Archive for June 2011
The British government is expected to include up to 12 high speed broadband providers in a framework procurement for four-year contracts worth between £750m and £2bn, but only two have a real chance of getting most of the business.
The framework aims to deliver high speed broadband communications in the so-called Final Third of the country where the government believes such service is commercially unviable.
Because the qualification thresholds are so high, the mostly likely primary contractors are likely to be BT, and Fujitsu Telecom, which together with Virgin Media, has already indicated its willingness to invest £2bn in broadband networks.
The framework is likely to increase the divide between urban and rural communities as contractors will not be required to deliver speeds above 15Mbps to areas with a housing density of between 20 and 50 houses per square kilometre.
In general the access speeds required range from 2Mbps to 50Mbps. The documents do not say whether this is purely for download or symmetric traffic.
Candidates must show a turnover of at least £40m over the past two years. They must also show that they have delivered at least one residential or business network, excluding backhaul, that serves at least 30,000 subscribers, and are currently running a network that serves at least 10,000 subscribers.
In a document published in the EU’s Official Journal, the government said, “There may be a small number of local broadband projects that do not use the framework agreement and this will be agreed with BDUK.”
Smaller operators that wish to take part will have to form consortia with the primary contractors or “special purpose vehicles” vetted by Broadband Delivery UK (BDUK), the government’s delivery arm.
Contractors will generally work on a county scale through county councils and local economic development agencies, with the BDUK supplying up to £10m per project.
Those working with community broadband networks condemned the proposals. Giving the BDUK document “null points”, the Independent Networks Community Association (Inca) said the document discriminated against small network operators.
“The financial and other criteria clearly exclude all but a handful of large players,” it said in a statement. “There are provisions for smaller companies to join consortia, but only if a consortium can be set up and ready to go in a month – and that month is July.”
Inca said the document also gave the lie to “ministerial rhetoric” by appearing to redefine “superfast broadband” as anything above 15Mbps, down from the previous 24Mbps, itself regarded as unambitious.
This meant that culture secretary Jeremy Hunt was likely to miss his target of having the “best broadband network in Europe” by 2015, Inca said.
“We could find up to £830m of public funding spent on networks that deliver half the minimum speeds of our European competitors,” it said.
At a European Competitive Telecommunications Association conference on triggering investment in fibre, delegates heard that incumbent operators were responsible for just 19% of fibre installed throughout Europe, while alternative operators such as cable companies had installed 73% of the fibres.
Incumbent operators enjoyed profit margins of 75% to 80% on their copper networks, Karl-Heinz Neumann, director of Wik Consult and author of an exhaustive report on wholesale prices for copper and fibre, told the conference.
They did not want to lose that cash flow by investing in fibre when there was little consumer appetite to pay more purely for extra speed, he said.
Speaking at the same event, Sean Williams, BT’s director of strategy, policy and and portfolio, defended BT’s £2.5bn roll-out mainly of fibre to the cabinet, saying it was the quickest way to get fibre service to consumers.
Finding what will trigger large scale investment in fibre networks is like the search for the elusive G spot: there is no shortage of approaches, but most are missing the mark.
This was evident at Wednesday’s European Competitive Telecommunications Association (ECTA) conference on how to trigger investment in fibre.
The Brussels conference, designed to influence European policy makers, probably left them more confused and despairing of achieving a single market in communications services, and hence missing the aggressive Digital Agenda targets. These are to give all Europeans access to broadband by 2013, and for all to have 30Mbps by 2020, and 50% to be using 100Mbps by then.
The conference showed that each country is responding to the unique circumstances that rule in that country. That response is also heavily influenced by the market position of the incumbent, usually the former state-owned telecom monopoly, and the national regulator’s views of how best to achieve the Digital Agenda targets (whisper this – without relegating the local incumbent either to the scrap heap).
As they like to say in Brussels, the facts on the ground are these: on average incumbents still have 45% of the retail market. They have a virtual monopoly outside the cities. Their main competitors are cable operators, where they exist. Their future competitors, especially in rural areas or “white spots” areas without an adequate broadband service may be mobile operators who use LTE (Long Term Evolution) technology.
Investors think telcos risky investments, at least riskier than other utility-type service providers. To deliver the DA targets telcos must compete in an already tight capital market. Except for video, there is no “killer app” for high speed broadband. Perhaps half the people who now get a 5 to 6Mbps service don’t see the point of faster downloads speed for a premium price, and perhaps 30% of people don’t see the point of the internet at all.
There are huge philosophical differences in the appropriate response to the facts. One of the most interesting new developments is the emergence of the so-called infrastructure fund. These are privately-owned funds that invest “patient money” typically from pension funds, that look for low risk in return for predictable if lower returns.
The pitch to telcos from Henri Piganeau from Cube and Randolph Nijsse of Rabobank’s Communications Infrastructure Fund is simple: you can’t do it with your present balance sheet, so sell us your passive network, sign a long term usage contract with us, and use the cash to introduce innovative services that will draw in millions of subscribers.
Or as Nijsse said bluntly to a stunned Sean Williams, BT’s group director of strategy, policy and portfolio, “How much do you want for your copper network?”
If anyone knows, it should be Williams, a former regulator with Ofcom. But he didn’t say. He has different ideas. In fact he takes issue with almost everything anyone from the continent said.
There’s plenty of money, at least in Britain, Williams says. Besides, Ofcom had priced copper access below cost in the past, and should now let the price rise to drive consumers onto fibre, he says. BT is pricing its fibre-based £2.5bn Infinity service at the same price as copper-based broadband, he says. What’s more, it is spending as much again on copper, largely because FTTC gets higher speeds to consumers faster.
BT regards the linkage between the consumer and the network provider as crucial, but wholesaling the network’s capacity to third parties is key to its business plan, Williams says. Some 45 service providers were already testing the relationship, he says.
Williams’ strongest supporter is cable industry lobbyist Caroline van Weede, MD of Cable Europe. The cable sector is already well-placed to deliver half of the DA targets, and ahead of time, she says. “I think we can leave it to the incumbents to do the rest.”
What should happen to the price of copper access is dividing line. Ofcom economist Peter Culham suggested that pushing it up to drive consumers to fibre is ETNO’s basic position, while driving it down to force incumbents to install fibre is ECTA’s position, he says. He believes it should be held constant to act as an “anchor price” against which to measure alternatives.
The French too are taking a different view. Already 98.5% of the population has access to broadband, despite 20% of them living in 80% of the geographical area. Jerome Coutant of ARCEP says this is because of efforts of the departements (regional authorities). Now the government has said 70% should have fibre access by 2020, and everyone 100Mbps by 2025.
And they are going to encourage, if not force, cooperation between telcos. If one decides to put fibre into an area or a building, it muct tell the others. The others can then decide to buy into the initial risk, or pay a premium for joining later, Coutant says.
As to demand, Coutant says overall consumers want a “bigger story” to go fibre. “People with 20Mbps via ADSL aren’t hungry for more, but take-up in rural areas is in the 50% to 60% range,” he says.
The main reason there is so little fibre in Europe is because incumbent network operators are making too much money from their copper networks, and financiers don’t want to upset that cash flow.
If Europe is to achieve the aggressive targets of the Digital Agenda, it must find a way to cut the value of copper and reduce the perceived risk of rebuilding the existing networks with fibre.
This emerged at the European Competitive Telecommunication Association conference on how to kick-start fibre investment in Brussels.
Andreas Weiss, managing director and head of telecommunications, media and technology at investment bank WestLB, said the banks’ preferred borrower was a monopoly with strong, profitable and predictable cash flows. “It’s the top line and then the bottom line that’s important to us,” he told delegates.
Weiss was replying to a question on whether financiers would like to see governments renationalise or create monopoly suppliers of passive broadband infrastructure, a development now underway in Australia.
Karl-Heinz Neumann, general manager and director of WIK Consult, and author of an exhaustive analysis of the effect of wholesale pricing on fibre roll-out, said incumbents were responsible for only 19% of the present investment in fibre, even though they would benefit most by it. “Altnets” (alternative network operators) had spent 73% because they did not have a copper legacy to protect and exploit, he said.
The Digital Agenda calls for 50% of Europeans to have access to 100Mbps broadband by 2020. For this to happen, the wholesale price of copper has to drop from its present average of €8.55 to €6.02 to encourage new build (greenfield) fibre investment, and to €3.42 if the altnet had affordable access to the incumbent’s ducts, poles and other passive infrastructure (a “brownfield” scenario), Neumann said.
If the present access price for copper was firm, fibre network operators would have persuade consumers that the €19.90 access price was worth it, he said.
Neumann called for regulators to give firm and credible timetables to incumbents indicating how and when they would have to cut the wholesale price of copper.
Fibre now reaches just 3.9m (2%) of the total homes in Europe, although it passes 22m, giving a 17% penetration rate. In the UK, BT’s penetration rate is under 3% (144,000 out of 5m homes passed), although it is aiming for 20%.
There have been signs, hotly denied by vested interests, that the roll-out of broadband in Britain, may be stalling. Yet an analysis of the numbers suggests that if it isn’t the case, it certainly should be.
Market researcher Point Topic said in May that its broadband infrastructure index had gone backwards, dropping from 55% to 53% over the previous six months. It has cut its forecast for high speed broadband lines in use by 2015 from 8.8m to 6.7m, or just a quarter of the estimated 27m homes and offices in the UK. This is for superfast broadband over existing telephone networks plus new fibre ones, and exclude any that use Virgin Media’s cable network.
This will have come as a blow to culture secretary Jeremy Hunt, who wants Britain to have the “best broadband network in Europe” by 2015. Curiously, an election should take place around then.
Hunt is chasing the European Digital Agenda targets of universal access to a minimum 2Mbps service by 2013, and for a universal 30Mbps service by 2020, with 50% of the population having access to 100Mbps.
He has no chance of matching that unless he acts soon to to break the log jam caused by the twin duopolies of BT and Virgin Media in fixed networks, and MBNL, which supplies T-Mobile, Orange and Three, and Vodacom/O2 on mobiles.
What is the UK’s problem?
Several speakers at the NextGen conference in Essex on 21 June said customers want three things from broadband: availability, reliability, and affordability. In Britain today you can get any two, but not all three at once.
BT, which is leading the charge into next generation broadband with its £2.5bn, mostly fibre to the cabinet (FTTC) Infinity programme, said recently Infinity had passed five million houses. (So, only another 22-23 million to go.)
But that’s quite close to Point Topic’s target. Probably the UK already exceeds it, if you add in Virgin Media’s fibre roll-out, which is mostly to replace or upgrade its cable TV network, and the many, many leased lines to businesses, schools, hospitals, and other public sector premises, which could almost overnight extend further into communities, especially rural ones.
However, BT’s fourth quarter results to March (published in May) showed that the installed base of Infinity users is only 144,000. Kevin McNulty, Openreach’s general manager for next generation access commercial partners, repeated the figure at the NextGen conference.
McNulty said BT was adding between 7,000 and 10,000 Infinity users a week. At that rate, if BT installed no more fibre, it would take more than nine years to occupy the installed services.
Where’s the value?
Perhaps more importantly, the installed base is less than 3% of the available lines. According to McNulty, BT breaks even on its Infinity investment in 12-14 years with a 20% take-up. By comparison, the Norwegian FTTH company Altibox won’t move until 60% of residents have signed up.
Of course, breakeven points also depend on prices. Ofcom, in its wisdom guided by its mandate to look after consumers, has trained everyone to believe that low prices are good. That may have been short-sighted.
McNulty describes 60% of customers as “locked onto” low subscription rates, typically £3.00 to £6.00 a month. Infinity starts at £28 a month with a 40Gb data cap, or uncapped for £38/m. BT also offers an “up to” 20Mbps standard broadband triple play (TV, broadband and phone) for £30. (The Infinity prices include a phone line at £10/m and come with a first three months’ free offer.)
By comparison, Sky offers an up to 20Mbps triple play starting from £7.50/m with the first three months free. And on 10 June Sky announced Sky Go, whereby its subscribers can get free TV on their laptops, smartphones and other mobile devices, and later via Sky’s public network of 4,500 wi-fi hotspots.
According to McNulty, only 20% of BT’s subscribers are on the higher priced packages. It’s “quite a challenge” to get them to upgrade, he says.
The problem with this is that the rest of the market uses BT’s price as the benchmark. As a result, almost all market surveys show that the UK has among the lowest priced, highest penetration and the most used broadband service.
But its average access speeds and take-up of higher speed services are starting to lag competitor nations like Germany and France, and are already well behind the Scandinavian and some former Eastern bloc countries.
Britons clearly feel there is not enough added value in high speed broadband. The government is aware of this. It has hired Martha Lane Fox to get online the 8.7 million (about 13% of the population) who have either not touched a keyboard or who find little to interest them in cyberspace.
But it is also making things worse through things like BDUK’s proposed broadband procurement framework and the “indicative allocations” of BDUK money it will spend through county councils.
Broadband framework will exclude most network operators
Blogger Adrian Wooster, quoting informed sources, says only companies that have sales of more than £40m in the past two years will be able to tender directly under the framework. That excludes even very capable mid-sized network operators. The department of culture, Olympics, media and sport (DCMS), which owns BDUK, has not responded to requests for confirmation.
However the DCMS officer in charge of BDUK (and from Monday spectrum too), Simon Towler told NextGen delegates the government would announce in July how much money it would give to each of the counties from what remains of the £530m earmarked for rural broadband, about £400m. Split (generously) between 44 counties, excluding the seven that have already got theirs and Cornwall, that’s an average of £12m each.
£12m won’t get broadband to many people even if, as Hunt tells MPs, it is doubled using matching funds, and especially if the UK relies on BT and Virgin Media’s traditional network building methodologies.
There is no shortage of ideas about how to do things differently. In fact the government may be already reeling with confusion at all the suggestions.
As a start, and to show his bona fides, Hunt could do worse than get the Treasury to zero-rate, for the next five years, the business rate tax on lit fibre. And get Ofcom to execute on Parliament’s unanimous vote to extend mobile coverage from 95% to 98% with the upcoming spectrum auction.
In a note received on 27 June, Openreach’s Kevin McNulty makes the following points:
CPs do not want to launch new super fast broadband services in the early days of the roll out, until Openreach has achieved millions of homes passed because of the cost of putting their products and promotions together, a fact that would affect any new local or community entrants. Other major CPs have announced their intention to sell end user services over the Openreach fibre network, thus, numbers are expected to increase dramatically over the next year.
Perhaps more importantly, the installed base is less than 3% of the available lines today, and according to McNulty, BT is targeting a 20% take-up.
McNulty describes the cost comparison as “wrong and mixed up”, saying I do not compare like with like. He says it is right that broadband is price sensitive, but that many of these services are sold as “bundles”, and each contains different elements that make these comparisons confusing. He accepts as “a good point” that there is very little room to charge higher rates for fibre than current broadband services.
More than 540 million people around the world now have a fixed broadband connection, according to the Broadband Forum (BBF).
More than 15.2 million people subscribed to a fixed broadband service in 1Q2011, pushing the annual growth rate to a record 11.9%, the BBF said.
Asia, which already has 42% of total fixed broadband subscribers, is also the fastest-growing at 16.2%, followed by the Middle East and Africa at 11.5%, the BBF said.
A leading cause was the growth in internet TV (IPTV), which leaped 34% in a year, the BBF said, quoting figures from market researcher Point Topic.
|Global Fixed Broadband||
% growth in quarter
% growth year
Middle East & Africa
Source: Point Topic
“Europe continues to be the largest region with over 21 million IPTV subscribers, but Asia is catching up fast with 18 million, and both China and Taiwan showing growth of over 50%. Of the 2.9 million new subscribers added in Q12011, 1.4 million came from Asia,” the BBF said.
During the quarter, growth in the the number of fibre connections outpaced that of (copper) ADSL connections by 5.8% to 2.3%. Total subscriber numbers rose to 76.2 million and 341.7 million respectively.
The BBF found fixed wireless access (FWA) beginning to take off as the number of subscribers rose 3.4% from 8.2 million to 9.5 million in the quarter, or an annualised 15.9%.
BT will have to change how much it charges for sub-loop unbundling products and may have to refund money for overcharging, according to a draft determination by the UK’s communications regulator Ofcom.
Ofcom’s heavily redacted draft decision, published on 14 June, relates to a dispute filed by Digital Region Ltd and Thales in February this year after BT’s Openreach subsidiary, which levies the charges, turned down a request to reduce the charges.
The charges have long been a bone of contention between BT and its competitors. The competitors have argued that BT inflated the prices artificially to raise barriers to entry .
Communications minister Ed Vaizey has said he would act on evidence of overcharging by BT.
One other company, whose identity was redacted, joined DLR/Thales in the dispute. Rutland Telecom expressed an interest in the case. It was asked for further information but did not respond, and so was not joined in the case.
DLR is an alternative communications service provider to BT in the south Yorkshire region. It sources the operation of its network services to Thales. It rents some of its physical network, such as the wires between the street cabinet and the customer’s home, from BT.
BT charges “connection fees” of £106.62 and £127.61 respectively where the customer buys both voice and broadband from DLR, or either voice or data from DLR with another provider supplying the other service. BT also charges an annual rent of £93.96 for the connection.
DLR/Thales told Ofcom it estimated the real price of the connection fee should be about £50 in both cases, and that the annual rent should be about £82.35.
DLR/Thales said equivalent prices in New Zealand and the Netherlands were about £50 and £27-28 respectively. However, Ofcom said DLR/Thales had not shown why these prices were relevant in the UK. “We consider that in this case…any international comparison will say very little about BT’s compliance,” it said.
All pricing details have been cut out of Ofcom’s draft determination. This makes it impossible to judge both the financial arguments on both sides and Ofcom’s determination.
This matters because many in the industry believe that BT has “captured” the regulator, a point made by the Guardian newspaper last year.
The parties and any other interested parties have until 5pm on 28 June to submit comments to Ofcom, after which Ofcom will make a final determination.
A BT spokesman said, “We are pleased that DRL/Thales primary claim that the SLU connection charge should be reduced to £50 has not be upheld by the regulator. Ofcom are proposing that BT make some minor adjustments to our SLU charges although we consider these to be unfounded and we will be responding to Ofcom in due course.”
In a separate dispute, Ofcom turned down a complaint by Opal Telecom (part of TalkTalk) and British Sky Broadcasting (Sky) that they had overpaid Openreach for some local loop unbundling products.
The regulator acknowledged that the overpayment was due to it miscalculating the fee in 2009, but said a refund would not benefit customers or the level of competition in the market.
The Competition Commission found that Ofcom had “materially erred” by underestimating how fast Openreach could become more efficient; that its assessment of inflation of wage and energy costs was incorrect; and that it had made “certain errors” specifying price caps ancillary services.
Ofcom admitted these mistakes meant Opal and Sky overpaid Openreach.
“However we also note our view that Openreach complied with the regulatory obligations which Ofcom had set. We consider that legal and regulatory certainty in conditions set by Ofcom is important,” Ofcom said.
“We acknowledge that the sums sought by Opal and Sky are not in themselves insignificant, but we also consider that in the context of the overall value of the services provided, any harm to competition that arose during the relevant period was limited, and it is not clear that any retrospective repayment now would remove any alleged competition distortion or economic inefficiency.
“If we were satisfied that a repayment was likely to have a positive effect on consumers or competition, either directly or indirectly, this could alter the balance of relevant factors in favour of ordering a repayment. However, we note in this regard our view that, in the circumstances of these disputes, a repayment would be unlikely to have a significant impact (positive or negative) on competition or consumers.”
The parties have until 29 June to reply.
Capel, a village with nearly 2,000 homes, may become one of the first in Surrey to receive fibre to the home (FTTP) on a large scale.
In a feedback report on a meeting with BT’s superfast broadband programme director, Johnny McQuoid, posted on the Fast Capel Broadband blog site, high speed broadband campaigner Simon Lea said about 1,700 (88%) out of 1,920 Capel exchange lines should be able to get a BT Infinity broadband service starting in 1Q2012.
Infinity is mainly a fibre to the cabinet (FTTC) product that delivers up to 40Mbps download and 10Mbps upload speeds, depending on distance from the exchange, number of simultaneous users, type of traffic, condition of wires between the cabinet and premises, and other factors.
“The planned split between FTTP and FTTC is 70/30. This implies that around 1,200 properties served by the Capel exchange will have an FTTP solution,” Lea said.
However, 220 homes were unlikely to get BT’s Infinity service at all, he said.
According to Lea, the technology that will be installed will support 80Mbps headline download speed)by the end of 2012. This is double the 40Mbps which is the currently advertised Infinity headline download speed.
However, this raises questions about whether BT will be rolling out fibre in the quantities suggested. This is because 80Mbps is the headline speed BT said it expects to get from its FTTC technology next year, and elsewhere BT usually quotes FTTP rates of 100Mbps.
Lea stands by his report, adding he’s delighted that Capel was one of the winning villages of BT’s “Race to Infinity” competition.
BT ‘s Openreach subsidiary ran the competition late last year to drum up and identify high speed broadband demand from villages with more than 1,000 homes.
A BT spokesman confirmed that Capel will be upgraded next year. “Whilst we don’t have a precise breakdown at present, it is likely that a high percentage of homes will get FTTP. This is due to the topography of the local area,” he said.
Lea said Capel has two fairly dense clusters of properties close by the exchange and two smaller outlying clusters. “I can’t explain why so many will get FTTP – but I’m not complaining,” he said.
The BT spokesman said all communications providers could have nominated exchanges they wanted upgraded under Openreach’s Race to Infinity scheme. “Only BT Retail took them up,” he said.
And here’s why: whether BT likes it or not, many communications providers do not trust the so-called Chinese walls that are meant to separate Openreach from the rest of BT. Why would they tip their hand to a competitor?