on digital inclusion is welcome 77 . As the Broadband Stakeholder Group have noted “Demand for superfast broadband is in its infancy in the UK, but the initial signs are that the UK is in a good position, and is seeing take-up at a similar or higher level than other EU markets at the same stage.” Furthermore “it is important that policymakers have realistic expectations of the likely levels of take-up that superfast broadband will achieve in the UK in the short-medium term, and draw appropriate lessons and comparisons with other markets across the world.” UK Economic Competitiveness Whilst there has been a lot of focus on headline speeds available in some Northern European and Asian countries the UK government has rightly recognised that a more balanced approach is required to determine success in delivering the best communications network. 77 Ofcom: The Communications Market 2011 283 Everything Everywhere – written evidence In the December 2010 Broadband Future policy paper the UK government set out a basket of measures looking at speed, coverage and take up, and price of fixed and mobile broadband. These measures are germane to determining what infrastructure the UK should look to have for continued economic success. Broadband Delivery UK Broadband Delivery UK has been asked to fulfil a difficult role. As a mobile provider we continue to have some concerns as to how the BDUK timetable did not take account of the spectrum auction process, and thus reduced our ability as a mobile operator to participate. In addition, the process has been delayed by local authorities not being adequately equipped to move forward as quickly as the Government would have wished. Whilst it was recognised by the previous government, and accepted by the coalition Government, that the cost of deploying Fibre To The Cabinet (FTTC) across the UK would cost in the region of £15 billion whilst deploying Fibre To The Premises (FTTP) could cost around £30 billion, the £530 million available through BDUK in the current Parliament is welcome and should help ensure that government targets on availability of 2MBps are delivered. Fibre Wholesale The growth in take up of ‘up to 20Mbps’ broadband products over the last five years in the UK has been driven by affordable broadband pricing offered by a wide range of competing internet service providers. Ofcom’s own Communications Market Reviews have found that the result of this has been that the UK has one of the most competitive communications markets in the world, with one of the highest take up rates of online services and ecommerce. As the UK moves forward with further deployment of superfast broadband it is important that the regulatory environment encourages a competitive market as we are concerned that without appropriate regulation the UK could fall further behind the rest of Europe. Whilst we welcome the overall push for localism that the coalition government is committed to, we are concerned that it could have unforeseen consequences for the deployment of superfast broadband, and the Mobile Infrastructure Project, if each local area pursued their own separate technical solutions. In particular, we would wish to see a regulatory solution that ensures that should anyone other than BT deploy FTTC/FTTP on a regional basis that it should be ‘equivalent’ to BT’s solution so that the UK does not end up creating regional fibre monopolies, such as KCom in the copper world, or seeing other communication providers having to constantly build interfaces into very small local broadband markets. Furthermore, a competitive fibre market is essential for the deployment of 4G mobile broadband as we require access to fibre backhaul from our cell sites to enable us to deliver 4G LTE services to our customers. Contribution of mobile As the internet has gone mobile with the rapid increase in popularity of Apps the role of mobile broadband has become more important to consumers and the economy. Government ambition to deliver near universal availability of broadband will require that mobile broadband services are part of the mix. Whilst it may well be economic to roll out fixed broadband to around 90% of the UK population, there will remain around 10% of the 284 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 286 Everything Everywhere – supplementary written evidence competitors both benefited from the Government direction to Ofcom to allow mobile operators to deliver 3G services over 900MHz and 1800MHz airwaves - a decision we did not challenge. We believe that our proposed investment and innovation will drive further investment and innovation in the UK from the other networks. The auction itself will not necessarily drive investment - the 3G auction in 2001 saw all networks overpay for the spectrum licences and subsequent infrastructure investment was consequently slow. Ronan Dunne made a recent comment to the effect that, as the CEO of 02, he does not see the business justification for bringing 4G to the UK. There is no better way to make him change his mind than EE launching a 4G service this year. This will ensure that the predictions in the economic research we commissioned from Capital Economics will materialize - these indicated that roll out of 4G networks would add 0.5% to UK GDP over the next decade and unleash £5.5bn in private investment that will support 125,000 jobs over the next three years. In a period of such economic uncertainty, we do not believe the UK can afford any further delays. 1 July 2012 287 Federation of Communications Services – written evidence Federation of Communications Services – written evidence Introduction 1 The Federation of Communication Services, FCS, is the trade association for the communication services industry supporting 325 members that deliver products and services via copper, fibre and wireless to UK customers. For a list of our members please visit www.fcs.org.uk Broadband policy 2 We welcome the opportunity to respond to this timely inquiry into the Government’s superfast broadband strategy. Broadband is the basic building block of the digital economy that is fast becoming the staple mechanism for doing business and for social life in the UK. Government policy should therefore be to ensure that appropriate broadband technologies are available for the longer term, a timeframe of at least up to 20 years. Broadband is now an essential utility - rather than an optional service delivering communications in competition with pen and paper of yesteryear. We believe that broadband policy should now be substantially reviewed to recognise the utility nature of communications infrastructure, with competition residing at the retail level. 3 As in other markets, infrastructure provision should be regulated as a utility platform -separated from competing retail services that access the infrastructure on equivalent and fair terms. The role of infrastructure providers should also be clearly separated from that of retail service providers. 4 A policy of competing infrastructure appears to be inefficient. Duplicating infrastructure investment passes extra costs down to the consumer. Commercial network providers cannot justify delivering services to markets where there is not a density of population to satisfy their commercial objectives, leaving wide swathes of the population without access. Since all UK citizens need access to the same level of broadband and increasingly superfast broadband, a different supply regime is required and, crucially, regulatory intervention will be needed to support this outcome. 5 FCS recommends that infrastructure is in the form of a single “fat pipe” with wholesale access - enabling both universal services, such as smart meters and telemedicine, and competitive services, such as video on demand and voice, to plug into the pipe. 6 Demand for superfast broadband is evident and the infrastructure to supply this growing need must be adequate to respond to demand. FCS research among CPs and resellers who take bandwidth from wholesalers and package services for SME business customers’ shows higher capacity broadband is needed for ¾ higher data capacity and broadband conferencing ¾ growing E- business processes ¾ Distributed working with multi-site and remote working for business efficiency and employee support 288 Federation of Communications Services – written evidence ¾ Growth of cloud computing - a need for greater uplink and downlink capacity to share databases, business files 7 The “fat pipe” model that FCS and others propose would entail the grey fat pipe to the right of the diagram below being owned and operated by the infrastructure provider, who has no retail offering to compete with its customers. Services such as IPTV and internet access would be delivered by competing suppliers - each having fair and equivalent wholesale access to the pipe. Customers would then purchase one or more services from CPs and, should they wish to move supplier, they could do so within an efficient universal customer switching process. For this model, “net neutrality” would be less of a problem since the pipe operator would not have a commercial interest in managing traffic for one wholesale customer in preference to another. Additionally, different levels of traffic management could be applied to different services in a transparent manner. Crucially, if the internet end user were to transgress the Digital Economy Act, internet services could be cut off without compromising the public / universal services for smart metering or telemedicine to an individual household or premises. Figure 1: “Fat Pipe” 8 The entity that owns the “fat pipe” is already becoming apparent. Openreach is rolling out its broadband and superfast broadband widely across the nation and, significantly, it is also winning many of the local authority tenders under the BDUK scheme. This is not surprising as there is inherent skill, experience and attention to maintenance, security and resilience in this organisation. 289 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. 290 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 292 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 293 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. 294 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 296 Fibre GarDen (the Garsdale & Dentdale Community Fibre Broadband Initiative) – written evidence including BDUK/RDPE, contribution of £300 per premise, vendor finance, a community share issue, loans and work in-kind. Initial success has been achieved with BDUK confirmation that we have become a recognized Rural Community Broadband Fund pilot and therefore eligible to apply for first round funding from the Rural Development Programme for England (RDPE). This application has been submitted and is awaiting approval from DEFRA. Our project, its importance and contribution so far, has also been acknowledged by the following: “ That is why I am so proud that our communities in Cumbria, and South Lakeland especially, are choosing to make their own luck. I pay tribute to……the team from fibre GarDen who ensure that we can deliver superfast broadband to Garsdale and Dent. They show a vision that UK plc - I am not aiming criticism in any specific direction - has so far not matched. This debate is about demonstrating that the House of Commons stands behind them in solidarity”…… and, further quoting from an email from Andrew Fleck, Chairman of fibre GarDen, “The cost of nationwide implementation is prohibitive in the current economic climate, but the economic penalty for delay will be greater still”. He is absolutely right. Tonight I will get on the train to Oxenholme and travel on a rail network that was built by visionaries 150 years ago. That is the sort of vision and ambition we need today” Tim Farron MP, Daily Hansard, Thursday 19th May 2011 “Cumbria County Council regards fibre GarDen CIC’s planned FTTP local network as an important part of the overall broadband strategy for Cumbria. The significant efforts of fibre GarDen CIC have been instrumental in achieving the best possible outcome for the pan-County rollout and the successful construction of their network will be a valuable contribution to the provision of superfast broadband in the county” Alan Cook, Project Manager, Cumbria County Council Fibre GarDen’s help in exploring ways in which communities can actively support suppliers to deliver superfast broadband access to deeply rural areas has been extremely useful in helping us develop a number of potential products for communities in similar locations across the country to utilize” Robert Sullivan , Chief Executive, Broadband Delivery UK The Project Existing provision by current operators in our area, as might be expected, is not consistent with a 21stC economy. In most cases broadband download speeds below 1Mb/s are the norm, with many premises remaining on dial-up (512kb/s) and no broadband provision at all. This is the backdrop to our community motivation to address this inequitable infrastructure under investment to date. This project will create a fibre optic network that connects every property in an isolated and sparsely populated upland rural community in exactly the same way that properties and businesses would be networked in a fibre wired city. The project is ambitious, as its aim is not simply to increase rural broadband speeds, but to demonstrate how economic disadvantage and social exclusion can be overcome in a rural area by the provision of future297 Fibre GarDen (the Garsdale & Dentdale Community Fibre Broadband Initiative) – written evidence proof Next Generation Access (NGA) broadband. In order to achieve its goals, it will harness community support and action alongside government investment and commercial partnership. The project will build and operate a NGA broadband network in the two adjacent upland valleys of Dentdale and Garsdale in South-East Cumbria, close to the North Yorkshire and Lancashire boundaries and inside the Yorkshire Dales National Park. The network will be built and operated by a community interest company, Fibre GarDen CIC, employing a local telecoms company to manage both the build and the network’s operation. The build will be completed by December 2012, after which the ownership of the network will remain with the CIC. The RDPE funding would be used to meet part of the capital costs of building the network and not its running costs. The project’s key features are: i) the creation of a consortium of suppliers working with the community to build the network, ii) the finished network to remain under community control, to ensure it serves the community’s future needs (and importantly obtain the necessary wayleaves), iii) the involvement of a local telecommunications provider with full code powers, iv) the granting of free wayleaves by residents/landowners to a community project, v) the availability of expertise in fibre optics, telecommunications and company fundraising by the project’s management team, vi) the use of an innovative backhaul solution that is applicable to rural communities across Cumbria and nationally By these means it will demonstrate how NGA rural broadband can be provided in places where there is no current market solution for fully future-proofed superfast broadband provision. This will support the drive by Cumbria County Council to raise the standard of broadband delivery within the procurement for Cumbria and thereby improve services to a wider range of communities. The network that is created will: • provide a 100% fibre optic cable to all properties and businesses, and thus be fully future-proofed • be either own brand or open access ISP • enable initial broadband speeds of 100 Mb/s, with the option for Gb/s service in the future depending upon need and growth in demand • be a significant economic multiplier for businesses and the community as a whole • provide extra fibre capacity for community and future P2P use • be available to supply backhaul for 4G mobile phone coverage • provide support to farming enterprises, in areas where the rural economy relies upon a vibrant farming sector and where the national food supply agenda needs to be fully recognized and supported • be available to NHS Cumbria for informatics, telemedicine and telehealth research trials • be available for use by emergency services, critical in an upland and occasionally remote rural area • become a template for the creation of a fibre network, which will be available for other rural communities to use 298 Fibre GarDen (the Garsdale & Dentdale Community Fibre Broadband Initiative) – written evidence • most importantly, be fit for purpose for accommodating other (unforeseen) technological advances that may transpire in the future The key beneficiaries can be divided into three groups: ‐ Direct occupants in the Fibre Garden area including 351 private households and 159 businesses and further tourism businesses, and 1 primary school serving 38 children. The businesses include local farmers, and at least 28 consultancy businesses, some of national and international repute, including individuals such as a FTSE 100 CEO, a Chairman of a number of telecommunications companies, a Chairman of a digital media company, and an Asia-Pacific focused strategic advisory services company as a few examples of the breadth of activity already occurring in these Dales. The business mix in our dales is perhaps excitingly unique as compared to urban environments and a model for the future knowledge based mixed economy; ‐ Indirect beneficiaries such as BDUK, DEFRA, Yorkshire Dales National Park, South Lakeland District Council, Cumbria County Council, Sedbergh Health Centre, emergency services, mobile phone operators, wider rural communities who may use our model, and the several millions annually of visiting tourists; and ‐ Important social re-generation of a Severely Disadvantaged Area (as defined by the government) through the attraction of inward investment by high value-added, technology-rich entrepreneurs in the knowledge economy, who will be attracted by the future proofed unconstrained bandwidth Major Issues This process and the efforts by all concerned has identified a number of issues that should be considered by the Committee in greater detail as follows: National ‐ The whole debate needs to shift away from broadband speeds and the latest PR, inaccurately informing of “up to speeds”, and also “contention” (the number of users constraining performance), and “attenuation” (eg distance from the exchange means a weaker or non-existent signal). The flabby approach of both the industry regulator and the Advertising Standards Board leaves much to be desired in this area. Incumbents use these to control their investment and business model agenda. A simple comparison can be made to electricity, another necessary and vital utility for the 21stC. If the light in your house was flickering and cutting out all the time one would consider that one was living in a less developed economy. Excuses about “line speed” or “contention” or “attenuation” would not be an acceptable response. Electricity companies have invested and solved all these matters and your service is either “on or off” and is fully responsive to peaks in demand; ‐ Active engagement of alternative broadband infrastructure providers such as the Electricity companies or Network Rail (which already has a publicly funded fibre optic network) should be encouraged. These companies, in most cases, are already connected, or are able to access, even the most rural communities as a result of our forebears vision. ‐ This is an important national infrastructure issue and yet we have little or no knowledge of the medium term investment plans of major incumbents; ‐ The “sticky plaster solution” of FTTC offered up by some of the existing operators fails to address even the most basic needs of many, let alone the necessary future 299 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 300 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. 13th March 2012 301 Film Distributors Association – written evidence Film Distributors Association – written evidence 1) About Film Distributors’ Association and our sector Film Distributors’ Association Ltd. (FDA) is the trade body for UK theatrical film distributors, the companies that release films for cinema audiences. The feature films brought to market by FDA member companies – ranging widely from international blockbusters to classic revivals; and from British films to productions of 42 other countries in 2011 – account for 97% of UK cinema admissions. Lord Puttnam of Queensgate CBE is FDA’s President. Theatrical film distribution is a sophisticated, competitive and dynamic business that depends on product and the extent to which it connects with audiences. With 1% of the global population, the UK generates 7% of global cinema box-office receipts (£1.12 billion from 171.5 million admissions in 2011). Overall, the sector operates successfully and delivers a significant contribution to the economy in terms of revenue and jobs, as well as the consequent cultural and creative impacts. An economic multiplier effect applies: for every £1 spent on cinema tickets, at least a further £2 is pumped into the economy on directly related expenditure. 2) Market development The roll-out of super-fast broadband enhances business opportunities to offer selections of films to online consumers. Film companies will naturally embrace the ability to deliver feature films and film-related content to ever-wider audiences faster and more efficiently. The comprehensive UK Film Policy Review, chaired by Lord Smith of Finsbury and launched in January 2012, urged the industry to consider increasingly flexible periods of theatrical exclusivity, to be determined on a film by film basis, to assist greater development of the still nascent “Video on Demand” market segment. FDA welcomed this recommendation (no. 14): it is important for the overall film value chain that VoD flourishes. Furthermore, developments in media technology may open up future opportunities to provide audiences with a greater range of “big screen” experiences in a variety of “connected” venues in local communities. We shall watch any such market developments with great interest. 3) Collateral editorial The average consumption of films across all platforms is seven per person per month; films are among the most highly desired content to drive take-up of super-fast broadband services. In light of this, FDA believes that film-related programming is under-represented on 302 Film Distributors Association – written evidence UK media channels, certainly when compared to other leisure or lifestyle activities such as cookery and antiques. The significantly improved infrastructure may provide opportunities for the wider dissemination of film-related programming tailored to local audiences via the community-focused TV/media services being actively supported by Government. 4) Evolving business patterns While distributors are eagerly striving to experiment in, and embrace, an all-digital landscape, the current transitional period has thrown up particular challenges for our sector. Caught in the transition from 35mm to digital, unable fully to leave the one and embrace the other, distributors have effectively had to finance and operate both formats and models simultaneously. Accordingly, at a time of such uncertainty, the question raised by the Committee concerning online copyright infringement and theft assumes greater significance. We have outlined below our response to this matter. 5) What impact will enhanced broadband provision have on the media and creative industries in the UK, not least in light of the increased danger of online piracy? What is the role of the Government in assuring internet security, and how should intellectual property (IP) best be protected, taking into account the benefits of openness and security? FDA supports the statement in the Hargreaves Review of Intellectual Property and Growth (2011) that: “Government should pursue an integrated approach based on enforcement, education and, crucially, measures to strengthen and grow legitimate markets in copyright and other IP protected fields.” A robust Government stand against IP theft is vital, as the confidence that investments will be protected is itself a key driver of the creative industries and the 1.5 million UK jobs they sustain. Promoting a clearly understood and consistently applied respect for intellectual, as well as physical, property in our society remains an urgent priority for industry and Government alike. The rule of law must apply, and be seen to apply, in the online realm as well as the physical one. Film distribution requires substantial investments in terms of both product acquisition and bringing completed titles to market. In 2011, FDA members invested more than £330 million in film prints and advertising alone. Ultimately, threats to a return on that investment will result in fewer films being made and released and, in turn, to a decline in revenues. Super-fast broadband – facilitating, as it does, access to large-size files – could paradoxically limit the sector’s growth if action against online copyright infringement fails to become effective. FDA runs a multi-strand programme to safeguard content in the UK theatrical lifecycle, including consumer education campaigns (from age 8 upwards), a long-standing partnership with the Federation Against Copyright Theft (FACT), and a substantial investment in night vision technology to support cinema operators. 303 Film Distributors Association – written evidence In the online realm, we urge the Government to implement the infringer notification process contained in the Digital Economy Act 2010 (DEA). We look forward to the introduction of an effective, proportionate system based on the identification of infringers on peer-to-peer (P2P) file-sharing networks. This will be an important means of ensuring that individuals who infringe are aware of the consequences of their actions, and also of the ever increasing array of legal options available to them online. P2P infringement is, however, just one way in which individuals may consume content illegally online. The streaming and downloading of files from websites is the fastest growing form of online piracy, and is likely to continue as super-fast broadband rolls out further. But, by definition, it cannot be addressed through the DEA notification process, which only targets P2P networks. Instead, access to infringing sites that offer content illegally, or other linking sites, needs to be blocked by internet service providers (ISPs) following due legal process. In this way, it is the infringing websites themselves that are targeted, not individual end-users. 6) Specific actions for the Government to consider include: ƒ The appointment of a dedicated Minister for Intellectual Property at Minister-of-State level in BIS or DCMS with cross-government responsibilities. It is not helpful to have the key (to us) policy areas of “Media” and “Copyright” located in different Government departments. ƒ Establish a dedicated IP economic research unit, to measure the contribution of IP to economic growth and to commission, prepare or supervise full economic impact assessments prior to implementing any significant changes to the IP framework. ƒ A requirement on internet search engines to play a greater role in helping consumers navigate to legal sites and to remove illegal ones from search results. Searches should not return sites dedicated to copyright infringement. ƒ A requirement on companies to stop advertising on illegal websites which deliver money into the hands of organised criminal networks whilst driving down advertising revenues for legitimate sites. Similarly, a requirement on payment processors to withdraw their services from pirate websites. ƒ Focus UK law enforcement agencies on the impact that the reduction of IP crime will have on domestic wealth and employment opportunities, and introduce a deterrent element to civil damages for serious IP infringement. The UK marketplace is a liberal one – by way of example, there are already millions of digital video recorders, and no one has ever been prosecuted for private formatshifting. But the UK – where films are often released in desirable English-language formats simultaneously with, or prior to, the US – is particularly vulnerable to copyright theft and the serious organised crime networks that exploit IP loopholes to generate millions in cash. ƒ Ensure that UK citizens have a more confident and beneficial online experience by carefully monitoring, once implemented, the DEA’s effectiveness. The impact of 304 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. 307 FTTH Council Europe – written evidence Setting appropriate targets 6. What exactly constitutes ‘superfast broadband’ remains largely undefined. The EU sets targets of 100mbits for 50% of subscribers and 30mbits for 100% of subscribers in its EU2020 Strategy Proposal 78 . In the UK the definition is even looser but appears to refer to a 50mbits download speed79 . While a specific speed is not so important to the FTTH Council, certain aspects are and a particular concern for the FTTH Council is the absence of upload speeds in most targets being set. The presence of networks which can support viable two way speeds is a key enabler of cloud services for example. Even basic cloud services such as data storage are constrained by the current networks available and they have been identified as a constraint already 80 . Amazon has a basic offer to their users which gives data storage which can be used for network back-up. However, with an average connection a 5GB back-up will take over 5 hours compared to less than 7 minutes on a 100Mbps fibre connection. The viability of such a basic service will depend on such differences. The UK is currently ranked 56th in terms of upload speeds81 . 7. However, the Council believe that insufficient consideration is being given to upload speeds. When Japan set its network goals in 2004 it set a 30mbits upload universal target. Any network supporting 30mbits upload will inevitably support a far greater download speed. 8. Upload speeds will be even more important in the context of real time high capacity data applications that reside in the cloud. This perspective is supported by an established body of work 82 which has shown over time that much of the benefits of ICT investments come not from the investments themselves, but from firms and industries ability to reorganise their means of production around these new technologies. The implications for economic systems are that the manner in which services are delivered in many areas may need to be completely rethought. This may be particularly important in relation to the deliver and production of public services such as education and health. 9. Other research shows that the economic and societal benefits of very high speed internet access (particularly high upload speeds) 83 , and that the availability of such connectivity, changes the way consumers react to the internet. One of the biggest functional differences between FTTH and DSL options is speed but in particular, upload speeds. The many business cases put forward by different analysts looking at future cloud services rely on a variety of services which require radically different upload speeds. Key Cloud services such as IaaS (Infrastructure as a Service), SaaS 78 79 80 81 82 83 http://ec.europa.eu/europe2020/index_en.htm http://www.culture.gov.uk/images/publications/10-1320-britains-superfast-broadband-future.pdf http://www.bsa.org/country/News%20and%20Events/News%20Archives/BE/2012/BE-01262012-cloud.aspx http://www.netindex.com/upload/2,4/United-Kingdom/ ‘FOR A GROWING EUROPE Making the EU Economic System Deliver’ Report of an Independent High-Level Study Group established on the initiative of the President of the European Commission, André Sapir et al. July 2003. ‘Catching Up or Getting Stuck? Europe’s Troubles to Exploit ICT’s Productivity Potential’, Bart van Ark and Robert Inklaar, July 2005 See for example, http://www.ftthcouncil.eu/documents/Reports/Socio-Economics_Study_2009.pdf 308 FTTH Council Europe – written evidence (Software as a Service) and so on require upload speeds if their potential is to be realised. The indirect benefits in terms of service development and the efficient allocation of resources at a time of rising demand is clear but is unlikely to factor in private investor considerations. 10. That is why the FTTH Council believes that it is appropriate for the State sector to recognise the positive externalities that arise from very high speed networks. The UK government’s allocation of £530million to enhance the UK’s networks outside competitive areas is therefore wholly justified. 11. It can be argued that rural communities will benefit the most from the best network performance, as demonstrated by numerous case studies taken from the experience in Scandinavian countries. These are also the areas where customer demand is highest, many communities are requesting a FTTH network and the communities are willing to support the installation, reducing the build costs. We suggest for these areas it is inappropriate to set short term solutions and a 2Mbps minimum performance target. The need to invest in future proof networks 12. While the future needs of society cannot really be fully anticipated, a network which has theoretically almost infinite capacity is preferable to networks which are already constrained. Analysys Mason, a UK consultancy conducting a review of public expenditures in Europe found that the largest single project, a fibre to the cabinet project in South Yorkshire, had been overtaken by the market. While many issues arise in the project the fact that the local authority had chosen an interim technology such as FTTC points to the danger of thinking short term. There is therefore a concern that certain investments which may have a cost advantage in the short term may actually prove significantly more expensive when they need to be further developed and upgraded in subsequent years and become wary of such investments. 13. The Council believes that there dangers of investing public funds in time-limited infrastructures which are unlikely to be adequate to meet end user needs in the medium term. Short terms solutions such as FTTC are unlikely to be adequate and will most likely delay the ultimate migration for these users to FTTH since second and third rounds of public finance are not likely. Rushing to a quick and cheap short term solution which would delay or impede the momentum to a FTTH solution should be resisted in our view, both because such investments are potentially wasteful of public funds and are damaging to the market dynamic which is likely to see digital divide issues exacerbated rather than ameliorated. The FTTH Council notes that certain countries such as France are adopting criteria themselves that requires a path to FTTH if public sector finance is to be invested (see for instancehttp://www.legifrance.gouv.fr/affichTexte.do?cidTexte=JORFTEXT000024473 100&dateTexte=&categorieLien=id) such that a clear path to FTTH is required where public funds are used. Such criteria should be encouraged and standardised at EU level in the Council’s opinion. The FTTH Council believe that a similar requirement would be appropriate in the UK. 309 FTTH Council Europe – written evidence The need for a holistic view 14. The FTTH Council notes across the countries of its members that many public financing initiatives are seeking to use public finance as a catalyst for private sector investment in more marginal areas. Portugal represents a good example of such a project where the regulator has divided the country into two regions, competitive and non-competitive. Currently, in the competitive region operators have regulated access to civil engineering (passive) infrastructure and the main operators are obliged to deploy their own networks (and some alternative operators are co-investing). In the non-competitive areas, where there is currently no other basic broadband infrastructure besides the network of the incumbent operator, a single FTTH infrastructure which is independently owned and operated and open to all operators is being built with State support. The aim therefore is to have ubiquitous FTTH access and already 55% of homes have FTTH available compared to less than 3% in the UK. A coherent objective and a path to achieve that objective is critical for success in long term infrastructural projects such as FTTH deployments. 15. On the demand side, the public sector needs to completely rethink the organisation of public service delivery organised around new technologies and delivery platforms. This should be included in a much broader plan (national plans) which needs joined up thinking across a large number of service areas. Use of the Cloud to enable such service delivery is critical to achieving key development targets in a range of areas. As noted already, exploiting the Cloud requires adequate networks to be in place in order to have sufficient capacity so that its potential can be reached. 16. When considering the case for FTTH networks other industrial policy motivations should also be considered. 17. If the UK’s competitors in other parts of the world have fibre and the UK does not, where are Cloud solutions, applications and job opportunities likely to be developed? Experience to date suggests that applications will be developed where the network capable of supporting service delivery is available. Once developed, those firms and research centres that lead the way are likely to maintain their lead if developments in other areas of ICT are to be our guide. 18. This is why the FTTH Council believes that new developments such as Cloud computing represents part of a much broader paradigm shift in this sector but also in the broader economy. The FTTH Council believes that any such paradigm needs to clearly incorporate the functionality of FTTH and recognise the indirect benefits that such networks can enable in this sector. These very high speed networks can enable a set of services which are capable of completely changing certain aspects of service delivery in a range of areas from healthcare delivery to SaaS. 19. There are many other enablers that are required to support this shift whichconcern factors such as data protection and the legislative framework governing such service delivery. The FTTH Council endorses these measures and believes that increasing interoperability, cross border legal regimes and legal certainty for users, and R&D are all clear enablers of a future Cloud environment. Nevertheless, without the underlying infrastructures in place, these measures will have limited impact in 310 FTTH Council Europe – written evidence practice and that is why the FTTH Council believes it is critical that all parts of the State coordinate to highlight the overall benefit that FTTH networks can bring in a range of areas. 20. The UK is well behind in the deployment and adoption of FTTH deployment and take up. By comparison with G7 countries (refer to graph of subscribers based on Dec 2012 figures) the UK ranked last in terms of availability of FTTH networks 84 and the future forecasts of firms like Heavy Reading suggest that the UK will remain last beyond 2020 85 . Economies with the Highest Penetration of Fibre-to-the-Home/Building + LAN Conclusions 21. The FTTH Council Europe believes that where possible competitive markets are best enabled to deliver the required networks and services to the mass market. However, there should be National targets for performance and these should be no less than the standards set out in the Digital Agenda by the Commission. However these targets should support existing and future services and be as future proof as possible 84 85 OECD (2011), "Fibre Access: Network Developments in the OECD Area", OECD Digital Economy Papers, No. 182, OECD Publishing. http://www.heavyreading.com/ 311 FTTH Council Europe – written evidence and therefore include uploading capabilities necessary to deliver existing Cloud performance levels and beyond. These targets must be a pre-condition for networks benefitting from public finance. The present ill-defined target of “superfast broadband” is at best misleading. 22. The FTTH Council believe that several incremental investment cycles in broadband networks will be prohibitively expensive and would urge appropriate network targets to be set from the outset. The consequence of not doing so will be a deepening and a prolonging of the digital divide in the UK 23. The FTTH Council sees very significant positive externalities flowing from these networks and these spill-over benefits to society justify public investment to see these networks built. 24. These investments should form part of a holistic national plan which envisions ubiquitous availability of connectivity across the UK as well as a private and public sector reorientation on the production and delivery of services to end users. 25. The FTTH Council Europe would welcome any opportunity to provide further supporting technical information. 13 March 2012 312 FTTH Council Europe and Communications Chambers – oral evidence (QQ 136-249) FTTH Council Europe and Communications Chambers – oral evidence (QQ 136-249) Transcript to be found under Communications Chambers 313 Fujitsu – written evidence Fujitsu – written evidence 1. RESPONSE TO THE REQUEST BY THE HOUSE OF LORDS SELECT COMMITTEE ON COMMUNICATION 1.1 WILL SUPERFAST BROADBAND MEET THE NEEDS OF OUR “BANDWIDTH HUNGRY” NATION? Current broadband policy a. Fujitsu is supporting and actively engaged in the current Government initiatives to rollout superfast broadband to what is commonly known as “the final third” of UK properties. Looking beyond the timescales of these initiatives, we can see that further activities will be necessary to satisfy the demands for “beyond superfast broadband” in all areas of the UK. With appropriate further investment, increased broadband speeds could be delivered that, although much more challenging than that of the broadband currently being offered in urban areas, should satisfy customer demands for at least the next 20 years. b. In addition, the current proposals do not address the final 5% of the population, who live in geographically remote areas. This will mean that the problem in many rural areas is not really being tackled. The use of fibre could address this shortcoming. Technological questions c. The use of interim network rollout technologies, such as those based on the existing copper infrastructure, is currently insufficient to satisfy the bandwidths identified by the Lords and is inefficient and not environmentally sustainable. To ensure that investment is not wasted on a short-term gain, with costly network upgrades to meet future bandwidth targets, there should be incentives to rollout other access solutions such as fibre to the premises, and a well-known and trusted standard for high speed wireless communication, such as LTE 86 . d. The feasibility of ‘beyond superfast broadband’ is reliant on certain products being made available by the incumbent provider (BT). A key example of this are wholesale dark fibre products, the availability of which would open investment opportunities for competitive telecommunications providers to deploy more advanced technologies to more of the UK. e. A number of solutions for superfast broadband involve enhancements to the existing copper access network. Whilst meeting immediate demands, these solutions do not have the capability to support upgrades to enhanced faster networks that will be demanded in the medium term. 86 3GPP Long Term Evolution, usually referred to as LTE, is a standard for wireless communication of high-speed data for mobile phones and data terminals. 314 Fujitsu – written evidence Issues with infrastructure f. The access solution for superfast broadband should not be limited to one infrastructure to provide the service. There should be no regulatory barriers or protection of existing access network providers that prevent services being introduced over all the existing infrastructures. g. Shared infrastructures should be encouraged in order to reduce incremental cost. h. Regulation should only be applied to the layer of the network where actually necessary. The “lower” network levels, such as access infrastructure, need not be regulated in the same way as other areas concerning specific applications such as security, etc,. Summary i. Fujitsu believes that further investment in broadband infrastructure can and should be guided to provide a future–proof solution that will be able to evolve, grow and be re-used as demand increases, rather than see investment in ‘short-term’ technology enhancements that will require further upgrades yet to be developed. 13 March 2012 315 Geo Networks Limited – written evidence Geo Networks Limited – written evidence The Coalition Government began in 2010 with the ambition of having the best superfast broadband network in Europe by 2015. In June 2010, Jeremy Hunt announced several pilot or “market testing” projects that would enable government to determine how any financial intervention should be targeted. BDUK was given the job of managing the pilot projects. Nearly two years later contracts for these projects have yet to be awarded and the concept of “pilot” areas has had to be abandoned. The 2015 target date is at risk. Government’s decision in 2010 to reject a top-down nationwide procurement was seen as a positive step in encouraging new investment models and competition in networks. The Government promised it would look at encouraging infrastructure sharing; exploring the reuse of public sector networks (such as those of local authorities and the national education network); public sector investment and joint ventures; reforming the process for granting wayleaves; and obtaining clarity from the EU on State Aid rules. So far, none of these ideas has come to fruition and most have been discarded. Back in 2010, Geo made clear to Government the conditions we considered necessary in order to attract investment. 1. Infrastructure Sharing and Open Access Networks A condition of the procurement should be the requirement to offer “open access” to the resulting fibre network. This means offering duct access and dark fibre – technology neutral “passive” elements, rather than managed or “active” services. This creates maximum competition in the market and lowers barriers to entry by allowing operators to come in and compete at the most cost effective level of the network. An open access network (offering access to fibre, duct and co-location) is also a requirement under the European Commission State Aid Guidelines for networks built using public funds. If service providers are given open access to the passive elements of the network, they will have the freedom to deploy their own active products with choice and flexibility over broadband speeds, usage caps and pricing. It allows service providers further to differentiate their service offering and compete on a level playing field with large vertically integrated players such as BT. It is the model adopted by the Fibrespeed network in Wales, which is a joint venture between Geo and the Welsh Assembly Government. If access to the network is restricted to the active layer only, service providers are limited to reselling the incumbent’s prescribed active products, leaving little room for product differentiation or competitive pricing. Where incumbent infrastructure exists, the incumbent should contribute its infrastructure (i.e. provide a reference offer for duct and fibre access) before it participates in any procurement in order to make the process fair and competitive to all bidders. Without access to the incumbent’s infrastructure, any other bidder would automatically face higher deployment costs which would, in all likelihood, render a project unviable. BT now offers a Physical Infrastructure Access (“PIA”) product, through which competitors can access its ducts and poles. However, it is so restricted in its use it puts competitors at a huge disadvantage when bidding against BT. As a result of Ofcom regulation, PIA cannot 316 Geo Networks Limited – written evidence currently be used to provide fibre connections to businesses, backhaul from the local loop, or to connect to wireless masts. Ofcom has the opportunity to remove these restrictions this year by requiring BT to offer PIA as a product in the so-called Business Connectivity market, but they are likely to bow to pressure from BT not to do so. There are no processes in place by which this product can be ordered to scale or in volumes and it currently comes with no service level agreements or guarantees. What is more, the terms, conditions and prices for BT’s PIA product were only published in November 2011, which came too late for submissions to many of the BDUK procurements. Many of the contract terms remain extremely onerous and are not applicable to BT when it wishes to use existing poles and ducts for fibre cables. 2. Investment Models We advocated the use of public private partnership investment. PPPs provide efficiency in public services through risk sharing and harnessing private sector expertise. They also relieve the immediate pressure on public finances by providing an additional source of capital. There are numerous benefits from using a PPP model including, value for money by exploiting private sector efficiency and innovation, improved risk sharing and sustainability, innovation and development efforts from a competitive tender process and the private party’s delivery undertaking. In addition to a PPP model, authorities can maximise savings by aggregating public sector demand and a commitment to use the procured network. We cautioned against a gap funding model, because it favours the incumbent’s economies of scale and thus does not encourage a wide range of bidders. However, BDUK disregarded our views and has decided to encourage a gap funding model. 3. Public sector revenues The incumbent operator is much more likely than a new entrant to have significant commercial relationships in place with local authorities to provide them with services. Therefore, without a guarantee of public sector revenues in the form of a public sector anchor tenant, or an undertaking to underwrite the customer take-up risk, the financial risk of a new entrant is much greater than that of the incumbent. Taking all of the above into account, the incumbent can utilise revenue from business leased lines, public sector customers, mobile and wireless operators, as well as residential broadband customers in order to make the network profitable. The new entrant, on the other hand, may only be able to rely on revenues from residential broadband customers. 4. Reform of the Electronic Communications Code We also advocated reform of the Electronic Communications Code to simplify and speed up the process by which network operators obtain wayleaves and other rights of way necessary to install their apparatus on public and private land. We very much welcome the review of the Code undertaken by the Law Commission, though we note that any consequent change to legislation is unlikely to come into force before 2015. 5. Addressing the disproportionate disincentive of the business rates system We requested that Government and the Valuation Office Agency examine the disincentive effect of the current business rating system. We have supported the Broadband 317 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 319 Dr Tehmina Goskar – written evidence international tourists every year. This tourism brings billions of pounds into the wider UK economy and yet they are seldom the beneficiaries of investment. 9. Many of these organisations are also vital nodes for local, often isolated communities, particularly for educational uses by schools, further education, training and lifelong learning. And if they do not perform this function, there is certainly massive potential for them to do so if they had access to the best wired and mobile 3G and 4G broadband could offer. 10. With the Superfast Cornwall roll-out underway, some of the connectivity issues will be addressed, but it will be far from perfect as bandwidth will only be as good as the quality of the copper wire emanating from the fibre-enabled exchanges. Many households and sites are miles away from their local exchange meaning that adoption of 4G wireless networks will surely be essential for these and similar areas. 11. Lack of skills and training in small, independent and volunteer-led organisations is preventing a wealth of information and data being accessed and used in a manner that is fitting to providing culture and heritage to diverse audiences in the 21st century—particularly via the fastest growing platforms via smart and mobile phones. 12. If all of these elements can be brought more closely together, it would improve the resilience of these organisations by diversifying their role in their local communities, e.g. as micro-educational organisations serving their local populations, as heritage sites that provide experiences to domestic and international visitors that are unique and memorable, and perhaps even become a hub for digital services provided to remote and isolated communities. March 2012 320 GreySky Consulting – written evidence GreySky Consulting – written evidence 1. 1.1 Submission This submission is provided by GreySky Consulting Ltd (GreySky. 1.2 GreySky is a specialist consulting company currently focussing on the delivery of broadband and superfast broadband in rural areas. 1.3 Our concern is specifically focused on the question of whether the Government’s superfast broadband strategy, and its delivery by BDUK will meet the requirements for superfast broadband in the UK’s rural areas. 2. Digital Divide 2.1 Approximately 86% of the UK population can currently receive broadband connectivity at 2 Mbps or faster (Ofcom; Communications Infrastructure Report, 2011). The failure to achieve full broadband availability throughout the UK has resulted in a significant digital divide. The digital divide has resulted in significant social and economic disadvantage, mostly in rural areas. 2.2 Currently the digital divide exists between those who have broadband and those who do not. However, the development of superfast broadband risks continuing the digital divide for many years. The approach to the rollout of superfast broadband will result 90% having access to superfast and the majority of the remaining 10% having only 2 Mbps basic internet access. 2.3 It is possible to use the internet with less than 2 Mbps. However, software is now maintained and updated automatically over the internet. Users with less than 2 Mbps bandwidth find it difficult to effectively maintain their PCs and the software services they use. It is expected that the bandwidth requirements for this maintenance function will increase over time as software becomes more sophisticated, and the number and range of devices within a home or business being maintained in this way increases. 2.4 The Government’s strategy to ensure 90% availability of superfast broadband by 2015 is appropriate. It increases the rapid availability of superfast broadband. This will in turn benefit the availability of services and applications dependent on superfast broadband. This is expected to have a significant positive impact on social and economic development. 2.5 The strategy to ensure at least 2 Mbps to the remaining 10% is of significant concern. We believe it will result in a continuation of the existing digital divide. 2.6 Overcoming the digital divide requires the sustainable delivery of new infrastructure, giving communities access to improved bandwidth and services. 3. Sustainable Delivery 3.1 The aim of the current broadband delivery activity is to provide a long-term, commercially sustainable superfast broadband infrastructure, supporting a 321 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. 322 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. 323 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. 324 GreySky Consulting – written evidence 6.2 The challenge of the last 10% demands a greater level of investment efficiency. Encouraging collaboration rather than competition is important. Equally ensuring that public sector investment is efficient in these areas is essential. 6.3 It is being demonstrated in Northumberland, Cumbria, Cornwall and Lancashire that delivery of the 2 Mbps Universal Service Commitment to the most remote areas is challenging and expensive. 6.4 The presence of the Universal Service Commitment as a central target of the BDUK programme is essential to ensure at least basic connectivity to all. 6.5 However, the current separation of the BDUK and the Rural Community Broadband Fund (RCBF) and other subsequent investments appear to result in a far from efficient investment in the critical last 10%. 6.6 The BDUK programmes will generally be delivered first – before the rollout of other community projects. At least this is true in terms of planning and State aid approval. This means that by the end of 2012 (or at the latest early 2013) it is expected that all local authorities will be able to demonstrate clear plans to provide at least basic broadband to all areas. Procurement exercises will be undertaken and investment decisions made to commit funds to deliver these plans. Hence significant investments will be committed to achieve 2 Mbps delivery throughout the final 10%. 6.7 In the most remote areas, investments of £1,000 per property (and even higher) will be required to deliver this 2 Mbps commitment. 6.8 RCBF funded projects developed subsequent to these plans will need to demonstrate superfast capability (24 Mbps or faster) to meet State aid requirements – since plans will exist to deliver basic broadband in all areas. They will also receive a maximum of £300 investment per property. 6.9 This does not make the Universal Service Commitment wrong. Ensuring connectivity for all is essential. It is accepted that this will require significant investment in the most remote areas, and the 2 Mbps requirement allows services to be delivered now that will represent a significant improvement for the most remote areas across the UK. 6.10 Greater coordination of investment in the last 10%, however, may enable a far greater reach of superfast broadband capabilities in remote and rural areas. March 2012 325 Peter Griffin - written evidence Peter Griffin - written evidence Introduction 1. The Government’s broadband strategy, Britain’s Superfast Broadband Future, aims for Britain to have “the best superfast broadband network in Europe by 2015”. The House of Lords Select Committee on Communications (HoL SCoC) has announced an inquiry into that strategy. In response to the Committee’s invitation for written evidence, this document addresses: a. b. c. d. Competition in broadband provision Accelerating the availability of superfast broadband Flexibility, efficiency, and standards for broadband providers Impact on infrastructure and scarce resources. The document also includes a series of proposals to support the government’s aim. Competition in Broadband Provision 2. Within each delivery platform - fixed-line, wireless, and satellite - broadband providers compete both in the technology used to deliver service and in the range and cost of services offered. It is doubtful whether competition in technology actually delivers significant benefit to customers. 3. Duplication of fixed-line networks arises in locations where, for example, BT and Virgin are in direct competition and each of them operates their own network between the telephone exchange and customer premises. Similarly, providers of wireless broadband have their own networks of relay masts, often carrying exclusively the traffic for their own customers. There is considerable variation in the extent of national coverage offered by each provider. 4. Alone among the providers of fixed-line services, BT is required by law to provide national coverage and to offer access to its network to other providers on terms equal to those available to its own retail divisions. This has been achieved by the establishment of BT Openreach as a totally independent division within the parent company. There are no similar obligations on providers of wireless services, resulting in duplicated availability in some areas and none whatsoever in others. 5. Duplicated coverage for fixed-line and wireless services not only delivers little in the way of benefit to end-users, but also creates waste: a. Manpower to maintain rival networks b. Technical evaluation of equipment which other providers wish to install at BT exchanges c. Applications for planning permission to install wireless masts d. Greater numbers of “holes in the road” e. Materials used to construct and maintain the networks. 326 Peter Griffin - written evidence 6. In the provision of gas, water, and electricity, delivery is achieved via a single grid for each service, accessed by multiple suppliers who pay a fee to the grid operator and compete between themselves on the cost and quality of supply. Each of these grids provides nominally national coverage, except in those areas of the country where the cost of provision would be prohibitive. Accelerating the Availability of Superfast Broadband 7. The principle measures for determining the achievement of “the best superfast broadband network in Europe” will relate to: a. b. c. d. Speed of download and upload Extent of national availability Service reliability Price Fixed-Line 8. The fastest broadband delivery speeds are achieved over networks which run fibreoptic cable from the telephone exchange directly to each customer's address, known as FTTP "fibre-to-the-premises". Most BT customers receive FTTC "fibre-to-thecabinet", with lower broadband speeds, because the final connection from street cabinet to customer premises is only made over copper cable with a lower delivery speed than fibre-optic. Virgin, formerly NTL/Telewest, operates a totally FTTP service but only in certain large towns and is under no obligation to allow other providers to deliver services over its network. 9. To achieve in the shortest time the four measures detailed above for the best superfast broadband in Europe, the following actions are proposed: a. Each broadband provider to create its own "Openreach", operating on the same terms as BT Openreach, to enable any other provider to deliver their services over its network. b. Automatic migration of all customers to the fastest network, while leaving them to receive their services from their preferred provider. Thus BT’s customers who only receive FTTC service in areas where Virgin operates an FTTP service would be migrated to the Virgin network and take their service from whichever provider they preferred. c. After this migration of customers, the slower networks to be dismantled and their physical assets recycled to locations where there is no duplicate network. d. Staff who maintained the slower networks to be re-assigned either to the gaining Openreach organisation, or to neighbouring locations where there is no duplicate network, so that they may accelerate roll-out of superfast broadband there. e. All Openreach organisations to be amalgamated into a single, fully independent company, free of any ties to the service providers. f. Technical standards and commercial practice to be rationalised within the integrated Openreach organisation. 327 Peter Griffin - written evidence Wireless 10. The major obstacles to achieving “best wireless broadband in Europe” are its incomplete availability nationwide and its signal quality. To achieve the four measures for determining success, the following actions are proposed: a. As for fixed-line networks, create an integrated and fully independent wireless Openreach organisation from those providers currently offering wireless services. b. Rationalise the existing wireless networks to eliminate duplication and to provide the greatest national coverage, available to all wireless providers. c. Align the technical standards to “best-in-class”. d. As for fixed-line networks, automatically migrate all customers to the new integrated network, leaving them free to take their service from whichever provider they prefer. e. Establish a programme to extend the wireless network to those areas which lack coverage, within technical and economic constraints to be approved by Ofcom. f. Collaborate fully with international organisations to rationalise and implement standards and charges relating to such matters as call termination. g. Collaborate fully with Ofcom and the fixed-line Openreach to ensure that the greatest number of potential customers across the country has access to at least one form of broadband. Benefits 11. By eliminating competition from the technical delivery of broadband services, it is expected that customers will receive rapid and substantial improvements in quality of service. These improvements will be reflected by the four key measures of success: download and upload speed, service availability, service reliability, and price. Effective collaboration between the proposed National Openreach divisions for fixed-line and wireless broadband will ensure that a very high proportion of the population will be provided with at least one form of broadband delivery. Retailers of broadband services will be liberated to focus on what they do best: devising and selling services to meet customer needs. The major benefits from the proposals made in this document are: a. Rapid upgrade to full Superfast broadband (i.e. FTTP) for all customers located in areas where such a capability is already available from another fixed-line broadband provider b. Higher proportion of subscribers with access to full Superfast broadband (i.e. FTTP). c. Re-assignment of displaced Openreach staff to locations without an FTTP network, resulting in accelerated roll-out of FTTC Superfast broadband in those same locations. d. Recycling of physical assets from dismantled networks, thereby reducing the cost base at other locations. e. Greater network security resulting from the decreasing use and theft of copper. 328 Peter Griffin - written evidence f. Fewer "holes in the road" in all locations where duplicate networks are dismantled. g. Eliminated cost of upgrading duplicated networks to superfast broadband. h. Re-appraisal of the financial viability of FTTP roll-out to other parts of the UK, as a result of cost savings from the elimination of network duplication. i. Extended coverage and enhanced reliability of wireless broadband across the country. j. An integrated telecoms network (National Openreach), operating to common standards and totally independent from all broadband service providers. k. Faster delivery of new services from commerce and industry which depend on the availability of Superfast broadband. l. Increased competitiveness with other countries which already offer Superfast broadband. 20 February 2012 329 Groupe Intellex – written evidence Groupe Intellex – written evidence Introduction. This response has been prepared by Groupe Intellex – a UK-based business development agency and on-line publication with a long-standing interest in digital access network strategy. The author’s insight derives from a 30-year career in telecommunications followed by two decades as a leader of enterprises that enable innovations across several sectors of the UK economy. Your Committee’s inquiry is timely and whilst focused on the Government’s broadband strategy may also inform a wider consideration of national economic imperatives. Your Committee’s inquiry will almost certainly attract inputs from a wide range of commercial interests and organisations active in this arena – with, not surprisingly, diverse motivations and detailed responses to the suggested questions. Rising above the call for detail your inquiry presents an opportunity to fulfill the function that comes naturally to the upper chamber; taking a measured and long-term view that whilst practical is not unduly constrained by legacy technology issues, regulatory fashions, or past policy and promises, and a perspective that equips the legislature with the intellectual capacity for the design of future policy in an area that has become central to the UK’s economic and social development. Response 1. Observations 1.1 Your call for evidence is headlined by the demands of a ‘bandwidth hungry’ nation and is almost immediately focused on two aspects of that demand – Consumer needs and Delivery (i.e. Download) capacity. It should not be forgotten that Businesses and Public Sector organisations are themselves consumers (and regarded as such by Ofcom) and that their needs, particularly in Upload capacity and many other technical characteristics i , are often leading indicators of emergent requirements within households and amongst the population at large. 1.2 Your call cites the current strategy aimed at Britain having ‘the best superfast broadband network in Europe by 2015’. Definition difficulties apart your committee might observe that any attempt to determine ‘fitness for purpose’ (a) requires clarity of that purpose and (b) that relative performance will only reflect the priorities, perceived needs and achievements of othersii. 2. Policy Principles 2.1 The priority for ubiquity of connectivity 330 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 331 Groupe Intellex – written evidence capacity to meet short-term demand – e.g. for streaming video from a football match or taking part in a multi-user event that demands higher than normal responsiveness. 2.2.4. The regulatory implications of a determinedly Open Access culture include consumer convenience – the expectation of easily enable supplier switching – a reduction of regulatory oversight of Services and greater clarity on the avoidance of cross-subsidisation by network operators. In much the same way that society has formed a view on the separation of utility and investment banking it seems possible that legislators may in future consider the desirability of reconsidering Access network provision along the lines of the models adopted in New Zealand and Australia. 2.3 The cross-sector perspective 2.3.1. The focus of attention for network policy has in recent decades predominantly concerned the communications and media sectors but recent and wider economic analysis, aided by the stark impossibility of being blind to digital impacts, has linked national digital proficiency and performance to economic growth. In Sweden, after several years experience of high quality network access, researchers have extended this basic economic analysis to the area of social and community development and shown more clearly the conventionally ‘uncaptured values’ - the secondary and tertiary benefits of network infrastructure investment. 2.3.2 There is now no reasonable dispute of the cross-sector economic and societal benefits of infrastructure investment and there are signs of a better informed market. This heightened awareness has been driven not so much by network operators but by device manufacturers (handsets, tablet and TVs for example) and by increasingly innovative services that combine functions and information from independently developed spheres. 2.3.3. This raised awareness has not however dislodged (from the telecoms sector) a sense of ‘ownership’ of network policy. The debate, and desire for network transformation is only beginning to make itself felt and a seriously-scaled demandside focus has yet to influence regulatory policy or the mainstream media’s understanding of the word ‘infrastructure’. The contrast with everyday business views of ‘essential’ transport infrastructure is instructive. We have long left behind the narrow sectional interests of road and rail builders but the critical digital demands from Health, Environment and Energy have yet to dominate the network debate. Discussion of the need for expansion of airport capacity is certainly not restricted to a few flying fanatics! 2.3.4. Whether the current gradual upgrading of old networks will result in any widely shared view of inadequate compromise is an open debate but the few UK examples of high quality fully-fibred networks (designed along the lines of continental experience) will inject an even greater level and awareness of inequality and debate around ‘fitness for purpose’. This is an area where policy development need not wait to be triggered by rising popular dissatisfaction but calls instead for a rather more ambitious national approach. Tentative recognition of the economic benefits by Treasury analysts does not signal a visionary approach and yet this is a 332 Groupe Intellex – written evidence relatively risk-free policy arena compared to projects such as HS2 and it is one that, if not urgently prioritized, may engender dissatisfaction and court national competitive failure. 3. Summary 3.1 The three basic principles, Ubiquity, Access/Service distinction and a cross-sector viewpoint, need to be woven into government and regulatory policy but your committee may also serve the country well by enlisting your colleagues in a wider acknowledgement that digital access networks should now feature alongside ‘Deficit Reduction’ as an essential national policy priority. Notes: Terms: A. VPN – Virtual Private Network – a connection made for a specific purpose that may operate concurrently with many other digital activities over a single access connection. B. IP – Internet Protocol – a global standard for the organisation of digital information (Voice, Video, Graphics and Text) in ‘packets’ that each contain routing instructions so that on delivery the information can be reassembled and checked for completeness. References: i Access network characteristics. The use of headline Download transmission rates as the dominant measure of network Access adequacy will become increasingly irrelevant with changes in consumer requirements. User-generated content, the use of ‘cloud computing’ resources, machine-to-machine automated monitoring and control, the greater use of VPNs and diverse multiple activities within the overall capacity of a single connection, will focus attention on Symmetry and Upload transmission rates, packet loss, jitter, latency, VPN capacity and dynamic bandwidth flexibility. ii Relative network performance. The ready availability of data for actual network performance as experienced by thousands of consumers provides a contrast with Network Providers’ data on the theoretical performance of ‘available’ Access networks. Recent studies by Ofcom have shown the large differences between what is advertised/sold and what is delivered and have suggested that misleading claims for ‘up to’ maximum theoretical headline speeds could be replaced in promotional literature by ‘typical speed ranges’. An interactive graph reporting consumer experience is available at: http://www.google.com/publicdata/explore?ds=z8ii06k9csels2_&ctype=l&strail=false&nselm= h&met_y=avg_download_speed&scale_y=lin&ind_y=false&rdim=country&tdim=true&hl=en &dl=en&iconSize=0.5&uniSize=0.035#ctype=l&strail=false&bcs=d&nselm=h&met_y=avg_do wnload_speed&scale_y=lin&ind_y=false&rdim=country&idim=country:SE:LT:GB:DE&ifdim=c ountry&tdim=true&hl=en&dl=en March 2012 333 Mr John Howkins – written evidence Mr John Howkins – written evidence 1. I live and work in a rural part of Norfolk. My business depends on fast reliable broadband service 24 hours a day. 2. Your committee seems focussed on superfast broadband. I hope you will also look at ordinary broadband because we need that first before we can dream of superfast broadband. 3. In recent years, the level of ordinary broadband here has declined. I understand that the network and local loop has improved but user demands have increased even faster. As a result, it is often impossible to get any broadband service at all. The worse times are after 6pm and at weekends when the number of users increases and file sizes increase too. You say that ‘consumer demand for bandwidth is growing by around 60% a year’. I doubt capacity is increasing at half that rate. 4. My ISP, BT, continually tell me speeds etc are increasing. But, in practice, speeds are declining sometimes to zero. 5. Although I can usually work around this, I know others have found it impossible. Nobody likes to admit their business is unreliable or failing but there is anecdotal evidence of businesses closing. 6. Some people say that because I live in the countryside I should accept that broadband service is intermittent. Your committee may take that view. I don't. I believe that Britain can’t really claim to be a modern economy until broadband is reliable. 7. One of your questions asks if universal service is a good idea. Of course it is. A basic reliable broadband service should be provided to all businesses and all homes. Without that, the government’s claim that Britain will have the best broadband service in Europe by 2015 is absurd. 12 March 2012 334 Huawei – written evidence Huawei – written evidence Executive Summary The United Kingdom’s future rests on the successful implementation of its ICT strategy. Get it wrong and the UK economy is likely to be significantly disadvantaged. The once clear lines distinguishing buyers from suppliers, products from services, employee from employer are disappearing, and the clear lines that exist between the haves and have nots in our communities must be eliminated. Broadband has become a basic human need, just like water and electricity and it will become a key component of all our lives as we embrace the new century. Without doubt digital communications technologies and a good mix of fixed and mobile connections is the most important enabler to the long term health and wealth of the underpinning our public private and corporate sectors. Digital communications will continue to expand, becoming the key future enabler for all sectors of the economy, including; critical services, communities and social sectors as well as our working and social lives. There is a common belief that delivering 2Mbps for all UK citizens is adequate and will close the digital divide, we do not believe this, and feel it will actually create a wider digital divide stunting further growth in these areas. 2Mbps is about approx 4 times slower than the UK average internet speed of 7.6Mbps (Ofcom 2011) and will soon become 50 times slower compared to some of the more advanced city areas. A restriction to 2Mbps will relegate parts of the UK to a historic version of the internet for a long time, thereby compromising any business case for future speed increases. 335 Y axis: attached devices Huawei – written evidence Figure 1, summarises the trends we expect to continue over the coming years. Looking back over the internet era, history shows clearly and dramatically how huge growth in internet usage, demand for bandwidth and high speed requirements has always been massively underestimated as we’ve ignored evidence to the contrary like Neilson’s law. The internet has been of real value to the economy and is now intrinsic; some value its contribution at approx £20 for every £1 of investment. Looking forward, the proven laws of the internet economy can be realistically extrapolated to show that 2Gbps will be required by 2022 and up to 6Gbps by 2025. Digital communications however must not just be considered as the connection itself or the speed of that connection. The ease and intuitive nature with which services, media and applications can be consumed from the internet via a connection, and the relevance of those services to the user are equally important A connection, however fast, will not deliver the aspirations of the UK government without a well considered end to end strategy on services and security in the internet, and the ability to access those services on a wide variety of devices and heterogeneous connections. Our lives will become more entwined with digital services and the digital world. Currently we have many disparate touch points with the digital world, and our lives will be enhanced along with our ability to create wealth and prosperity with the aggregation and interconnectedness of these in a way that will make it easy to use and convenient to consume. Social media is already pervasive and is set to become increasingly part of our daily lives, as these services connect to others, whether this is at work or in a social context, leading to further collaboration and engagement. 336 Y axis: Petabytes of data Huawei – written evidence Figure 2, summarises the increase in data traffic we expect to continue over the coming years. This philosophy will transcend all aspects of digital life including government services – which must be relevant, easy to access (e.g. single login), intuitive as well as holistic in a way that the user sees and feels the benefit. Glancing back highlights that pre 2000 we did not have 3G mobile, ADSL broadband, Facebook, the iPhone, Digital TV, MP3 players, Blackberry, GPS navigation but simple telco voice services and dial up internet. All of which have arrived and evolved rapidly, to become subsumed in to our lives and are now considered vital. Looking out to 2020, and beyond, functionality will continue to increase exponentially driving a huge rise in the use and dependency of interactive internet and digital communications. As much as the future is difficult to predict, there are however already significant trends and research that show the possibilities of how the internet will further benefit society. Since the turn of the millennium, we have witnessed great changes in the use of the internet, these having been the result of a multitude of enablers aggregated into new services. Services will need to be consumable across networks and devices. Adoption, change and commercial advantage will be explicitly linked to user experience, as it will largely be embraced, developed and creatively used by the next generation. Underestimating the needs of the next generation with a limiting 2Mbps strategy can only be considered as short sightedness by our generation. The benefit of the internet will only be as good as the information it receives, stores, processes and delivers. As a nation we must develop an inclusive society with connections for life being a core concept. Huawei believes that fibre offers not only the relevant/required capacity but also the future proofing capability to serve sustained and sustainable growth in demand across all access networks. We see a need for improved delivery timescales targeting areas where investment could be best utilised based on wealth creation and commercial payback. 337 Huawei – written evidence By 2020 there will be a need for enhanced interconnectivity between access technologies, networks and service provider relationships to support the evolution of the internet as described earlier. This is likely to be based on Fifth Generation (5G) technology. Fifth generation will not just be a mobile service, but a holistic connection based philosophy, with solutions utilising many networks and services. The implications for this are far reaching. Therefore a strategic view of connected Britain and removing a digital divide must take the implications of this in to consideration. In a world of simplicity and intuition, digital communications is a vital part of any nationstates infrastructure, touching on all parts of society. The correct technology solution will allow nation states to compete in the future, supporting its population in a commercially sensible way. Without due consideration of the century ahead and its requirements, we will fail to deliver the broader benefits of a connected nation to society, the economy, the environment, a connected government and the business community. 338 Huawei – written evidence Question 1 the Committee will consider: What is being done to prevent a greater digital divide occurring between people who can access superfast broadband and people in areas where the roll-out of superfast broadband may not be commercially attractive? How does the UK communications market vary regionally and what is the best way to connect the areas that the market alone cannot reach? Is a universal service obligation necessary to avoid widening the digital divide? Key Points: • There are many ongoing projects both Urban and Rural in the UK working to connect and develop the UK connected population. However, the current programmes are disjointed and uncoordinated. • Our view is any Universal Service Obligation particularly at 2Mbps will widen the digital divide especially as urban areas are already receiving 100x this and will have 1000x this in the next 5 years. The only real solution is to get fibre to the end user or within 500metres of the end user. There are many projects and programs in the UK that are ongoing that are working to connect and develop the UK connected population. However the programmes are disjointed and uncoordinated. Both Urban and rural projects are being developed, the similarities are there but also the differences. A number of the initiatives are highlighted below: • Broadband Delivery UK (BDUK: Initially having a budget of £530m, with an aim to provide >25Mb/s to rural areas, but more like 2Mb/s to end users in Not Spots and Not a lot Spots today. • Super Connected Cities: A budget of £100m for only ten cities in the UK to have 80Mb/s to 100Mb/s to end users. The question is, would Government need to fund higher BB speeds in rural areas to overcome the Digital Divide, if our operators, were protected from unbundling their fibre & assets, until they had made a reasonable return on their investment? We use operators in the widest sense of the word, as we see a big potential for councils to implement broadband networks for their local communities. 339 Huawei – written evidence This could be achieved by a number of schemes, with the Government setting the targets. A number of examples are as follows: • Local councils can fund the deployment of fibre and recover the investment through council tax's over a 20 year time period • Local communities can be given the option to develop a solution that will interconnect to the national network in a secure manner • An operator (for e.g. BT could run a number of smaller networks on behalf of an investor, thereby making a profitable return, without the risk of investment • Services can be used to allow the cost of infrastructure to be subsidised as we find that services often get more return than the infrastructure, making it a difficult business case to justify, especially in the rural communities • Areas of the UK could be auctioned off for exclusive investment by a single network operator, offering a virtual network service, thereby improving the business case. Trial rural Broadband offerings with use of Government and EU funds include Cornwall and Yorkshire. Other opportunities for areas with limited access see fixed and mobile operators working together to find and develop synergies in the offerings and infrastructure. BT is working with Everything Everywhere (EE) to deliver an infrastructure that can be reused in mobile. 340 Huawei – written evidence Greater exploitation of WiFi in a national sense. Municipal Wi-Fi in many cities has not had the take up that could have been envisaged. We fully believe in City Wi-Fi and Wi-Fi generally as a valid connection technology, but as with all connection technologies it must be fit for purpose, easy to use, and most importantly give people and devices easy access to what they desire from the internet. Advantages of City Wi-Fi • Promotes connectivity and online use • Promotes familiarity with digital technologies • • Disadvantages of City Wi-Fi Very good marketing platform for the community, city, region or country to both locals and visitors Offers cheap or free access for basic bestafford service • Provides low cost services • Allow local business to access local public • If implemented correctly can promote adoption of e-government and access to public services online • Limited adoption because of poor ease of use and data bundles with devices that could utilise • Take-up very low • Investment has been limited to small scale • Competes against SP networks and in most cases so far does not work with them • No cross network coordination or services support • No competitive business model • Too much regulation/intervention • Access to Street furniture by SP’s • It can have a negative social impact if service perceived inadequate The viability of public and or community schemes is critical and an improvement to the assessment of business cases is required. The ability to offer free access has to be countered by either a coherent subsidy scheme, or other revenue stream such as sponsorship or advertising that will in a sustainable manner support the investment. There is the example of an unsuccessful public Wi-Fi scheme in Swindon, and others that have not developed because of the lack of a sound business model. 341 Huawei – written evidence Small City Big City Diagram Big and Small cities are different and need different strategies The UK communications markets vary regionally; the UK has widely different geographic densities with broadband connection being required by all regions, businesses and households as well as mobile devices and services. Problems Remedy • Cost/MB backhaul • • Cost of Fibre deployment • Need to cost business model across wider service base Local voices have nowhere to take group request, i.e. a village wishing to use their own money to enable fibre with an SP or Fibre provider • No business model with SP to allow local investment • Lack of tiered pricing • Short-termism • No support for long fibre ROI No shared network – High risk Our view is any universal service obligation as its stands at delivering a 2Mbps service risks a widening of the digital divide. 2Mbps is even now only just fit for purpose for basic internet access. As we have shown with the requirements of the internet and connected devices and services in the future, 2Mbps will limit parts of the UK to a historic version of the internet. 342 Huawei – written evidence Additional business cases in the future will be compromised by the 2mbps connection and is likely to stop additional investment once it is in place out to 2020 and beyond. Without the prospect of additional investment the widening of the digital divide is more likely to arise. Should rural communities be given a 2mbps service, when urban areas are already receiving 100x this, and the prospect of a 1000x this in the next 5 years, the investment potential from revenue generated in rural broadband will be close to zero. Revenue in broadband is the additional revenue SP’s can generate with new and exciting services. 2Mbps won’t support any new, exciting or desirable services and therefore business cases to upgrade the network will become increasingly hard to justify, especially as the chasm of the divide rapidly becomes larger. Services from the internet will heighten this chasm, marginalising any investment in rural broadband, as they become increasing designed for consumption over higher speed connections with richer and more integrated content leaving rural communities on the edge of society. Diagram - The widening Digital Divide With such a large chasm, application, content and service providers will also heighten the divide as they create rich and high definition/quality services for the high speed connected mass market and withdraw low bandwidth services or marginalize them to the sidelines of technology and society. We foresee as early as 2016 that 2Mbps will cease to be considered viable for entry level internet access given the rapid progression of content and applications in the cloud, and the connection needs of new home and business devices such as High Definition TV’s and Video conferencing to name but two. Today for example, to stream iPlayer to your TV with BT’s Vision Service, end users need a minimum of 4.5Mbps, before BT will sell them the service. 343 Huawei – written evidence The only real option is getting fibre to the end user, or to at least copper to within 500metres. 4G/LTE and evolutions of these whilst helpful suffers from service degradation as the distance increases (Shannon’s Law) so it can be useful in some places, but not everywhere to extend the reach of fibre. An ideal solution therefore will include a mix of technology solutions with fibre to the premises and 4G(for mobility) being key constituent parts. 344 Huawei – written evidence Question 2 the Committee will consider: The Government have committed £530 million to help stimulate private investment – is this enough and is it being effectively applied to develop maximum social and economic benefit? Key Points: • A rough EU estimate suggests a required investment of c.£26bn to 2020. Whilst an estimate it provides an indication of the scale of investment required. • Existing pilot programmes also show that the UK Government’s current commitment of £530m may not be sufficient to stimulate the necessary private sector investment across the UK’s remote and rural areas to achieve the Government’s targets. The UK Government’s proposed investment of £530 million in the Broadband UK scheme is for the period up to 2015 and aimed at funding Superfast Broadband fibre projects in 4 main rural pilot area’s (Cumbria, Herefordshire, North Yorkshire and the Highland and Islands). There are other rural/regional fibre schemes which are being funded primarily by EU funds such as South Yorkshire ( c £90m) and Cornwall ( £132m ). In addition to these there is also the funding of around £150m for mobile “Not Spots”. The primary aim of the BDUK scheme is to trial via these rural broadband pilot schemes the practical means of bringing Superfast fibre capacity to end users, commercial, community and residential. This totals to approximately £0.75bn but is less than 3% of the funding required to deliver superfast broadband to non-urban areas. The UK Government’s policy is thus a twin-track one of pump priming private and community investment in rural areas, and leaving free market competition by major operators and other groups to invest in area’s, primarily urban, where demand is greatest and the costs of roll-out are lower. The UK Treasury National Infrastructure Plan [ November 2011 ) states that the “ current regional performance looks particularly weak as far as coverage of superfast broadband is concerned, with overall availability of superfast broadband restricted to 58 per cent of the UK’s population, and very large regional variations. For instance, 97 per cent of Northern Ireland’s population has access to superfast broadband, but only 30 to 40 per cent of Wales and Scotland” Figures from the Infrastructure Plan show that the Treasury assumes a total public and private investment in BDUK schemes to 2015 of £1.65bn and to 2020 of £2bn. The Government’s funding total of £530m to 2015 would be thus around 33% of the required investment, and if the Government adds a further £350m to 2017 as mooted this would take the total Government funding to above 40% for these specific schemes. 345 Huawei – written evidence The EU Digital Agenda for Europe has estimated the costs of Broadband roll-out by a variety of technologies, Copper, Fibre and Mobile, in the whole of Europe by 2020 to be up to Euro 270 bn, This is to achieve the EU target of 30 Mbps coverage for all by 2020 and of those 50% of households have 100 Mbps services. The EU estimates that only Euro 50bn of the required investment (just under 20%) will be funded by private operators leaving a funding gap of Euro 220bn. Obviously the majority of that private sector investment will be in urban areas thus the vast amount of unfunded broadband investment will be in rural locations. A rough EU estimate of the UK’s share of this required broadband investment would equate to a total (all technologies) required to 2020 in UK of around Euro 30.9bn or approximately £26bn. This would very roughly equate to £3bn per annum for each year up to 2020. Treasury estimates of current year and future planned private sector investment as shown in the National Infrastructure Plan total around £5bn, made up of BT’s fibre roll-out, Virgin Media investment, and mobile infrastructure upgrades. While this is a very rough estimate it provides an indication of the potential future shortfall in investment. In the USA the FCC, the telecommunications regulator, has recently announced implementation of a National Broadband Plan which will include Government subsidies and changes to criteria of the national Universal Service Funding to focus on Broadband investment and support programmes. Overall it aims to spend some $24bn (c £16bn) in support to 2020 which if translated 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. 350 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. 352 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. 354 Huawei – written evidence 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. 355 Huawei – written evidence 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 356 Huawei – written evidence 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 357 Huawei – written evidence 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. 358 Huawei – written evidence 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! 359 Huawei – written evidence 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 360 Huawei – written evidence 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. 361 Huawei – written evidence 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 6th utility next to: gas, electricity, water, sewage and basic telephony. 362 Huawei – written evidence 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. 363 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: 364 Huawei – written evidence 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. 365 Huawei – written evidence Layer Shared Infrastructure UK’s regulated wholesale fibre product – access network 0 (Substratum Layer) Duct, Conduit and collocation facilities. PIA – regulated price 1 (Physical Layer Unbundling) Dark fibre leasing, or perhaps, Optical Layer unbundling (CWDM or DWD Min PONs) No regulated product 2 (Data Link Layer Unbundling) Dark fibre and link-layer electronics at each end. For example, Ethernet-based VLAN, or ATM-based PVCs. 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 3 (Network Layer Unbundling) Basic networks service provided. For example, IP Layer 3 service over cable using policy-based routing to multiple ISPs 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. 366 Huawei – written evidence 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 367 Huawei – written evidence 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. 368 Huawei – written evidence 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. 369 Huawei – written evidence 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. 370 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. 371 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. 372 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 373 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. 374 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. 375 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: z Promote the development and adoption of common technical & business standards amongst local projects z Underpin the development of next generation networks by developing joint purchasing and marketing approaches z Act as a unified voice for local projects to government and industry z Promote the sector and explain why next generation broadband is important z Support the development of next generation broadband projects by sharing expertise and information z Work with other agencies to promote and support local project opportunities z 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: z Fujistu Telecom, Cable & Wireless Worldwide, Alcatel-Lucent, Geo UK Ltd, City Fibre Holdings, UK Broadband; z Public sector organisations like Manchester Digital Development Agency, Digital Birmingham, Gateshead G-Ti, NYnet; z Nearly 100 community broadband projects including Alston Cybermoor, Angus Broadband, CPEND Broadband and many others. 377 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 88 See www.beyondbroadband.coop Guide to Broadband Investment, European Commission, http://ec.europa.eu/regional_policy/sources/docgener/presenta/broadband2011/broadband2011_en.pdf 378 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 379 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 380 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 381 The Independent Networks Cooperative Association (INCA) – written evidence 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. 383 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 384 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 2540Mb/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 385 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 387 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 388 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. 93 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 Ofcom, Review of the Universal Service Obligation, 30 June 2005 389 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 390 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 16th, 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 96 97 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 Akamai, State of the Internet, Q2 2011 Ofcom, Infrastructure Report, 1November 2011 391 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 announced98 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. 98 99 100 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 2008100 compared to BT, Openreach to transform broadband speeds, 5 October 2011 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 M. Kapko, “Warner Bros. To Release Films On Demand In South Korea Two Weeks Before DVD Release”, paidContent.org, October 1 2008 392 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. 101 102 Digital Entertainment Group, “U.S. Home Entertainment Spending Tops $22 Billion For Sixth Straight Year” (Press release), January 8, 2009 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 394 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 rate103 . 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 103 104 Some economists refer to this process as the capture of “economic rent”.. 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. 399 Suvi Lindén – oral evidence (QQ 1-28) 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? 400 Suvi Lindén – oral evidence (QQ 1-28) 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, 401 Suvi Lindén – oral evidence (QQ 1-28) 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 402 Suvi Lindén – oral evidence (QQ 1-28) 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 403 Suvi Lindén – oral evidence (QQ 1-28) 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? 404 Suvi Lindén – oral evidence (QQ 1-28) 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 405 Suvi Lindén – oral evidence (QQ 1-28) 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 406 Suvi Lindén – oral evidence (QQ 1-28) 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- 407 Suvi Lindén – oral evidence (QQ 1-28) 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. 408 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. 410 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? 411 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. 412 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). 413 John McDonald – written evidence 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. 19 February 2012 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. 415 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. 416 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 417 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 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. Commentary 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. 418 Miles Mandelson – written evidence Observation 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. Commentary 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). 419 Miles Mandelson – written evidence Observation g) The RCBF targets communities that are defined in such a way that they cannot be identified until the county procurement is concluded. Commentary 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). h) The RCBF criteria Only FttC and FttP appear to be acceptable technologies. Any are conservative and proposal to deliver SFBB by wireless means has been rejected limiting in the type of by the Defra/BDUK appraisers on the grounds that such technologies that will technologies are not accepted by the European Commission be accepted. (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’. i) RCBF applications For reasons of commercial confidentiality, BT Openreach would based on a BT only declare the funding gap that had to be met in any pilot Openreach solution are projects for which it offered a solution. Therefore it was not likely to fail due to BT’s possible to show the detailed project costs in the RCBF application of application nor was it possible to indicate the supplier’s total commercial confidentcontribution (or its financial equivalent) and demonstrate that it iality restrictions, and amounted to at least 50% of the total cost of the project. an RCBF failure to deal In the event, BT offered to provide further information under a with this despite non-disclosure agreement with Defra. The necessary NDAs entering into an were signed, and BT provided the information that it believed appropriate NDA. 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 420 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. 19. 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. 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. 421 Miles Mandelson – written evidence d. 22. 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. 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 422 Miles Mandelson – written evidence 423 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 Alston Moor Alston Moor Parish Council Askham & Helton Broadband Group Askham & Helton Askham & Helton Dufton Broadband Dufton East of Eden Fellside Broadband Group Ousby, Kirkoswald Eden Valley Digital CIC Bolton, Cliburn, Crosby Ravensworth, Eden Valley Maulds Meaburn, Kings Meaburn, Digital Morland, Newby, Sleagill fibreGarDen Garsdale, Dentdale fibreGarDen Great Asby Broadband CIC Asby Great Asby Broadband CIC Great Salkeld Broadband Group Great Salkeld Heart of Eden Community Plan 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 Kirkby Lonsdale Kirkby Lonsdale & the Lune Valley Mallerstang Parish Meeting Mallerstang Mallerstang Parish Meeting Matterdale & Watermillock Parish Council 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? 426 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. 427 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 428 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. 429 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] 430 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 431 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 432 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 433 Miles Mandelson and Rory Stewart MP – oral evidence (QQ 430-465) 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 434 Miles Mandelson and Rory Stewart MP – oral evidence (QQ 430-465) 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 435 Miles Mandelson and Rory Stewart MP – oral evidence (QQ 430-465) 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 436 Miles Mandelson and Rory Stewart MP – oral evidence (QQ 430-465) 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? 437 Miles Mandelson and Rory Stewart MP – oral evidence (QQ 430-465) 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? 438 Miles Mandelson and Rory Stewart MP – oral evidence (QQ 430-465) 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. 439 Miles Mandelson and Rory Stewart MP – oral evidence (QQ 430-465) 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 440 Miles Mandelson and Rory Stewart MP – oral evidence (QQ 430-465) 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”. 441 Miles Mandelson and Rory Stewart MP – oral evidence (QQ 430-465) 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 442 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. 443 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: • • • • • • • • • 2. 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? 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. 444 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-users106 . 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 2008109 ) 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. See David, Paul (2001) The Evolving Accidental Information Super-Highway, Oxford Review of Economic Policy, 17: 2 pp159-187 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 Comcast v. FCC (2010) No. 08-1291, delivered 6 April. 107 108 109 445 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 it112 . 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 See Marsden, C. (2012) ‘Network Neutrality: A Research Guide’ in Brown, Ian ed. ‘Handbook Of Internet Research’ Cheltenham: Edward Elgar. 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. 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. 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.288 111 112 113 114 446 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 video116 . 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 USA119 , 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 . 115 116 117 118 119 120 Crowcroft, Jon (2011) The Affordance of Asymmetry or a Rendezvous with the Random? Convergence and Communications Review, at p.12. 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) 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. 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. 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 77117 (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); Leading to a significant emphasis on net neutrality in SEC(2007) 1472 Commission Staff Working Document: Impact Assessment at 90-102 (2007) 447 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”. 121 122 123 124 125 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 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. 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. 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). Ibid. 448 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 ISP128 . 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 126 127 128 129 130 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. See Marsden (2010) Net Neutrality, at p.1 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 http://stakeholders.ofcom.org.uk/consultations/net-neutrality/?showResponses=true Ofcom (2012) Draft Annual Plan 2012/13, at http://www.ofcom.org.uk/about/annual-reports-and-plans/ 449 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. 131 132 133 134 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 . Ofcom (2012) at paragraphs 5.40-5.42. http://ec.europa.eu/information_society/policy/ecomm/library/public_consult/net_neutrality/index_en.htm 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 BoR (10) 42 at p.3. 450 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 QoS137 , 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) 135 136 137 138 139 140 141 142 BoR (10) 42 at p.11. Ibid. Documents BoR 53(11) Quality of Service and BoR 67(11) Transparency, at erg.eu.int/documents/berec_docs/index_en.htm See p3, BoR53[11]. See p5, BoR67[11]. Netherlands: Senate will debate net neutrality law 6 March (2012) http://www.eerstekamer.nl/wetsvoorstel/32549_implementatie_van_herziene BoR (10) 42 at p.20. 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/2011/11-1007_Net_neutrality_EN.pdf 451 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 143 144 145 146 147 148 149 150 151 Article 5(1) of Directive 2002/58/EC Article 2(h) of Directive 95/46/EC See Press Release IP/09/570 Directive 2002/21/EC COM (2004)0028. http://www.theregister.co.uk/2009/04/22/virgin_media_phorm_nma/ http://www.theregister.co.uk/2009/06/03/phorm_webwise_discover/ announcing a new product for websites, Webwise Discover. http://energycommerce.house.gov/cmte_mtgs/110-ti-hrg.071708.DeepPacket.shtml http://www.guardian.co.uk/media/pda/2009/mar/11/phorm-timbernerslee 452 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 . 152 153 154 155 156 157 158 159 See Google (2009) http://investor.google.com/fin_data.html Dubious value is given to such permission in BT internal documents, see http://wikileaks.org/wiki/British_Telecom_Phorm_PageSense_External_Validation_report BBC (2009) Home Office ‘colluded with Phorm’, 28 April at http://news.bbc.co.uk/2/hi/technology/8021661.stm 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 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 See Marsden (2010) pp.84-90 for details of the controversy. Bohm, Nicholas (2008) The Phorm “Webwise” System - a Legal Analysis, at http://www.fipr.org/080423phormlegal.pdf See Press Release IP/12/60: “Digital Agenda: Commission closes infringement case after UK correctly implements EU rules on privacy in electronic communications” 453 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. 160 161 162 163 164 See Press Release IP/10/1215 Regulation of Investigatory Powers (Monetary Penalty Notices and Consents for Interceptions) Regulations 2011 (SI 2011 No.1340) 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 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 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. 454 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 ECommerce 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. 456 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 GDP165 . 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 165 166 Source: Boston Consulting Group: Connected Kingdom, 2010; http://www.connectedkingdom.co.uk/. ‘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 457 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 458 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 459 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 Neutrality168 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. 168 169 ‘Ofcom’s approach on net neutrality’, http://stakeholders.ofcom.org.uk/consultations/net-neutrality/statement/. BEREC press release, http://erg.ec.europa.eu/doc/2012/TMI_press_release.pdf 460 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? 461 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 170 171 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 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. 463 Microsoft – oral evidence (QQ 623-649) 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. 464 Microsoft – oral evidence (QQ 623-649) 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, 465 Microsoft – oral evidence (QQ 623-649) 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 466 Microsoft – oral evidence (QQ 623-649) 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 467 Microsoft – oral evidence (QQ 623-649) 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 468 Microsoft – oral evidence (QQ 623-649) 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. 469 Microsoft – oral evidence (QQ 623-649) 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 470 Microsoft – oral evidence (QQ 623-649) 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 471 Microsoft – oral evidence (QQ 623-649) 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. 174 172 173 174 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. 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. 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. 476 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. 175 176 177 178 179 180 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. 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. 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. 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. The Next Generation Nationwide Broadband Network in Singapore operates along similar lines. http://www.ida.gov.sg/Infrastructure/20090731125844.aspx 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 181 182 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. 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. 478 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. 479 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/ 483 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 484 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' 485 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 486 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. 487 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. 488 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 490 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. 491 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. 492 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. 494 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 495 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 187 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: http://stakeholders.ofcom.org.uk/binaries/consultations/wla/annexes/context.pdf 496 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. 188 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. http://media.education.gov.uk/assets/files/pdf/c/capital%20review%20final%20report%20april%202011.pdf 497 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 498 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 499 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. 500 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. 501 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. 502 The National Education Network – written evidence 9. Appendix: NEN Information Sheet 1 – School Broadband Requirements The Education Network Information Sheet 1 March 2012 School Broadband Requirements Commercial Internet Connections compared with Regional Broadband Services Summary 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 503 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. 504 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. 505 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. 506 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. 507 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. 508 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 Single sign on - accounts and password management for services Remote backup and management Webhosting Videoconferencing Security services Safeguarding policy, advice and education 509 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 510 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. O2 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. 511 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. 512 NG Events Ltd – written evidence Fig.1 Paragraph 1.4 refers. Europe in Context: the Race to Fibre Maturity 12 March 2012 513 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 514 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 515 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. 516 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 518 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 519 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 520 Northern Fells Broadband (Cumbria) - written evidence 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: 522 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. 523 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: 524 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: z Encourage local innovation and commercialisation in a way that no top-down National Plan could ever do; z Integrate all industry players to get behind a vision that is forward-looking, not backwardlooking; and z Show a business case that far exceeds more traditional infrastructure investments z 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 526 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 527 Objective Designers – oral evidence (QQ 75-114) 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 528 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 529 Objective Designers – oral evidence (QQ 75-114) 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? 530 Objective Designers – oral evidence (QQ 75-114) 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 531 Objective Designers – oral evidence (QQ 75-114) 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 532 Objective Designers – oral evidence (QQ 75-114) 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. 533 Objective Designers – oral evidence (QQ 75-114) 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. 534 Objective Designers – oral evidence (QQ 75-114) 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 wide535 Objective Designers – oral evidence (QQ 75-114) 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 536 Objective Designers – oral evidence (QQ 75-114) 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 537 Objective Designers – oral evidence (QQ 75-114) 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. 538 Objective Designers – oral evidence (QQ 75-114) 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 539 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 540 Objective Designers – oral evidence (QQ 75-114) 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 541 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. 542 Ofcom – written evidence Ofcom – written evidence Section 1 1 Introduction 1.1 1.2 1.3 1.4 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. 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. 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. 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. 543 Ofcom – written evidence 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 years191 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 http://stakeholders.ofcom.org.uk/binaries/research/telecoms-research/bbspeeds2011/infrastructure-report.pdf, para 3.38 http://www.cisco.com/en/US/solutions/collateral/ns341/ns525/ns537/ns705/ns827/white_paper_c11-520862.html 191 192 544 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. 545 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 546 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 547 Ofcom – written evidence 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: 193 194 • 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 http://www.hm-treasury.gov.uk/press_112_11.htm http://stakeholders.ofcom.org.uk/binaries/consultations/award-800mhz/summary/combined-award-2.pdf 548 Ofcom – written evidence • 2.18 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. 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 http://culture.gov.uk/news/news_stories/8912.aspx 196 549 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 http://www.culture.gov.uk/images/publications/BDUK-Programme-Delivery-Model-vs1-01.pdf http://ec.europa.eu/information_society/digital-agenda/scoreboard/index_en.htm http://stakeholders.ofcom.org.uk/binaries/research/broadband-research/Fixed_bb_speeds_Nov_2011.pdf 198 199 200 550 Ofcom – written evidence 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 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 http://stakeholders.ofcom.org.uk/binaries/research/telecoms-research/bbspeeds2010/Mobile_BB_performance.pdf BIS and DCMS, Britain’s Superfast Broadband Future (December 2010), http://www.culture.gov.uk/images/publications/10-1320-britains-superfast-broadband-future.pdf 202 203 204 551 Ofcom – written evidence 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 552 Ofcom – written evidence 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 http://ec.europa.eu/information_society/newsroom/cf/document.cfm?action=display&doc_id=719 206 553 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 554 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. 555 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 556 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? 557 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. 558 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 559 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 560 Ofcom – oral evidence (QQ 650-747) 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? 561 Ofcom – oral evidence (QQ 650-747) 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? 562 Ofcom – oral evidence (QQ 650-747) 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. 563 Ofcom – oral evidence (QQ 650-747) 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. 564 Ofcom – oral evidence (QQ 650-747) 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. 565 Ofcom – oral evidence (QQ 650-747) 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 566 Ofcom – oral evidence (QQ 650-747) 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 567 Ofcom – oral evidence (QQ 650-747) 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 568 Ofcom – oral evidence (QQ 650-747) 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. 569 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. 570 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. 571 Ofcom – oral evidence (QQ 650-747) 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 572 Ofcom – oral evidence (QQ 650-747) 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. 573 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? 574 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 575 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? 576 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 577 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 578 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. 579 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. 580 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 581 Chi Onwurah MP – oral evidence (QQ 250-282) 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. 582 Chi Onwurah MP – oral evidence (QQ 250-282) 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. 583 Chi Onwurah MP – oral evidence (QQ 250-282) 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. 584 Chi Onwurah MP – oral evidence (QQ 250-282) 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. 585 Chi Onwurah MP – oral evidence (QQ 250-282) 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. 586 Chi Onwurah MP – oral evidence (QQ 250-282) 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 587 Chi Onwurah MP – oral evidence (QQ 250-282) 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 588 Chi Onwurah MP – oral evidence (QQ 250-282) 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 589 Chi Onwurah MP – oral evidence (QQ 250-282) 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. 590 Chi Onwurah MP – supplementary written evidence Chi Onwurah MP – supplementary written evidence 1. 2. 3. 4. 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? What are the significant points of difference between VULA and ALA (and by extension between GEA and ALA)? 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? 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: 591 Chi Onwurah MP – supplementary written evidence i) ii) 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 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. 592 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 594 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: 210 211 212 Response to the UK House of Lords’ Select Committee on Communications Call for Evidence, FTTH Council Europe, March 2012 Fibre capacity limitations in access networks, Analysys Mason, January 2010 Developments in fibre technologies and investments, OECD, April 2008 595 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. 596 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? 598 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 600 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 Mbps 215 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/s215, and between 181 and 268 Billion Euros for its target for 100Mbit/s. However, none of Commission papers developing this policy216 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 214 215 216 217 Communication from the Commission; Europe 2020: A strategy for smart, sustainable and inclusive growth; 2 March 2010; COM(2010) 2020 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). 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 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 602 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 218 219 Britain’s Superfast Broadband Future; Department for Culture, Media and Sport and Department for Business, Information and Skills, December 2010. For example, by not repeating the transmission of parts of the picture that have not changed. 603 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. Upstream221 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. 220 221 222 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. In mobile networks, these are known as downlink and uplink. 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 604 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). 605 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. 224 225 226 Comparable to Freeview, but using the more recent MPEG4 technology for video coding Even the largest family, all watching different TV channels at the same time, would struggle to fully use the European Commission target of 100Mbps. 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. 606 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: 608 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 610 Prospect – written evidence 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 611 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. 227 228 229 230 http://www.bbc.co.uk/news/technology-16085823. http://www.dcms.gov.uk/news/news_stories/8809.aspx. http://www.bbc.co.uk/news/technology-10628273. 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. 612 Prospect – written evidence 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: 232 231 232 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 Ofcom’s Communications Market Review 2011, Figure 5.79. 613 Prospect – written evidence The ‘ever faster for ever cheaper’ model The 'ever faster for ever cheaper' model £30 18 £26.51 16 15.5 £25 14 £22.43 £ £20 £19.42 p e r 12 £16.88 £16.04 9.3 £15 m o n t £10 h £13.99 10 M b p 8 s 6.9 6 5.3 4 3.6 £5 2 1.6 0 £0 2005 2006 2007 Monthly cost 2008 2009 2010 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. 614 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 Index of revenue and volume growth: mobile data (Q4 2007 = 100) Index of revenue and volume growth: mobile data (Q4 2007 = 100) 4100 3902 3600 3448 3086 3100 2724 2600 2334 2100 1773 1600 1290 1106 1100 758 551 600 380 100 220 105 113 121 124 133 129 137 140 140 145 153 146 Q4 2007 Q1 2008 Q2 Q3 Q4 Q1 2009 Q2 Q3 Q4 Q1 2010 Q2 Q3 Q4 100 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. 615 Prospect – written evidence 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 235 236 237 238 239 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. For its sixth International Communications Market Report. See: http://media.ofcom.org.uk/2011/12/14/uk-consumersare-a-nation-of-online-shoppers/. 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. 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/ 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. 616 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. 240 241 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. To a figure which, on this scale, would actually be off the chart. 617 Prospect – written evidence BT revenues and capital expenditure, 2006-2011 BT revenues and capital expenditure, 2006‐2011 £22,000 14% £21,500 12% £21,000 10% £20,500 8% £20,000 6% £19,500 4% £19,000 2% £18,500 0% 2006 2007 2008 BT revenue (LHS) 2009 2010 2011 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 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 242 243 244 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. Analysis Mason (2012) Will we ever see a superfast Europe? available at: http://www.analysysmason.com/AboutUs/News/Newsletter/Will-we-ever-see-a-superfast-Europe. In its sixth International Communications Market Report. See footnote 10. 619 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 ones246 – 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 245 246 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. 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. 620 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 621 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 622 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 623 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 625 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. 626 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 627 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. 628 Steve Robertson – oral evidence (QQ 320-353) 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 629 Steve Robertson – oral evidence (QQ 320-353) 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 630 Steve Robertson – oral evidence (QQ 320-353) 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 631 Steve Robertson – oral evidence (QQ 320-353) 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? 632 Steve Robertson – oral evidence (QQ 320-353) 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 633 Steve Robertson – oral evidence (QQ 320-353) 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 634 Steve Robertson – oral evidence (QQ 320-353) 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? 635 Steve Robertson – oral evidence (QQ 320-353) 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 636 Steve Robertson – oral evidence (QQ 320-353) 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. 637 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 640 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. 641 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. 643 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: • 247 A wide range of choices for end users connected to superfast infrastructure in the retail services they can use over those infrastructure; 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 644 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. 645 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. 646 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. IPTV Browsing YouTube video VPN Telephony Internet Video-on-demand Room for any new services Public services (indirect customer relationship with service provider) Notes • 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 647 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. 649 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. 650 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 651 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. 652 SSE plc - oral evidence (QQ 379-407) 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 relationship248 . 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. 653 SSE plc - oral evidence (QQ 379-407) 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. 654 SSE plc - oral evidence (QQ 379-407) 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 655 SSE plc - oral evidence (QQ 379-407) 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. 656 SSE plc - oral evidence (QQ 379-407) 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. 657 SSE plc - oral evidence (QQ 379-407) 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. 658 SSE plc - oral evidence (QQ 379-407) 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. 659 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. 660 SSE plc – supplementary written evidence 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 Ofcom251 . 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. 661 SSE plc – supplementary written evidence 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 662 SSE plc – supplementary written evidence 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 252 253 More information on this organisation is available at http://www.mrasco.com/ 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. 663 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 664 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; 665 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. 666 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 667 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 668 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 arrangements are covered in this section Industry activities and This section includes requirements to abide by procedures 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 here Information for all 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 21st 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 671 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 services255 . 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 673 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 created256 . 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. 256 257 Ingenious Consulting Network, Optimal Investment in Broadband: the Trade-off Between Coverage and Network Capability, March 2010 PricewaterhouseCoopers, Champion for Digital Inclusion: the Economic Case for Digital Inclusion, October 2009 674 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 675 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? 259 260 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 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/AboutUs/News/Press-releases1/Services-that-would-justify-the-need-for-ultra-fast-broadband-in-France-are-yet-toemerge/?bp=%252fNews%252f 676 TalkTalk Group – written evidence 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 677 TalkTalk Group – written evidence 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 678 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. 679 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 680 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. 681 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. 682 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. 683 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 684 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? 685 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. 686 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 261 262 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 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 : • 263 264 265 A wires-only product where ISPs do not need to purchase an Openreach modem as part of the product 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 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) 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 267 268 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 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. 269 270 http://www.nextgenus.co.uk/ 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 696 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: 272 273 274 • 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. 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. 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.” 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 speeds275 , 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 income278 . 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 275 276 277 278 279 Average speed on our network is currently 2.4mps. YouGov/Three poll found that in 2011 14% of Mobile Broadband connections chose mobile because they did not want a fixed line. 13% of of Mobile Broadband connections chose mobile because they could not access a fixed line connection. Ofcom Communications Market Report 2010 This is our all-you-can-eat data plan. 699 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 population280 . 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). 280 281 See Broadband Stakeholder Group, Analysys Mason http://www.broadbanduk.org/component/option,com_docman/task,doc_details/gid,1245/ 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/ 700 Three – written evidence 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 worldsignificantly 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. 701 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 702 Three and Vodafone – oral evidence (QQ 354-378) 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 703 Three and Vodafone – oral evidence (QQ 354-378) 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 704 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 705 Three and Vodafone – oral evidence (QQ 354-378) 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 TMobile, 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. 706 Three and Vodafone – oral evidence (QQ 354-378) 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 707 Three and Vodafone – oral evidence (QQ 354-378) 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 708 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. 709 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? 710 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 711 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. 712 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. 713 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 715 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. 717 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 718 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 720 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 network283 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? 8 283 284 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 http://www.fujitsu.com/uk/news/pr/fs_20110413.html http://www.culture.gov.uk/images/publications/10-1320-britains-superfast-broadband-future.pdf 721 Virgin Media – written evidence 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 722 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 32nd 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 13th 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 18 285 286 287 288 289 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 http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/10/200&format=HTML&aged=0&language=EN http://www.netindex.com/download/allcountries/ http://mediacentre.virginmedia.com/Stories/Virgin-Media-delivers-world-s-fastest-cable-broadband-2131.aspx http://shop.virginmedia.com/broadband/about-virgin-broadband/speed-matters.html?buspart=6469 http://www.cap.org.uk/Media-Centre/2011/Up-to-speed-with-telecoms-advertising.aspx 723 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 290 291 http://newsroom.cisco.com/press-release-content?type=webcontent&articleId=324003 Figure 9 http://www.atkearney.com/index.php/Publications/the-internet-economy-in-the-united-kingdom.html 724 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 patients297 . 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: 292 293 294 295 296 297 OFCOM Communications Market Report 2011 p103 http://stakeholders.Ofcom.org.uk/binaries/research/cmr/cmr11/UK_CMR_2011_FINAL.pdf OFCOM International Communications Market Report 2011 p4 http://stakeholders.Ofcom.org.uk/binaries/research/cmr/cmr11/icmr/3_-_tv.pdf 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. http://www.dh.gov.uk/dr_consum_dh/groups/dh_digitalassets/documents/digitalasset/dh_131689.pdf 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 http://www.dh.gov.uk/dr_consum_dh/groups/dh_digitalassets/documents/digitalasset/dh_131689.pdf 725 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? 298 299 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. http://www.cabinetoffice.gov.uk/resource-library/public-services-network http://www.atkearney.com/index.php/Publications/the-internet-economy-in-the-united-kingdom.html 726 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 subscribers300 . 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? 35 300 301 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 http://www.musicweek.com/story.asp?storyCode=1043996§ioncode=2 http://www.wired.com/images_blogs/epicenter/2011/05/SandvineGlobalInternetSpringReport2011.pdf 727 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 728 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, 729 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 connectedTV 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, 730 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 732 Virgin Media – oral evidence (QQ 283-319) 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 733 Virgin Media – oral evidence (QQ 283-319) 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. 734 Virgin Media – oral evidence (QQ 283-319) 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 735 Virgin Media – oral evidence (QQ 283-319) 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 736 Virgin Media – oral evidence (QQ 283-319) 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 737 Virgin Media – oral evidence (QQ 283-319) 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 738 Virgin Media – oral evidence (QQ 283-319) 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 739 Virgin Media – oral evidence (QQ 283-319) 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. 740 Virgin Media – oral evidence (QQ 283-319) 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? 741 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 742 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 744 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 745 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. 746 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 <£20m TO) and subsequently an estimated 40% of the delivery capability was removed. This left BT and the cable companies to compete for money that (ostensibly) is to be invested in the infrastructure they have already committed to. 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? A. The Govs targets cannot be met by supported investment in infrastructure. Infrastructure in the comms industry changes on an almost weekly basis, and significant change takes place frequently. The speed of broadband is almost less relevant than the universality of broadband access. Connected nations are seeing their economies benefit, even if the lofty heights of 100Mbps+ are not sought. Connect everybody (100% not 90%) and then demand will drive industry investment and innovation to increase the speeds. 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? A. The Government should not be trying to predict the future of the Comms industry. It is unnecessary. Act today by creating universality in broadband accessibility, and market forces will drive the innovation required. As an example - if a small Welsh village has access to 10Mbps+ reliable broadband, businesses that start will stay, and then require more speed and throughput, which will drive improvements to the service delivery that the supplier will invest in simply because there is a market for it. If Gov tries to intervene at a basic level of 'what should happen' the Comms industry will chase that - rather than be guided by the market forces that exist. 750 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