UK faces Comms Bill disaster because DCMS doesn’t get it
The government has released a schedule of seminars designed to gather information that will inform the Green Paper that will lead to a new Communications Bill in 2015. The supporting rationale suggests it is bent on solving last century’s issues, not those of a fully digital, hypernetworked, globally competitive economy. In short the department of culture, media and sport (DCMS) just doesn’t get it.
Starting in July delegates will address
- The Consumer Perspective (4 July)
- Competition in the Content Market (9 July)
- Maximising the value of spectrum to support growth and innovation (12 July)
- Driving investment and growth in the UK’s TV content industries (16 July)
- Supporting growth in the radio (audio) sector (September)
Fundamental to the debate is the broadband market in the UK, which underpins everything DCMS would like to happen. The government appears to think this job is done. It is wrong.
It says it “is already investing a total of £830 million by 2015 into improving broadband connectivity in poorly served, mainly rural areas, upgrading mobile infrastructure and establishing some of Europe’s best connected cities. Government must now also consider the other crucial building block of digital infrastructure: spectrum.”
In fact, there is not yet a single live line in the country that has come through the BDUK procurement framework process, which governs the £830m. The nine firms invited to pitch for the business resulted in two suppliers – BT and Fujitsu – hardly a rampantly competitive scenario.
Furthermore, the European Commission has stalled the release of BDUK’s funds because none of the UK proposals put forward so far meet its target of a universal 30Mbps broadband service by 2020. There has been some movement on this; existing contracts such as Cornwall, which offer “up to” 24Mbps, will be allowed to go ahead, but new ones must meet the 30Mbps target.
The timing of the seminars is curious. Not only is DCMS distracted by the Olympics, but the House of Lords communications committee is looking at the broadband issue. It has heard evidence that the fibre to the cabinet solution proposed by both BT and Virgin Media is a technological dead-end, unlikely to meet Europe’s secondary target of 50% of users receiving a 100Mbps service. The committee’s findings and recommendations are unlikely to inform the seminars, but may be out in time for the Green Paper DCMS hopes to publish early in 2013.
Similarly with Ofcom’s business connectivity review. This three-yearly review of the network services available to businesses, such as leased lines and backhaul, will not start before July, an Ofcom spokesman says. Its conclusions, which will assess issues such as competition levels and barriers to entry in this £2bn/y market, are unlikely to be available much before year-end. This leaves little time to absorb and debate them before they are incorporated, or not, in the Green Paper.
Fit for purpose?
It is true that DCMS has some important issues to put to bed. These include online copyright, content creation and protection, and access to content. However, these issues derive from rather than drive the physical networks.
The government appears to believe that the UK has a network infrastructure fit for purpose for the networked age. There is plenty of evidence that this not the case.
At the consumer level there are just two physical networks, BT’s and Virgin Media’s. They presently overlap, duplicating coverage for about 50% of the UK’s houses. It is unlikely that VM will go much further than this for fear of being forced to provide third parties like BT with physical access to its ducts or wholesale access to its fibres and cables.
This is likely to leave BT with an effective fixed network monopoly in the two-thirds of the country where the “Final Third” of the people live. Of course, there are other fixed networks, such as those of Geo, of Cable&Wireless Worldwide, of Vtesse Networks, that criss-cross the country. But they do not offer connections to residential customers. Some, such as Gigaclear, do. But they are very small and their business models fragile.
BT has a product, PIA or physical infrastructure access, that allows third parties access to its poles and ducts. So far only Andy Conibere’s CallFlow Solutions has taken it up. Matthew Hare, CEO of Gigaclear, says CallFlow can do it because it gets its money upfront from customers. Hare has looked at PIA and rejected it. He’s put off not so much by the price (which Fujitsu and Virgin Media say is way higher than cost) but by the terms and conditions.
“You can use PIA only for residential customers,” he says. “BT knows that any viable business plan to service rural areas relies on being able to go to all customers, including businesses,” he says.
That’s not all. Hare says, among other things, you have to disclose your entire roll-out plan, and pay BT to survey the ducts you want to use. “They should know what’s available and what condition it’s in,” he says.
Other firms, such as TalkTalk and Sky, simply rent BT’s local access networks to deliver TV, broadband and voice services to customers. The rent they pay BT, or rather Openreach, ensures that BT still profits from the transaction. This is common practice throughout Europe
Then there are the wireless network operators, led by the mobile phone companies (MNOs and MVNOs like Virgin Mobile who rent their entire network infrastructure from Vodafone, Orange, O2 or Three). They are increasingly interested in serving data products to consumers, but preferably only in towns. Besides, they have to rent space on fixed networks to hook up with the UK’s core networks and internet peering points.
This is why Vodafone’s mooted takeover of CWW is a possible game-changer; it gives the mobile operator instant access to a fixed network whose backbone is probably as extensive as BT’s and which could backhaul wireless local access links in competition to BT. It also responds to the £100m, eight year backhaul deal between Virgin Media Business and MBNL, the network company for Everything Everywhere (O2 and Orange) and Three, signed in September 2011.
The only wireless network operator with coverage comparable to BT is Arqiva, whose main job is distributing TV and radio broadcasts. BT and Arqiva are in a joint venture with Detica to compete for the network for the smart meter project that will connect the UK’s 28 million homes and offices.
The UK has the world’s second largest independent television production sector, is the second biggest exporter of music, the largest video games industry in Europe, and the fourth largest film market. That suggests the UK’s content businesses are doing all right.
DCMS says the “creative industries” including publishing, contribute 2.5% of GVA (gross value added), about £36bn, and employ 1.5 million people. Ofcom’s Communications Market report for 2011 largely corroborates it. It says TV revenue was up 5.7% to £11.8bn, radio was up 2.8% to £1.1bn, recorded music was down 8.6% to £1.2bn (but legal downloads were up 5% to 24% of sales), advertising was £16bn, 24% of it online, about the same as TV.
But that hides some problems. Publishers and other rights holders worldwide have been stunned by the proliferation and fragmentation of media. Facebook, Twitter, YouTube, Huffington Post, Google, Amazon etc have made mincemeat of business models that depend on high-priced access to exclusive content.
Even so, it is staggering to find DCMS wants to debate “whether convergence in the content market should require a degree of convergence in the telecoms/broadcast competition regimes”. It is hard to know what this actually means. It makes no sense unless it is a veiled threat to the ability of the likes of Google, Amazon, Apple and Sky to do deals that aggregate content and deliver it to customers for a price they are willing to pay.
These firms provide platforms for ordinary people to create and distribute their own content, without bothering cartel-like middlemen like record companies and book publishers.
There are things to be said about excessive market power and abuse of personal information, whose disclosure is often the price paid. But that is a different issue to one that should inform a Communications Bill.
By ignoring the issue of competition at the network infrastructure level, the government is in danger of condemning the UK to a sclerotic digital infrastructure that is not fit for purpose in the 21st century.
By missing or ignoring the fact that the future networks are as much about uploading and sharing as downloading and consuming, the government risks duplicating the content distribution cartels of the previous century.
Let the debate begin.