Lords slam government’s strategy-free broadband plan

Lord Inglewood: government strategy risks widening the digital divide

The government got its priorities wrong, started with a “flawed prospectus”, and risks making the digital divide permanent unless it revises its non-existent broadband strategy, the House of Lords says.

“Access to the internet should be seen as a domestic essential and regarded as a key utility. The spectre of a widening digital divide is a profound source of concern which requires the government to address its origin with greater vigour than we believe is currently the case,” the lords’ communications committee says in its report on the UK’s broadband strategy published this morning.

It adds that current progress may prove illusory. “The government’s strategy lacks just that – strategy,” committee chairman Lord Inglewood says in a comment on the report. He praised the government for addressing the issue of broadband especially in hard to reach areas. But it had not met its original brief.

“The complex issues involved were not thought through from first principle and it is far from clear that the government’s policy will deliver the broadband infrastructure that we need – for profound social and economic reasons – for the decades to come.”

Government’s preoccupation with network speed has had a “detrimental effect” on policy-making and the long term national interest, and the lords were not clear why the original speed (24Mbps) was chosen. Moreover, the government did not have a plan to meet the European targets of 30Mbps for all, with 50% using a 100Mbps service by 2020.

The lords set out an alternative vision for Broadband Britain:

• Every community should be within reach of an open access fibre optic ‘hub’

• Every such hub should be fed by ample fibre optic cable, providing open access on fair, reasonable and non-discriminatory terms to optical links back to the exchange, and back to the public internet— allowing third parties to build their own

• local access networks to appropriate technical standards, using whichever technologies they choose, from that hub

• For the hub to support backhaul for a wireless network where there is demand, so that consumers would have access to a wireless internet service from at least one of these hubs — assuming they can afford to do so.

This will allow different providers “contribute to the reach and resilience of our national connectivity” and allow all individuals to benefit from whichever services, including public ones, will run over it.

Government should focus on delivering a high-spec infrastructure that is future proof and built to last. “Fibre optic cable, the most future proof technology, must be driven out as close as possible to the eventual user,” they say.

The lords dismissed arguments against dark fibre, and aligned themselves with Europe. “We endorse the European Commission’s suggestion that open access to dark fibre at the cabinet-level should be introduced as a condition of BDUK’s umbrella state aid permission.”

The lords also want to see a competitive national market in dark fibre. “The exclusive ability of one provider to build a final fibre link is actually a categorical departure from the idea of an open access fibre optic hub … In fact, it well and truly puts the kibosh on the idea.

“While the government clearly considered the (dark fibre) proposal in general terms early on in their deliberations, it is fair to say now, that it has disappeared from their plans in implementation.”

The committee also recommend:

• that Ofcom actively considers changes to some aspects of the regulatory regime;
• that the government undertake a detailed costing of its proposal, not least because it removes the final mile – the most expensive per capita component of the network – from the costs requiring public subsidy;
• That the government pay “urgent attention” to the way public funds are being distributed, particularly the operation of the Rural Community Broadband Fund;
• and that government and industry consider switching terrestrial broadcast from the airwaves to the internet.

A DCMS spokesman says the goverment will respond in due course. Normally that’s about two months.

The Communications Management Association (CMA), which represents business communications users, says it is pleased the lords recognise that the provision of digital access networks should be considered a key part of the national infrastructure and as a strategic national asset.

“They have clearly understood that all parts of the UK economy are increasingly dependent on the quality of digital access and the open availability of competitive services that can be delivered via those local networks,” CMA chairman Michael Rowbory says.

The CMA is also pleased that the report highlights the needs of businesses as well as consumers. “For far too long it has been felt that the regulator has not held a properly informed regard for the needs of wealth-creating consumers.”

The CMA says claims that higher-quality business connectivity, in contrast to households, is readily available, if costly, are “disingenuous”.

“They overlook the fact that most new economic growth comes from micro and small enterprises whose needs overlap in cost, performance, flexibility, consistency and upload capabilities with those of many ordinary households,” Rowbury says.

The CMA has consistently pointed to factors other than headline ‘up to’  speeds, which it claims are rarely delivered. “If the need for future-proofed infrastructure investment is to be realised, this report can be regarded as a clarion call for fresh thinking in in terms of national priorities, network design and local management,” Rowbury says.

The lords’ comments on dark fibre will please former BT manager and now independent consultant David Brunnen. Speaking ahead of publication of the report he said it is ridiculous that many overlapping networks that taxpayers have paid for are not yet carrying services for the wider community.

“How many times do wavelengths on the same fibre have to be sold at full price before someone realises that we are being collectively ripped off?” he says.

Brunnen said access to dark fibre would be a huge boost for mobile networks. “The expansion of the mobile network infrastructure is hugely dependent on the fibre capacity available for vastly more but smaller base stations.”

BT fails numbers game

The Competition Appeal Tribunal has referred a BT appeal against Ofcom’s calculation of pricing for local loop unbundling (LLU) to the Competition Commission.

Sky and TalkTalk supported the Ofcom calculation, which BT claims contain “material errors” in the allocation of costs or income associated with LLU and WLR (wireline rental) services and the valuation of relevant assets.

In June the commission found in favour of Ofcom’s refusal to allow BT to recover sums towards its pension deficit via wholesale broadband access prices, and in its calculation of BT’s average weighted cost of capital (WACC). WACC is a key factor in establishing BT’s costs and therefore the price of regulated products such as LLU.

The tribunal allowed BT to withdraw some of the grounds for its appeal against Ofcom’s LLU and WLR calculations. This will save the commission some time. It has until 29 March 2013 to reach a determination.

In a separate issue, BT said in its financial report for the first quarter to 30 June that it could be liable to repay £145m to customers who rented Ethernet services. This is a sequel to several complaints that BT overcharged for the products, and upheld by Ofcom.

BT said, “We expect Ofcom’s final determination on disputes over historic Ethernet pricing in the next couple of months. The draft determinations proposed that BT should repay up to £145m to other communications providers.”

Ofcom recently announced proposals for a revised charge control on Ethernet and wholesale leased lines which may apply from the end of 2013. These will essentially allow the price of BT’s copper-based services to rise by the retail price index +3.25%, and for Ethernet prices to drop by RPI-12%. However, prices in west, east and central London (WECLA) will be less strictly regulated as Ofcom believes there are enough competitors to ensure low prices.

Altnets to fight BT monopoly of BDUK broadband cash

BT may not have it all its own way rolling out next generation broadband to UK consumers.

A group of competitor network suppliers met on Friday 20 July to discuss ways forward in the wake of the disastrous BDUK procurement process that saw only BT and Fujitsu left as possible bidders for up to £830m of taxpayers’ money.

The meeting attracted BeyonDSL, Cable & Wireless Worldwide, Calix, CityFibre Holdings, Entanet, Gigaclear, UK Broadband, Virgin Media and others who prefer not to be named now, as well as representatives from Birmingham City Council, and the Communications Managers Association (CMA). It was organised by Independent Networks Co-operative Association (INCA), an activist lobby group for next generation broadband.

The so-called altnets plan to cooperate to present bids that compete with BT for BDUK money, which is being distributed via county councils’s broadband projects.

Some county councils are known to be angry and frustrated both at the delay caused by the BDUK process as well as the fact that it did not result in a genuinely competitive market. The BDUK procurement framework has still not been accepted by the European Commission’s competition authorities, putting any money disbursed at risk.

“Our analysis indicates that a large proportion of the BDUK funding set aside for state support of broadband roll-out will go to BT, but capacity limitations both in contracting and deployment will make the 2015 target difficult to reach,” INCA said in a statement.

Most of the attendees had been members of consortia that were invited to bid for BDUK money, but which fell away because of the absurdly high qualification criteria. They are now considering several business models that may provide an acceptable risk profile that will allow the lead company to attract funding.

They are also looking at how councils could structure their requests for proposals in such a way that giving everything to BT is not their only option.

A source close to the movement said the government had little chance of meeting its 2015 target of “the best broadband network in Europe” if it had to rely solely on BT. This was because BT didn’t have the manpower to do it by itself.

If the altnets can agree, councils will have “additional horsepower” to aid network builds as well as a more competitive environment that should give them “the biggest bang possible for their taxpayer’s buck”, he said.

Initial proposals will be discussed openly at the INCA seminar on state aid for broadband networks in London tomorrow. Two European Commission experts on state aid will show delegates how to liberate EU cash. Booking has been heavy, but there may be some spare seats. Anyone wishing to go should call INCA CEO Malcolm Corbett on 07770 896 534.

Kroes to restore monopoly telcos, screw consumers, says ECTA

Kroes – telco monopolist, claims ECTA

ECTA, the altnets’ organisation, today accused Digital Agenda champion Neelie Kroes of turning her back on a competitive market in telecommunications in Europe.

This raises the question of whether she has abandoned her targets of universals access to a 30Mbps broadband service, with half the population using a >100Mbps service by 2020.

ECTA, which represents more than 100 non-incumbent telcos (as well as BT), said Kroes’s attitude to pricing of copper access and ‘regulatory holidays’ for next generation fibre networks would harm competition in broadband markets and would eventually harm consumer interests without fostering investment.

ECTA chairman Tom Ruhan welcomed Kroes’s approach to non-discrimination. “Abusive and discriminatory conducts of incumbent operators have a direct impact on consumers’ services and wallets,” he said.

He regretted her ideas about pricing. “Incumbents will not only be allowed to regain full monopolies on future networks, they will also be allowed to continue overcharging consumers and starving competitors on existing networks,” he said in a statement.

This could take Europe back to the pre-liberalised era, he said. If he’s right this could follow the US, where AT&T and Verizon have carved up the broadband market between them.

Researchers estimate that consumer prices are too high by €25bn because of “abusive behaviours of incumbents in wholesale markets”, he said.

“Hard-core pricing abuses and discriminatory behaviours of incumbent operators have been punished recently by the Commission. However, this happened years after the abusive conduct started. The non-recoverable harm to the market and to competitiveness makes strong ex-ante intervention necessary.

Ruhan welcomed the new “margin squeeze” test and the move towards Equivalence of Inputs on pricing. But Kroes’s approach to asset pricing policy is “catastrophic for competitors, for consumers and for the competitiveness of our economy”, he said.

In a policy statement that follows two consultations, Kroes said today the most reliable “buy or build” signals for investing in efficient alternative infrastructure come from a long-run incremental costing method, including an appropriate amount for common costs.

“The appropriate ‘modern equivalent asset’ for calculating copper access costs seems to be a fibre network: after all, no operator would today build a copper network,” she said.

She added that consumers will come to place greater value on what they can get from (fibre) networks; copper prices should adapt then on the basis that ‘you pay for what you get’.

“Where NGA networks are price-regulated, regulation should address investment risks by aiming at full cost recovery in such infrastructure even if future costs decline,” she said.

Ruhan said that incumbents had had access to fibre and “regulatory holidays” for years but they had still not invested in fibre to the home, and kept asking for more taxpayers’ money. “Incumbents have been only partially upgrading their networks (VDSL) and re-building their monopolies on future broadband,” he said.

“The incumbent retail broadband market share of VDSL lines in the EU is close to 100%. There is no reason to believe that, without competitive pressure, incumbents will give up their goldmine legacy network to invest in Europe.

“Investments will take place in more attractive emerging economies and short-term, yield-hungry banking investors will continue to be rewarded with more than half of incumbents’ cash-flow,” Ruhan said.

He said altnets, which are currently the major investors in fibre to the home (FTTH) networks, will have to keep paying nearly all their cashflows to incumbents. Many will be simply forced out of the market, he said.

“The proposal on pricing is a U-turn on the pro-competitive approach previously taken by Mrs Kroes and risks setting Europe back to ‘last in class’ in high speed broadband by undermining competition without incentivising more investment,” he said.

Kroes has a lot on her plate. Yesterday she proposed a multi-country copyright licensing programme for music. This is a first step to a more general review of how European copyright rules work in the digital age.

“We already have ambitious legislative proposals on data protection, online dispute resolution, online sales contract terms and electronic ID, and will soon adopt a strategy for cloud computing, initiatives on online payments and the eCommerce Directive, policy work on Connected TV, guidance on net neutrality, legislation on network security and much more,” she said.

KMPG’s £2.1m for BDUK broadband procurement work

The department of culture media and sport has paid the accountancy and consulting firm KPMG £2.15m for designing and running a broadband procurement framework that has resulted in just two suppliers, BT and Fujitsu, competing for some £830m in state funding.

In addition, the European Commission’s DG Competition, which must approve funds issued under the programme designed by KMPG, has still to approve it, more than six months after it was finalised.

Pinsent Mason, the law firm that signed it off, got £711,000.

The details, which are published as part of the DCMS transparency initiative, show that KMPG received £1,179,629.94 for ‘Temporary staff: interim managers’ between 12 July and 7 December last year, and a further £968,334.78 for ‘management consultants’ between 12 January and 27 March this year.

The person leading the project, whose identity is not disclosed in the DCMS documents, was on the senior civil servants’ pay scale of SCS1, which starts at £58,200, and goes up to £117.800.

KPMG was brought in via a pre-existing Treasury procurement framework. Civil service insiders were reportedly shocked by the temporary staff’s lack of experience in procuring telecommunications products and services, although they had experience in other large public sector procurements.

The framework they produced was highly controversial because it set eligibility thresholds too high for all but the largest suppliers. This was despite government desires at the time for at least some work to go to small and medium enterprises, and for communities to play an active role in the procurements. In the end nine firms were invited, and seven pulled out, leaving only BT and Fujitsu.

The on-going delay in getting the framework approved by Brussels has prompted several county councils to go their own way.

BDUK money may start flowing now that DCMS has appointed BT and Fujitsu, but leading telecoms lawyer Mike Conradi of DLA Piper, warns that any money actually disbursed may invite legal action from existing community network operators under state aid rules.

B4RN scoops ISPA intenet hero award

Broadband for the Rural North (B4RN), the privately funded community network that is building a 1Gbps symmetrical broadband service to parts of rural Lancashire, last night took the internet hero prize at the Internet Service Providers’ Association’s annual awards.

Foreign Secretary William Hague was the runner up hero for a speech at the London Cyber Conference shortly after the controversial G8 meeting that addressed online piracy and copyright, for “recognising that the future internet must be without governmental control or censorship, where innovation and competition flourish and investment and enterprise are rewarded.”

The internet “villain” was the International Telecommunications Union” (ITU) for its perceived attempt to hijack governance of the internet and bring it under government control.

Who controls the internet will be  hot topic at the Internet Governance Forum later this year. The UK and US oppose any attempts to limit the development of the net, but are trying to pass legislation that protects intellectual property and permits unprecedented levels of surveillance of emails and other electronic traffic.

Former BT CTO Peter Cochrane warned that the level of “malevolence” on the internet is rising via malware such as the Stuxnet and Flame viruses. These could shut down power plants, crashing all infrastructure that depends on electricity, he said.

He called for the development of “white blood cells” that could patrol the internet, seeking malware and destroy it. “There are more good neurons than bad ones, but you need very few bad ones to have a very bad experience,” he said.

CEO Barry Forde said after the event that B4RN, which has had little or no help from the Lancashire County Council, that it would take legal action if BDUK money was made available to BT to build in competition to B4RN.

Br0kenTeleph0n3 reported earlier that BT’s proposed fibre to the cabinet footprint in Lancashire had a substantial overlap with B4RN’s.