Following the broadband money

Why Hunt needs to break the broadband logjam now

with 26 comments

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.


26 Responses

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  1. Ian, sadly not happy reading, but it is essential reading. Its not too late but the gap between policy and action needay to close quickly. At the moment I feel as disappointed as your blog laments.

    Adrian Wooster

    2011/06/24 at 19:55

  2. I have said it before, and will keep on saying it… Any funding should go to innovative fibre pilots in rural areas, the final 10% and those networks would have high take up so that they would be sustainable and grow into semi urban areas proving the benefits of a real fibre network. That would make market forces up the game and stop trying to protect the copper assets. If we want to be a world leader we must not allow funding to be used for cabinets, adsl2+ or crappy BET.
    As is happening in Northumberland with a quarter of a million being spent to get 200 upland properties a miserable BET connection. This will ‘probably’ entail laying new copper so BT can remove dacs and bond copper pairs. Its a scandal waiting to happen.


    2011/06/24 at 21:46

    • Hunt’s letter to MPs stresses he’s looking for the money to go to rural areas. But I suspect it’ll be hard for Westminster to police spending once the money is in the counties.
      This blog will carry news of any funny business that’s out there, so keep your eyes peeled and don’t be shy to tell us. If we are going to stop the money being spent on status quo projects we need irrefutable evidence of the slackness. And the decision makers need to know they are watched.


      2011/06/24 at 22:13

      • Broadband Vouchers solve the “policing” problem by rewarding delivery.

        It works in France and Wales well enough so why not in the rest of the UK?

        BDUK has avoided answering this key point like the plague, perhaps because they are concerned that Big Society might make Big Government dispensable and put at risk the cushy safe harbour for the Civil Servants and highly-paid consultants involved?

        Rumour has it that the recent PIN for state aid exemption will take until June 2012 to complete and all that does is then entrench BDUK as official intermediary for each subsequent project that will require separate individual state aid clearance – talk about a non-job and all at the taxpayers expense!

        Hunt and Vaizey must either abolish BDUK or resign.

        There are spades aplenty available for those willing to dig ducting…

        Guy Jarvis

        2011/06/27 at 11:39

      • Guy – are you going to explain exactly how Broadband Vouchers would work in the UK for the rest of us? Please.


        2011/06/27 at 16:08

      • Guy – please explain how Broadband Vouchers would work in the UK and allow this question on your blog.


        2011/06/29 at 19:42

  3. So basically the consumers don’t want the faster services at the prices the market can provide them at ?


    2011/06/25 at 00:24

    • Looks that way. We’ve been conditioned to believe that low price equals value. It’s a race to the bottom.


      2011/06/25 at 11:48

      • spot on. A race to the bottom. poor old digital britain. consigned to the copper scrap heap for infinity.


        2011/06/26 at 11:16

      • Because people are happy with their Sky and TalkTalk bundles is the problem?

        Why do I need faster broadband when I can get a free Sky+HD box? Why do I need faster broadband when I can get broadband for £6.25/month + line rental. etc. etc.

        What’s the solution? A 40M FTTC could potentially provide 432GB/day…

        Do the eg. £1000/property numbers take account of initial and future take up?


        2011/06/27 at 16:23

      • Q1. Looks that way.
        Q2a &b. Only you can tell.
        Q3. Unless you are living on top of the cabinet you won’t get 40Mbps, or even 80Mbps next year, if BT;s plans work out. If you live at the end of a long line you might be worse off than now. Besides, symmetric speeds are increasingly important to more people, especially if they are involved with video, and who isn’t these days?
        Q4. Ask the Welsh Assembly Government.

        Ian Grant

        2011/06/27 at 17:06

      • Q2a&b – not about me but what the UK population may be saying.

        Q3 – but limited demand for higher speeds from many which makes any improvement difficult to sell to many, hence low takeup.


        2011/06/27 at 17:29

  4. As long as centrqal government put all their eggs into the “openreach” basket then it will always be a case of two elephants in a convoy. There are alternate technologies that can make a fast dent in the areas most affected by abysmal broadband and at a sensible cost , however central Gov are not embracing it in the way many other countries have done for years. Keep whipping that elephant, it won’t go any faster..

    Bill Lewis

    2011/06/25 at 09:49

    • Spot on Bill.

      The great work that you and others are doing to actually crack on and deliver service must be recognised otherwise an unholy state aid mess is inevitable.

      Whilst this will be wonderful news for m’learned friends bank balances, the result for the country will be dire in terms of actual better broadband service delivery.

      Guy Jarvis

      2011/06/27 at 11:45

  5. The other day, I got a plea from yet another rural community for advice on how to “get broadband”. However, the situation is now so confused that I no longer know how to respond to such requests. We have BDUK’s new framework that appears to exclude all but BT and C&W from bidding for public funds to attack the Final Third. INCA doesn’t seem to be the beneficial irritant it once was. Nothing seems to be happening with COTS, nor with the BSG. It is reported that local initiatives are being “compulsorily” swallowed up by County-level bids (with an associated 12 months delay).
    One of my colleagues succeeded in getting 250K for his village out of the RDA, which was then wound up, together with his money. EURIM has yet another initiative for shared infrastructure – last year it was “aggregation of demand”, which didn’t get anywhere. Local Authorities are reportedly frustrated at the lack of action and political manoeuvring by the big players. Smart metering might (or might not) have an influence on universal access – but nobody has a clear idea of what, how or when. And the Commission’s consultation on State Aid for broadband is far from complete. But companies like Rutland Telecom seem to be ploughing ahead successfully.
    I was set upon the other day by a chap promoting a novel scheme for his Kent village. Other colourful characters have similar ideas and are liable to spring at you from dark recesses to explain why their particular scheme is bound to succeed where others have petered out against civil service ramparts.
    In short, we are lurching and stumbling along some ill-defined and rock-strewn policy path, in the dark, without a lantern.
    Meanwhile, the welkin is a-wash with cries for help.
    Maybe we should have listened more carefully to BT’s siren – “there’s no demand” – recently subtly altered to read: ”take-up of superfast broadband is very low”. Then at least life would be easier.


    2011/06/25 at 13:58

    • Says it all, really. But is apathy really an acceptable response? Why can we not tap into the can-do energy that is manifesting itself at community level. What really makes it so hard to do?
      If Hunt and Vaizey don’t stop talking and start banging some heads together, they will hand the opposition a well-deserved stick with which to beat this government in 2015.

      Ian Grant

      2011/06/25 at 15:04

    • The real scandal of the whole BDUK farce is the chilling effect, the uncertainty and hesitation that nebulous promises of taxpayers money understandably have on local communities who would and in certain cases were otherwise all set to JFDI.

      It is hard to conclude other than Big Government and their coterie of consultants is as intent on playing whack-a-mole with local communities as Ian notes about BT’s behaviour.

      The reality is that better broadband that is both fit for purpose today (FiWi) and on a future-proof path (FTTH) can be delivered WITHOUT PUBLIC SUBSIDY NOW on as small a scale as 100-200 dwelling communities – GIVEN DEMAND from customers and constructive support from Government at all levels.

      Guy Jarvis

      2011/06/27 at 11:56

  6. The comparison of Infinity + Phone line + Weekend calls at £28 with “£3 to £6 a month” broadband attributed to McNulty isn’t really a fair comparison. Plusnet (a BT subsidiary) charge £6.49 per month in competitive market areas + £10 line rental from BT in advance = £16.49 which isn’t exactly “£3 to £6”

    Anything with Sky involved comes with some barriers to entry “Sky TV packages from £19.50 a month. Sky line rental is £12.25 a month. (£11.25 a month until 6 July).”

    Talk Talk Essentials is £6.50 per month on top of a £12.60 line rental, and so on. So while there is undoubtedly a demand side market failure we’re not being quite open and honest about the total cost of ownership of these services.

    Can-do energy hasn’t yielded even 10 sustainable demonstration projects in 8 years of notspots. Rutland Telecom (now a Gigaclear company) did Lyddington but how long ago was that ? Their second FTTC deployment just went RFS recently.


    2011/06/27 at 08:38

    • Phil – I agree. Pricing information available to consumers is confusing. Personally I think it is a deliberate strategy by the communications providers. for consumers the bottom line remains, what am I getting for my money, and can I afford it? So far the evidence suggests fibre doesn’t cut it in the face of the alternative bundles, so selling fibre alone is a fool’s errand, unless it is to upgrade already abysmal or non-existent broadband access.
      Regarding the lack of demonstration projects, there is plenty of anecdotal evidence that BT has employed a “whack a mole” strategy to eliminate competition, especially wireless operators in rural areas. And let’s not forget the punitive effect of business rates taxes on lit fibre, which effectively preserves BT’s fixed line monopoly in serving rural areas.

      Ian Grant

      2011/06/27 at 10:00

      • Nothing wrong with business rates on fibre Ian….

        Speaking from a Social Enterprise point of view 🙂

        Guy Jarvis

        2011/06/27 at 12:01

      • I’ve never been convinced by the apocryphal “whack a mole” stories, to be honest. As a Director of a pre-ADSL wireless broadband network we never saw any impact on BT’s ADSL rollout plan due to our presence. I really don’t believe they can be that proactive or have that level of local knowledge !

        NGA networks have business rates levied at £8 per year per home connected, I’m not seeing that as a big dent in the business plan. We do hear a lot of noise from “middle mile” fibre operators about rates, but as they’ve run out of Courts they’ll have to live with it I guess. At its worst we are left with Openreach backhaul as the lowst cost option, if the others can’t compete with rates included.


        2011/06/28 at 12:11

  7. […] All credit to former Computer Weekly journalist Ian Grant for his ongoing insightful analysis on the state of Digital Britain – […]

  8. And.. meanwhile those of us who know what we are doing with Fixed Wireless are resolving the final 3rd issue within a limited budget and without any support from all levels of Government.

    Of greater concern though is the fact that HM Gov are actively trying to suppress Fixed Wireless providers by polarising councils and their constituents towards the single goal of an “Openreach” solution.

    All MP’s seem to refer Broadband issues to Ed Vaizey which in turn end up as “letters to BT”

    A network we took over last year up North (Near Birmingham) has suffered this. The Parish councils met the MP (Fabricant), the result , Letters drafted to BT, The population were told “BT have been asked to do it” , which i somewhat doubt would ever be reality for some years.

    The net effect though is to polarise the whole community into the hope of the magical and somewhat overhyped FTTC resulting in little support for the existing fixed wireless provider.

    Only 5 customers even bothered to respond to an email requesting support for the upgrade plan, The parish council declined to respond at all and we have had no response from Fabricant apart from the usual line from his office that is sent out to everybody who emails them with a message about Broadband i.e. to the effect of “We will ask Ed Vaizey what we should do”.

    We have already given notice of closure of this network within the next 2 months instead of proceeding with the upgrade plan that would be scalable to 40 Mbps+ per customer in the future and provide 16 and 24 Mbps now and initially cover 4 significant sized villages.

    Once the FWA is gone of course, there will be a much clearer path for significant money to be thrown at a BT solution, probably BET or some other pointless half baked idea to get a “megabit” to some..

    Bill Lewis

    2011/06/28 at 08:05

    • Having seen Bill in action at the West Sussex County Council meeting

    • , I can attest that his fight to be heard seems to be falling on deliberately deafened ears. Hunt and Vaizey have both said they want a “mixed economy” in rural broadband. Why then are fixed wireless operators being discriminated against? Doesn’t this government want voters to have choices?

Ian Grant

2011/06/28 at 08:29

  • An increasing number of people seem to be making the point that there is no ‘cheap’ solution to rural broadband, whether fibre, wireless or even satellite (though it depends what you infer by ‘cheap’). But satellite probably has the upper hand in that (a) it’s already there, offering speeds up to 10 Mbit/s and (b) it doesn’t require any Government investment. Somewhere between the cities and the countryside there’s a role for wireless and let’s be honest, in the cities, fibre is by far the most sensible solution. So why is everyone so hell-bent on their being one solution. Let all play to their strengths.

    Richard Womersley

    2011/06/28 at 12:03

  • […] also suggests BT got other sums wrong. BrOkenTeleph0n3 revealed that BT’s planners estimated BT would break even on a 20% take-up in 12-14 years. “Take-up of superfast broadband so far has been significantly faster than forecast by BT in […]

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