Tuesday, February 23, 2010

Digital Britain enters stormy seas


Recent announcements from the Conservatives echo some of the ambition currently being demonstrated in the US. Shadow Culture Secretary Jeremy Hunt has unveiled plans to help make the UK the first major European country that has superfast broadband in the majority of homes by 2017, via three key components:
  • We will create a regulatory framework to ensure the roll-out of superfast broadband at speeds of up to 100mbps to the majority of homes across the UK by 2017. This could involve either mobile or fixed line solutions and will be significantly faster than the Government’s proposed target. Our objective is to make the UK the first major European country to achieve this aim, securing its place as a European and global hub for the creative industries.
  • We will end BT’s local loop monopoly by allowing other operators to use their ducts and poles thereby encouraging competition in the superfast broadband market. This approach has proved successful in other countries such as Singapore and South Korea: these countries are global leaders in superfast broadband infrastructure.
  • We are committed to universal access to superfast broadband speeds. If the market does not deliver this in certain areas we will consider using the proportion of the licence fee dedicated to digital switchover to finance superfast broadband roll out under the new BBC licence fee settlement, starting in 2012. This amount would be leveraged to maximise the investment made, either by making it available as loans or on a matched funding basis.
Some very clear critcicism of the approach set out in the Digital Britain report there. Opposition to the 50p tax continues to increase, and not just from rival political parties either. The cross-party Business Innovation and Skills Parliamentary Committee (which includes 6 Labour MPs in its current total membership of 11 MPs) has today published its report on broadband, evaluating the proposals set out in the final Digital Britain report. While agreeing with the vision, the report disagrees on the detail, particularly in relation to the 50p tax/Next Generation Fund. From the summary:
"We disagree with the Government over its proposal to fund its intervention in the Next Generation Access market with the proceeds of a 50 pence levy on fixed telecommunications lines. Such a levy would be both regressive and poorly targeted. It would have a much greater impact on the less well-off who will pay for an enhanced service which only a minority will enjoy. If public funds are required for Next Generation Access, they should be raised through general taxation, in the same way as for any other national infrastructure programme."
...which suggests the tax is even more unlikely to come to pass? Of more direct interest to education are the recommendations on business rates on fibre. Again, from the summary:
"The business rating system currently discriminates in favour of BT and against its competitors. We believe that the Government should consider a reduction, or even a temporary removal, of business rates on fibre optic cable. This would be a more effective use of limited public sector funds than direct financial intervention. We also believe that the removal of barriers which prevent access by internet service providers to the BT duct network, municipal ducting, and canal and railway networks would do much to encourage greater levels of investment in Next Generation Access."
...and could also encourage further investment to consolidate education broadband infrastructure? However I think the report's conclusions on the lack of a "killer application" to drive takeup of NGA are very short-sighted:
"The evidence we have heard suggests that there is no pent-up pressure for super-fast broadband from consumers, due both to a lack of new applications and an unwillingness to pay higher bills for internet access. We do not believe that the Government has yet made the case for intervening in the market to provide NGA access to consumers who already receive a reasonable quality of service. Furthermore, we conclude that achieving a universal service of 2Mbps should be the priority."
Surely the priorities of ensuring universal service and encouraging next generation access aren't mutually exclusive? And it's disingenuous to argue that consumers don't want next generation broadband, when many are (as is to be expected) simply unaware of the breadth of benefits that next generation broadband will bring?

The fundamental problem here is that we as a nation still seem content to allow the market to lead us by the nose into a next generation broadband world. As a result, such a world will be very much on the telcos' terms, which misses a huge opportunity. Many other administrations around the world are stepping up to the leadership challenge the transition to NGA presents, to create an entirely new model of broadband provision. Based on publicly funded open access networks, such a proactive policy approach will deliver a much greater variety of public and commercial services, with a much greater positive impact on society as a result. The OECD capture this in their report
Policy Responses to the Economic Crisis: Investing in Innovation for Long-Term Growth:
"Given the costs involved in fibre deployment it is fairly certain that outside the dense urban areas the market will not be able to support more than one fibre based network. The exception may be in markets which already have well developed and ubiquitous, cable TV infrastructures which may provide an alternative and competing platform. Governments, both central and municipal, can play an important role by facilitating investment, e.g. through public-private partnerships which stimulate development of nationwide high speed broadband networks. However, when the public pays for broadband investment they should expect to benefit from improved service and greater choice in the market place. One means to accomplish this is to ensure that networks built or augmented using any public funding are available via “open access” rules meaning network providers offer access or capacity to all market participants at cost-based, non-discriminatory terms."
In addition, there are plenty of existing applications that signpost the huge additional potential that next generation access will unleash. From the ITIF's excellent Need for Speed report:
"Google Maps, Gigapan, and Photosynth are three very useful applications whose appearance or utility would have been impossible to predict. They would never have emerged without broadband, they perform better with faster broadband, and they point to the kind of exciting new applications that will become possible once next-generation broadband is ubiquitously deployed."
...which also neatly encapsulates the "chicken and egg" nature of the conundrum. But there is still a degree of certainty in such a conundrum: if you start off with an egg, you end up with a chicken. But perhaps more appropriate in this context, if you start off with a chicken, you soon end up with lots of eggs, meaning that you soon lose interest in which came first. Also from the ITIF, an extract from an article on framing a national broadband policy:
"...broadband is unique in that the social returns of broadband investment exceed the private returns to companies and consumers...The second, and most important way that broadband is different from other unregulated consumer products is the significant positive externalities generated by its adoption. The notion of externalities is straightforward: it is a divergence between private costs and social costs (or benefits). Externalities occur when one market participant’s action affects others without compensation being paid or received. In a competitive equilibrium with the presence of costs (or benefits) that do not accrue to the individual economic actor, the competitive markets alone will not achieve optimal outcome — what economists refer to as Pareto optimality...there is considerable reason to believe that there are significant externalities from high speed broadband, and that if left to themselves, market forces alone will lead to less investment in broadband than is societally optimal."
Which to me underlines the fundamental importance of governments stepping up to the challenge, rather than allowing themselves to be swayed by the many vested commercial interests that, through their highly effective lobbying, are much too close to the debate.

I'd really hoped we'd moved on from this poor "excuse to do nothing" line of argument. But unfortunately, it seems we still have a very, very long way to go to convince those who, by now, really ought to know better.

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