Posts Tagged ‘Three’
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.
The Competition Appeal Tribunal has asked the Competition Commission to judge an appeal by BT and UK mobile operators against an Ofcom plan to lower the costs of calls between networks.
Ofcom said in March it wanted the so-called mobile termination rate to drop from 4.18p (4.48 for Three) to 0.69 between 1 April 2011 and 1 April 2014.
Mobile termination rate caps (pence per minute)*
|Current rates until 01/04/11||20011/12||2012/13||20013/14||2014/15|
|02, Everything Everywhere
The network operators claim that the regulator used the wrong formula to work out the cost. If the Competition Commission upholds the appeal, the cost of phone calls from one network to another will stay relatively high, pumping billions in operators’ coffers.
The extra cash could give the operators more latitude in bids for spectrum in the upcoming auction for frequencies in the 800MHz and 2.6GHz bands, the so-called 4G mobile bands. It could also help speed up investment in LTE (Long Term Evolution) technology for 4G networks.
Europe’s Digital Agenda chief Neelie Kroes has called on national regulators to drive down the cost of mobile “roaming” nationally and internationally to the cost of terminating landline calls.
Regulators use a variety of accounting formulas to calculate operators costs. Ofcom used a formula call pure LRIC (long run incremental cost). The operators say it should have used LRIC+, which includes “common costs”.
This would raise the operators’ claimed cost base and therefore the ultimate retail price Ofcom allows them to collect.
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.