Wednesday, November 21, 2012

European Commission clears UK umbrella support scheme for broadband investment

The European Commission has (finally) approved Broadband Delivery UK's application to act as a "national competence centre", enabling it to work with local authorities to ensure that urban and rural broadband investment projects are in keeping with European state aid and competition regulations:
""BDUK, as a national competence centre, will assist local granting authorities in designing and implementing successful broadband support measures in line with EU competition rules. The umbrella scheme will be a big step towards the achievement of the EU Digital Agenda targets and a strong impetus for growth in the UK" said Commission Vice President in charge of competition policy Joaquín Almunia. The UK notified plans to set up an umbrella scheme for implementing around 140 local broadband support projects without individual state aid notifications to the Commission. The Broadband Delivery UK (BDUK) scheme aims to provide as many UK homes and businesses as possible with access to superfast broadband infrastructure in the so-called "final third" areas. These areas are typically low-density, rural areas, where commercial operators are unlikely to invest in high quality broadband networks. The total value of aid to be delivered by the scheme is estimated around GBP 1.5 billion (€1.8 billion)."
DCMS press release here; coverage from the BBC here and Br0kenTeleph0n3 here. The final text of the decision (which isn't yet available) should make for interesting reading when it's released, if the previous notification in relation to Birmingham's broadband investment plans is anything to go by. Let's hope that this latest approval goes unchallenged though.

Spectrum & wireless developments

Lots of spectrum and wireless updates recently, over and above Ofcom's announcement earlier this month of the final regulations and timetable for the 4G mobile spectrum auction.

DCMS has published a new report (news item here) on the impact of radio spectrum on the UK economy, which found its use is worth more than £50 billion a year. Coverage from ISP Review here and the FT here ("Value of spectrum up 25% in five years").

Ofcom has published plans "to enable the release of new airwaves for future generations of mobile devices, which will help meet consumers’ growing demand for data on the move" (press release here and further information for consumers here). According to Ofcom, 20 million Gigabytes of data is now being consumed in a month over the country’s mobile networks – more than twice as much as last year (9 million Gigabytes) -  the equivalent of downloading 5 billion music tracks. By 2030, demand for mobile data could be 80 times higher than today. Ofcom is preparing plans now to support the release of spectrum for future mobile services, possibly ‘5G’, when the spectrum becomes available. Coverage from ISP Review here and the BBC here.

The ITU has also published a new report on spectrum (Digital Dividend: insights for spectrum decisions, press release here) focussing on the benefits arising from freeing up spectrum by moving TV broadcasting from analogue to digital, a process now complete in the UK.

Ireland recently completed its 4G spectrum auction, with the winning bids much higher than had been anticipated. According to the FT ("Ireland’s 4G auction exceeds expectations"), "Ireland has sold its 4G high-speed mobile-phone spectrum to four existing operators for €855m in an auction that netted more cash than expected for its heavily indebted government. Vodafone, Telefónica, Meteor and Three all won significant slices of spectrum in a competition, which shares many similarities with the UK’s 4G auction due to begin early next year." More from Ireland's regulator ComReg here and here.

A recent decision from the European Commission "paves the way for 4G in Europe":
"The European Commission has today decided to add another 120 MHz to the radio spectrum portfolio for 4G technologies, such as LTE (Long Term Evolution), around the 2 GHz band. This band is currently solely used for UMTS (Universal Mobile Telecommunications System) wireless communications, known as 3G networks. The Decision makes it mandatory for Member States to open the relevant spectrum by 30 June 2014 at the latest, and lays down harmonised technical conditions to allow coexistence between different technologies. On this basis the EU will enjoy up to twice the amount of spectrum for high speed wireless broadband as in the United States, namely around 1000 MHz. The Commission's decision means mobile operators will have more opportunities to invest in improved mobile networks, which benefits the whole economy, and consumers will, over time, enjoy faster data transfers and more broadband services."
Coverage from ISP Review here and ThinkBroadband here. Finally, some speculation from ISP Review and ThinkBroadband about future white space technology possibilities.

Monday, November 12, 2012

Ofcom finalises 4G auction rules

Ofcom today released the final regulations and a timetable for the 4G mobile spectrum auction (press release here). This follows the publication of its plans for the auction process in July 2012.

The process commences on 11 December 2012, the provisional date for the submission of applications by prospective bidders, with new services expected to be launched in May/June 2013. Ofcom has published a full statement on the auction together with a new 4G consumer page which provides an overview of what we should expect from 4G services.

Today's announcement hopefully represents the end of a long period of uncertainty over the future of 4G in the UK. 4G services are already available in some parts of the country, following Ofcom's decision to allow Everything Everywhere (now re-branded as EE) to launch 4G services at  the end of October 2012 in advance of the auction, based on its existing spectrum holdings. This led to threats of litigation from the other UK mobile operators: unable to launch rival services until they have acquried the necessary spectrum via Ofcom's auction, other operators initially viewed Ofcom's decision as giving EE an unfair first-mover advantage, distorting the marketplace.

Peace was subsequently brokered in talks between Culture Secretary Maria Miller, Ofcom and operators at the beginning of October 2012 on the basis of proposals to accelerate the roll-out of 4G services following the auction process. Given that mobile broadband usage continues to increase rapidly (according to Ofcom's 2012 Communications Market Report, four in ten adults in the UK now own a smartphone, with 42% of these saying their smartphone is the most important device for accessing the internet), 4G services can't come soon enough.

Coverage and comment on today's announcement from ISP Review and the BBC.

Wednesday, November 07, 2012

BT to reach two thirds of UK premises with superfast broadband by Spring 2014

BT last week announced that it will reach its target of delivering superfast broadband to two thirds of premises in the UK ahead of its already accelerated schedule. From the BT press release:
"BT today announced a further acceleration of its commercial fibre roll-out, stating it will pass two thirds of UK premises during Spring 2014. This is at least 18 months ahead of its original target of the end of 2015. The news has been welcomed by the Government, as the early completion of this footprint will enable BT to focus further on working with the public sector to extend fibre to the ‘final third’ of the country, in areas where it has won BDUK contracts. This work will help the UK to continue its climb up the broadband league tables, in line with the Government’s vision of having the best superfast broadband network amongst major European countries by 2015...This is the second time that BT has accelerated the programme, having previously brought forward the completion date from the end of 2015 to the end of 2014. Openreach, the part of BT that is rolling out the technology, is succeeding in delivering its target well ahead of schedule as a result of learning lessons along the way and improving its processes. The business is also recruiting additional engineers to help with fibre installations, with volumes expected to increase in line with the footprint expansion."
Coverage from ISP Review, ThinkBroadband and ZDnet.

Government response to House of Lords broadband report

Last month the Government released its response to the House of Lords report Broadband for All: an alternative vision (more here) published earlier this year.

The House of Lords report criticised a number of aspects of the Government's broadband policy; for example, the Lords report asserted that the focus should be on ensuring coverage above speeds. It also argued that current policy is simply pushing the market to do more of what it's already doing, rather than setting out a blueprint for the kind of broadband infrastructure the UK requires.

However, the response shows the Government is unrepentant:
"The Government considered a range of different delivery options prior to embarking on its current approach, including taking into account the cost and need for delivering sustainable solutions that do not require continued government subsidy. It considered that the market was best placed to determine which solutions and network design could deliver affordable and sustainable services to consumers – with technology neutrality key."
The response also refutes the suggestion that more should be done to ensure equivalent access and encourage competition:
"The Government is content that the remedies that Ofcom imposes (such as those in the local loop unbundling market or the recent physical infrastructure access requirements), in both instances, are considered to be proportionate and targeted at ensuring the development of effective and sustainable competition."
Similarly, the response challenges the accusation that current policy is predicated on precise speed targets:
"Current policy is not built around precise speed targets. We have defined superfast broadband as a speed greater than 24 Mbps, in line with the definition adopted by Ofcom in a 2010 report and the BDUK Programme Delivery Model. That speed represented the limit of what was deliverable over copper lines using ADSL2 technology. Superfast broadband therefore represents a step change in terms of capability compared to what was generally available to consumers in 2010…the minimum target speed of 2 Mbps for those we will not be able to reach with superfast broadband by 2015 is also based on the delivery of a basic capability rather than a focus on a specific speed." 
Also of interest in this context is the note that Ofcom are to "publish the first European scorecard by the end of the year", which will form the starting point for evaluating whether the UK has the best superfast broadband in Europe by 2015 in keeping with the Government's ambition. The response downplays the House of Lords report's suggestion that the Government should seek to explore transferring all terrestrial broadcast TV to delivery via the Internet to free up spectrum:
"The Government believes that it would be premature to consider such a move at this time, as it will be some time before an appropriate level of broadband coverage and access matches that available for Digital Terrestrial Television, as the Committee has identified. The Government recognises that there is an increasing number of television services delivered over the internet, but believes consumers should have the choice to decide how best to view and consume content."
All in all, the response seems to have been drafted so as to draw a line under the House of Lords report, with little if any change to current broadband policy seeming likely to ensue as a result. Coverage from ISP Review here.

Friday, October 26, 2012

OECD: Internet traffic exchange - "if it ain't broke...

...don't fix it" is the key message of a new report from the Organisation for Economic Co-operation and Development, titled Internet Traffic Exchange: Market Developments and Policy Challenges (more information on the OECD Insights blog, with coverage from GigaOM here).

The OECD report examines the history and development of interconnection and peering arrangements around the world, concluding that the current model, where agreements are on a handshake basis, with no written contract and the exchange of data happening with no money changing hands, is working extremely well and that governments and regulators should not seek to intervene in its operation.

This conclusion is very timely given the proposals to be discussed at the World Conference on International Telecommunications 2012 (WCIT-12), about which more here, particularly in relation to the consideration of whether future Internet interconnection arrangements should in future be modelled on the settlement system used for terminating international voice calls over legacy telecommunications network. The OECD's view is a categorical "no", with the report arguing that the current "handshake" model is also identifying remedies to a number of net neutrality concerns and issues.

Some key extracts from the OECD report:
"Since the Internet was commercialised in the early 1990s, it has developed an efficient market for connectivity based on voluntary contractual agreements. Operating in a highly competitive environment, largely without regulation or central organisation, the Internet model of traffic exchange has produced low prices, promoted efficiency and innovation, and attracted the investment necessary to keep pace with demand...As incumbent networks adopt IP technology, there is a risk of conflict between legacy pricing and regulatory models and the more efficient Internet model of traffic exchange. By drawing a "bright line" between the two models, regulatory authorities can ensure that the inefficiencies of traditional voice markets will not take hold on the Internet."
In the UK this is exemplified by BT's 21CN programme, to migrate its legacy networks to a digital IP network. Governments and regulators should maintain their hands-off approach to the Internet as the market has and will continue to do a good job of regulating itself:
"Evidence shows that, when allowed to do so, market participants will self-organise efficient Internet exchange points, producing Internet bandwidth to the benefit of the local economy and significantly reducing their costs, including in foreign currency. This course of action is strongly recommended in economies that do not yet have abundant domestic means of Internet bandwidth production."
The introduction of a regulatory regime based on legacy models and networks would be a step backwards, according to the report:
"A very high threshold of market failure should be established to justify intervention in the Internet market. Similarly, the growth of the Internet, together with efforts to liberalise international markets for telecommunications and promote competition, has produced enormous benefits for users, as well as for economic and social development, around the world. A treaty-based return to a regulated framework - in effect, a new settlements regime - for Internet traffic exchange would risk undoing some of those gains, while offering little potential benefit."
Also interesting is the need identified in the report to reinstate investment in basic optoelectronic physics to ensure Internet switching technology keeps pace with demand:
"An unbroken chain of basic physics research, development, and production of new technologies allowed the Internet‘s growth to keep pace with demand for the first thirty years of its existence, but investment in basic optoelectronic physics fell during the economic downturn in 2001. Consequently, the speed of network interfaces has stalled, and this has led to a transition from exponential growth to linear growth. Investment in basic research needs to be reinstated to return to a level of growth that will meet the economic and social development goals OECD countries expect of the Internet economy."
This is described in more detail later in the report:
"Historically, each new generation of optoelectronic interface has been designed to be one order of magnitude faster than its predecessor; 10-megabit interfaces gave way to 100-megabit interfaces, which were in turn replaced by 1-gigabit interfaces, and those were replaced by 10-gigabit interfaces. When each new speed of interface is introduced, it is quite expensive, but it provides new headroom. for growth. This headroom is consumed, and additional capacity is generally needed prior to the introduction of the next speed of interface, so link aggregation, or LAG, is performed, bundling two, and then three, interfaces of a given speed together, to provide some linear growth until the next order-of-magnitude faster interface becomes available and cost-effective."
However there are limits to the extent to which interfaces can be bundled together, and the  next order-of-magnitude faster interfaces are yet to become available:
"…it is not possible to simply continue adding on more switches to provide more capacity, even if it were possible to spend exponentially more money on switches, because the number of ports on each switch is limited, and switches must be interconnected with each other in a mesh, which consumes more ports for interconnection. Specifically, it requires n – 1 ports on each of n switches. A point of diminishing returns is quickly reached, at which the addition of one more switch actually decreases the amount of available bandwidth rather than increasing it…The development of switches with more ports would superficially appear to ameliorate this problem, but in fact, it merely moves the same problem from the externally-visible network topology, to the backplane of the switch, without resolving it. Only the development of faster optoelectronic interfaces, and the resultant faster network interfaces, can solve the problem and allow the Internet to resume economically-efficient growth."
We need to be making the next exponential jump to 100Gbps interfaces and beyond if the Internet is to continue to keep pace with growth and demand.

Tuesday, October 23, 2012

Birmingham ultrafast broadband state aid challenge

Lots in the press yesterday about the challenge by BT and Virgin Media to Birmingham City Council's proposals to deploy ultrafast broadband in an area of the city centre.

The European Commission gave the go-ahead for the project in June 2012. From the related press notice:
"The European Commission has found a proposal by the United Kingdom to grant around €6 million of public financing for the construction of an ultra-fast broadband network in the city of Birmingham to be in line with EU state aid rules, in particular because it will be genuinely open to all operators and will therefore promote competition...The target areas of the measure are two districts in Birmingham where private operators have no or very limited investment plans in the next three years. This means that in the absence of this project most consumers would only be able to use basic broadband services or very expensive business leased line services. The Commission's investigation found that the ultra-fast network of Birmingham was designed in a pro-competitive manner, exceeding in several respects the requirements of the EU Broadband Guidelines. In particular, open access will be granted for at least 25 years for alternative operators, whereas the guidelines require only seven years. Moreover, the network will be operated on a wholesale basis so as to ensure more competition at retail level. Finally, all possible wholesale access products will be offered to third party operators, including dark fibre, which is one of the most pro-competitive wholesale access products."
However yesterday's coverage reported that both BT and Virgin Media are now seeking to challenge the European Commission's decision. From the Financial Times ("'Super-connected' digital city faces challenge"):
"BT and Virgin Media have made a formal request to the European Commission that it revoke the decision to approve state aid funding to create a superfast broadband network in Birmingham. Virgin has also lodged an appeal with the general court in Europe requesting that the decision be struck down...BT and Virgin Media are worried that the money will be used to build a state-funded rival to their own broadband networks, and argue that this is wasting taxpayers’ money in areas already well covered. Virgin Media covers about 94 per cent of central Birmingham, and one person familiar with the situation estimates that there could be about 25 per cent overlap with the network proposed by the city council. The companies are as keen to prevent a precedent for future city tenders, which could damage business in large urban hubs that typically include the heaviest, and highest spending, users of broadband services."
Similar coverage from ISP Review, the BBC, the GuardianPC Pro and PC Pro's report gives some insight into the reasons for the challenge:
"According to sources at Virgin, the company is not against the funding per se, but said the project's boundaries were so poorly laid out that the EU couldn't be sure where the proposed network would overlap commercially available networks. Neither company has spoken directly against the government funding for city projects, but are concerned that the money is being wasted on areas that already have connectivity - more specifically that compete with their own networks. BT...said the Birmingham project would undermine investment from the commercial sector...Birmingham's project involves laying cables to areas left without fibre connections by private firms that will only upgrade networks where they expect a profit, but was always likely to tread on the major networks' toes. The situation is complicated by the patchwork nature of superfast broadband, with Virgin admitting, for example, that in some city areas, consumers on one side of a street might have fibre, while the other side goes without."
This from the Guardian, attributed to a Virgin Media spokesperson:
"We believe it involves a significant overbuild with our network...It's a poor implementation of what is otherwise a sensible policy. It sets a bad precedent and sends a really bad signal to our investors."
From Birmingham City Councillor James McKay's (Cabinet Member for a Green, Safe and Smart city) response:
"...we are surprised that they have now chosen to appeal at such a late stage. We developed a robust State Aid case, based heavily on evidence that Virgin Media and others provided to us that clearly demonstrates a strong market failure. We have proven that it is an imperfect market and have presented to the Commission a case that the majority of SMEs in Digbeth, Eastside and The Jewellery Quarter areas cannot receive affordable high speed broadband. This decision has the potential to damage the creation of up to 1,000 new jobs, preventing up to £200 million per annum of GVA being pumped back into the economy. We are liaising with Government and the European Commission and we are advocating that this matter be treated with some urgency as a ‘test case’ for Europe and that everything that can be done to expedite it through the legal process is done."
The text of the European Commission's state aid decision makes for interesting reading in the light of these challenges. One of the reasons for the intervention being approved was the lack of affordable high speed broadband in the area:
"Most businesses within the area use basic broadband ADSL services which for many lack the speed and reliability required to maintain competitiveness. Typical download speeds are below 20Mbps and upload speeds below 2Mbps. Companies requiring higher speed connectivity in the Districts must procure LAN Extension services; or pay for dedicated bespoke fibre connectivity, the price of which is often prohibitive for SMEs with high bandwidth needs."
Pricing is a particular problem for SMEs with requirements for high-speed symmetrical connectivity:
"The prices are particularly high for connectivity services required by business customers (high bandwidth, symmetrical connections) and which are only available from the market through the installation of a dedicated LAN extension services. Businesses typically have to pay connection prices in excess of £10,000 for such services. In addition, the rental charges for a non-contended 100 Mbps service are above £1000 per month. Typically a prices point of approximately £200-£300 per month is viewed as an acceptable rental price to drive adoption...a key objective of the public intervention is to lower the access cost and encourage a competitive service provider environment to deliver this price point. The lack of competitive service supply results in price points that are constraining the market and having an adverse economic effect on the districts."
The current and planned future broadband infrastructure in the intervention area was considered insufficient for the requirements of the businesses located there:
"The business model of companies active in the 'creative and knowledge based industry' requires very high speed, reliable, symmetrical broadband speeds to be able to transfer large amount of data, to stream videos, and to effectively cooperate with other companies located worldwide. Considering the capabilities of the current networks and the investment plans for the near future, the UK authorities concluded that these infrastructures are not able to satisfy the needs primarily of the business users in the area concerned."
While BT has plans to upgrade partly its existing infrastructure to deliver FTTC services to cover some of the target area over the next three years, FTTC was felt to have limitations in relation to the needs of the businesses in the area:
"The capacity of FTTC networks is dependent on the distances between the end user premises and the cabinets: in principle, within 300 meters of cable length from a cabinet download speeds up to 40-50Mps could be offered, but beyond 300 meters from a cabinet the speeds fall rapidly to 10Mbps at 2km from the cabinet. In addition, FTTC networks provide only asymmetric connectivity services with strong limitations on the upload speeds, therefore such network types are in general not adequate for business users' who require high capacity, reliable, symmetric broadband connectivity."
Virgin Media' infrastructure was also found to be unsuitable for the purposes of the project:
"Virgin Media has basically no presence with its own cable infrastructure in the targeted areas thus there is no additional competing infrastructure available. According to the UK authorities, Virgin Media has extensive duct infrastructure across the Digital Districts, but this is not widely fibred and the company does not permit access to its ducts or fibre infrastructure by third parties. Virgin Media has no publicly announced plans to expand and upgrade its infrastructure in the Digital Districts, and was involved in the consultations…"
None of the other fixed network operators were found to be serving consumers in the targeted areas. Problems were also found in relation to re-using BT's and Virgin Media's existing infrastructure for the project:
"With regards access to the duct infrastructure of Virgin Media…the company will not permit access to its ducts or fibre infrastructure by third parties on commercial terms and has no legal obligation to grant such access. With regards to BT, access to its duct infrastructure, which is possible under the applicable regulatory framework, the UK authorities argue that there are a number of operational and regulatory constraints that prevent it being a solution for the Digital Districts. Firstly, when BT built its duct infrastructure it was not envisaged that multiple providers would be installing, subducts and/or blown fibre of their own alongside the BT infrastructure hence there could be technical limitation for the use of ducts. Secondly, the Birmingham authorities argue that BT's wholesale pricing for the access as well the as price of ancillary services hampers the effective use of its duct infrastructure. Most importantly, under the applicable UK regulatory framework, ducts and poles access can only be used as an access product for retail internet, but not for leased line services. These restrictions on the use of ducts access substantially reduce the benefit of this wholesale product to cities like Birmingham with a large base of SMEs."
The intervention would deliver a significant improvement to current connectivity:
"The aid measure will support the development of ultra-fast broadband network within a small geographical area but which is scalable to larger geographical areas and other regions. The new infrastructure will be able to provide genuine ultra-fast services (i.e. 100Mbps, 1Gbps, etc) at an affordable price which is not currently provided by the market. End users will benefit from fibre to the premise and will be served by service providers offering download speeds far in excess of those available in the market today."
Provisions would be put in place to ensure fair and equitable access to the new infrastructure for other operators, ensuring competition and choice:
"The infrastructure will be a genuinely 'open access' NGA network offering operators and service providers' access to a full portfolio of wholesale services including ducts, dark fibre, wavelength, ethernet and co-location services...The subsidised infrastructures will be opened for third party operators, including both passive and active infrastructure elements, which will satisfy all different types of network access that operators may seek, including access to ducts, dark fibre, wavelength services, Ethernet services and co-location services. The wholesale access conditions will be designed in a way that all existing operators shall be able to utilize the infrastructure. All new ducting installed will be sufficiently large to host multiple operators and point-to-multipoint and point-to-point topologies as well. Third party operators will have wholesale access to the subsidised broadband networks in a non-discriminatory way during the entire duration of the contract and for a minimum of 25 years. To further incentivize take-up rates and competition, and to reduce any potential distortion of competition, the subsidised broadband infrastructure will be used only to offer wholesale access services to third party operators, but not retail services."
Birmingham City Council took several steps to engage with the marketplace and stakeholders prior to the intervention, in relation to the availability of existing infrastructure:
"As regards the presence of existing infrastructure in the targeted areas, firstly, the UK authorities started the analysis on the basis of the central mapping prepared by the national competition and regulatory authority, OFCOM. Secondly, to verify the data for the two targeted districts, further street level analysis was undertaken. Thirdly, the UK authorities have consulted widely with the telecommunications industry and other stakeholders on the planned measure. Fourthly, the Digital Birmingham has its own website which provides details of key projects and is updated regularly. The formal consultation was published on a dedicated website with all important details on the target areas, project plans, funding and envisaged services. The UK authorities confirmed that no stakeholder raised any concern on the planned measure."
The intervention was found to be in line with EU policy, pursuing "well defined EU policy objectives" with appropriate market analysis and consultation having been undertaken:
"...the UK authorities undertook a detailed analysis of the existing broadband infrastructure. The consultation with existing operators in an open, transparent way ensures that any potential investments plans of commercial operators are sufficiently taken into account, and public funds are used only in areas where similar commercial investments do not exist and they are not planned in the near future. The Commission concludes that the detailed market research and "mapping" together with the public consultation conducted by the UK authorities will limit any potential distortion of competition vis-à-vis existing operators and reduce the amount of State aid required for the measure."
 Affordable, high-speed symmetrical connectivity was the key criterion for the intervention:
"...existing and planned network infrastructures are not adequate to satisfy the needs of the local business consumers even if an FTTC network will be partially deployed in the target area in the near future of three years...a high proportion of radio stations, e-learning and training companies, data centres, academic institutions and other digital intense users located in the Digital Districts require high-capacity and reliable bandwidth of above 100 Mbps with very high upload speeds. If no public intervention takes place, such services will only remain available through LAN lines, for which the prices are considered to be prohibitive for SMEs…"
It would be interesting to know in more detail the basis of both BT's and Virgin Media's challenges, given the analysis and arguments presented in the European Commission's decision. It remains to be seen whether other super-connected city proposals (more here) will face similar challenges. According to the DCMS website, the second wave of super-connected cities will be announced as part of the Chancellor's Autumn Statement on Wednesday 5th December 2012.

Friday, October 19, 2012

Broadband's importance to economic recovery and growth

Recent data from the Organisation for Economic Co-operation and Development (OECD) underlines the importance of broadband to economic recovery and growth. According to the OECD's  Internet Economy Outlook 2012,  Internet firms continue to drive growth and job creation in the IT industry, with fast-rising demand for mobile services helping to boost revenue and investment in research and development. From the related OECD press release:
"The IT services industry weathered the 2009 downturn better than manufacturing, quickly rebounding to positive growth in early 2010. This is likely due to increasing specialisation in ICT services across OECD countries, while manufacturing has shifted to lower-cost production areas, according to the report. The strength of the services sector is partially the result of the increasing role ICTs play in helping businesses become more efficient. Firms may look to ICTs to cut costs during downturns, creating a continued demand for ICT services as other budgets are cut. The same is true for the telecoms sector which continued to perform strongly during the crisis, as households and individuals today consider them essential services and prefer to cut back on other expenses. Total worldwide ICT spending is estimated to reach USD 4 406 billion in 2012, of which 58% (USD 2 572 billion) is on communications services and equipment, 21% (USD 910 billion) on computer services, 12% (USD 539 billion) on computer hardware and 9% (USD 385 billion) on software."
A recent report by the Policy Exchange, Bits and Billions: A blueprint for high-impact digital entrepreneurship in the UK, suggests that the UK has enormous potential to be a world-leader in the high-tech and digital economy, building on growth to date:
"In the UK, our domestic technology, digital and creative sectors are already well established. The ubiquity of the internet and digital technology makes it hard to separate out precisely how much they matter to the modern economy. Virtually every business makes use of technology in one form or another – from email and web hosting through to cutting edge data analytics and automation. Nevertheless, previous studies have estimated that the internet is integral to over 8% of the economy, with this figure set to grow to over 12% by 2016. Internet and online businesses contributed almost one quarter of total UK growth over the past five years."
The report goes on to analyse what needs to be in place if the UK is to capitalise on this, to become, as is the Government's intention, the best place in the world to start, run and grow a high tech company. Significant changes are needed:
"For policymakers it is not sufficient simply to assume that the basic building blocks of economic policy designed for previous eras will work for the next generation of digital businesses. We start from a place where rules, regulations, norms and laws designed for an analogue world have accumulated over centuries. As we move forward, bold policy thinking will be a necessary ingredient for radical reshaping of the economy… We are yet to see, however, the sort of radically ambitious and fundamental reforms across the public policy landscape that are necessary for entrepreneurs and the private sector to fully unleash the kind of transformational change in the digital economy that politicians aspire to."
The report welcomes the funding being made available for superfast and ultrafast broadband and identifies six pillars for high-impact digital entrepreneurship: skills for technology, ambition, finance for scaling up, mentors, agility and creativity, certainty and copyright. Current policies need to be re-engineered if the UK's opportunities in this area are to be realised:
"…from the perspective of high-impact digital entrepreneurship, the government’s growth strategy is more incremental improvement than disruptive innovator. The deep changes in our economy being ushered in by digitisation, along with the continued pressing need to kick-start growth, suggest that a more radical examination of the fundamental building blocks of public policy is in order."
These recommendations echo a similar one made in the Broadband Stakeholder Group's recent Demand for Superfast Broadband report (about which more here). This suggests that the UK, in the light of the rollout and takeup of superfast broadband, may now be in a position to lead on the development of the next generation of Internet services and applications, just as the USA led the development of current generation broadband services. However, the Policy Exchange report suggests that significant policy changes will be required if this is ever to happen, to create the right kind of environment for this kind of growth.

A similar point was made by Peter Cochrane in his presentation to the NextGen12 conference in London earlier this month: doing what we've always done but more efficiently is no longer sufficient to sustain growth. We need to radically change the way we do things, and the Policy Exchange report suggests ways Government policy needs to change to support digital entrepreneurship. Similarly, Nesta's recent Plan I report describes the importance of innovation in driving growth, suggesting that the Government is not yet doing enough to create the right climate for investment in innovation. According to Nesta's report, broadband is recognised as the most important infrastructure investment for the UK's long term growth by 54 per cent of businesses.

This recent speech to the Broadband World Forum in Amsterdam by Neelie Kroes, Vice-President of the European Commission responsible for the Digital Agenda, further underlines the economic and social importance of broadband. While some of the foundations to assist the UK's economic recovery and growth are in place, it would seem there is still more to do if this is to become a reality?

Demand for & possibilities of superfast broadband

Two reports published this month complement each other very nicely, investigating the demand for and potential of superfast broadband from different perspectives.

The first, Demand for Superfast Broadband (executive summary here), published by the Broadband Stakeholder Group (BSG), investigates how takeup of superfast broadband in the UK compares with takeup in other countries, including those often cited as being much further ahead. The second is Broadband Connected Homes: opportunities for developing broadband applications and services, published by the Australian Centre for Broadband Innovation (ACBI).

According to the BSG report, while current takeup of superfast services in the UK may appear to be low (according to Ofcom's 2012 Communications Market Review, at the end of March 2012 there were 1.4 million UK superfast broadband connections, equating to 6.6% of all connections), this is apparently no cause for concern. From the related BSG press release:
"The BSG cautions that policy makers have to be realistic in their expectations for initial demand for superfast broadband. Experience across all markets, including the broadband trailblazers of the Far East, shows that demand will build gradually. In this context there is no need for concern about how the UK is faring. The report also reveals that no market has yet established itself as a centre for the development of innovative services that require superfast broadband connectivity."
The current level of demand and takeup "gives good reason to be confident that the foundations are in place to build upon in the coming years". The UK is "a solid mid table performer" with an initial growth curve for superfast services that "compares favourably to that of Japan's when superfast services were first offered" and there are "several elements of the UK's experience to date that give cause for confidence and optimism". The key challenge for operators is "how to price a superfast product so that a premium is charged that both offsets investment costs whilst enticing the consumer". Developments in the IPTV market (YouView being one such example) are seen as a key driver of superfast takeup.

The speeds already available to consumers are an important factor driving demand: in areas where ADSL services are of poor quality (i.e. predominantly but not always rural areas), takeup of superfast services is likely to be higher if such services are made available:
"The attractiveness or otherwise of superfast broadband services could be influenced in part by the quality of services already in the market. This hypothesis is behind the claims of those advocates of subsidising superfast deployments in rural areas: existing ADSL services are poorer or non-existent when compared to the average, and so there is a nascent demand for superfast services that may well go beyond the demand seen in urban areas where ADSL services deliver higher speeds."
More research is needed to identify whether there is a direct correlation here:
"We tested data available from Ookla to see whether the average speeds in a market prior to the availability of superfast broadband correlated with the take-up of superfast broadband. We used Ookla data as it is available for almost every market we are studying. However, the dataset is not ideal for this purpose – it is produced by a self-selecting set of users, and does not distinguish between residential and business grade services – and our results were inconclusive.With a dataset more fit for this purpose this type of analysis may be possible. A future avenue may be to analyse any data that comes from the work that the European Commission is currently doing with SamKnows on European broadband speeds. If this produces a level of detail similar to that produced by Ofcom then this would enable us to take another look at whether there is a relationship here."
Some analysis is provided of superfast takeup in Basingstoke, an area with "notoriously poor ADSL-based broadband":
"BT deployed FTTC to Basingstoke in the summer of 2009, and experienced a significantly increased level of take-up on the cabinets further out of Basingstoke compared to other areas of its deployment – 12-13% within a matter of months, compared to a UK average of 4% at that time. This suggests, anecdotally, that where consumers have been receiving no or poor quality ADSL there is a higher demand, and willingness to pay, for superfast services."
Projects such as B4RN and those undertaken by Gigaclear are indicative of the degree of pent-up demand in rural areas. They also show the extent to which consumers are prepared to put their hands in the pockets when current generation broadband is poor or unavailable.

Takeup within the UK suggests there may be an opportunity for us to lead the next wave of innovation for broadband enabled services, with the first wave having been led by the USA:
"This relatively low number of subscribers (in the USA) on genuinely superfast services (less than 3% of homes, even allowing for cable operators uplifting customers) may have knock-on effects on the online service world. The US was home to the first wave of innovation for broadband-enabled services, which were then exported around the globe. The extent to which this might occur for next generation broadband, given the lack of an addressable market currently, is uncertain, and may suggest that the next wave of innovation could occur elsewhere. Certainly, it is worth noting that Google, one of the beneficiaries of the large addressable market for first generation broadband in the US, have entered the telecom operator world with their FTTH deployment in Kansas City, perhaps a recognition that they do not see that the services that are currently available are adequate for their future plans."
More on Google's FTTH deployment in Kansas City here. It will be interesting to see how superfast takeup changes over time, especially if/when services designed to operate at superfast speeds start to become more prolific, making the difference between current and next generation services much more apparent, just as the difference between ADSL speeds in (most) urban and rural areas has come to the fore in recent years. But there is still some way to go yet:
"For online services to create demand for superfast broadband, the experience of first generation broadband is that service innovation occurs once a critical mass of subscribers is reached. For superfast we are likely not there yet; more importantly, for the early period of take-up the online service pull will need to come from existing services that will simply work better and faster over superfast broadband."
Again, IPTV is seen as a key driver, potentially a much stronger one than more of the same, only faster:
"While it is not necessary for operators delivering an IPTV service to do so over fibre at present – improvements to ADSL technologies and enhanced compression technologies have meant that operators can deliver IPTV today via ADSL connections – future TV services such as multi-room HD, Ultra HD and 3D will test the limits of ADSL-based services. The ability for ADSL-based broadband to keep up with the requirements of increasingly capacity-heavy IPTV services over time will be challenged, and may necessitate a move by consumers to a superfast broadband infrastructure."
Finally, the BSG offers a note of caution in relation to the report's findings:
"In setting out these views we are of course starting a debate and not aiming to conclude one. We are at the beginning of a journey and it is difficult to accurately predict the bends in the road ahead and where we will eventually end market has seen huge take-up occur rapidly, and it is unlikely that the UK will reach very high levels of take-up by 2015."
ISP Review's coverage of the BSG report is here. The ACBI report starts from a different premise: rather than focussing on demand and takeup, it considers the range of possibilities offered by next generation access, exemplified in Australia by the roll-out of the National Broadband Network (NBN):
"The purpose of this paper is to describe the changing environment of the broadband connected home, the technologies that are affecting it, and its capacity to support new applications and services. The paper provides a glimpse into future possibilities, and discusses some of the key issues for service providers and consumers regarding the next generation of services. The intent is to provide a better understanding of the opportunities and limitations of the technical framework so that businesses and innovators can start planning to build applications and services for the connected home. This paper will also help people to engage, participate and contribute to this process of innovation."
The NBN offers a similar opportunity for Australia as that identified by the BSG for the UK:
"With Australia set to become a leading broadband market with the deployment of the National Broadband Network, this presents an important opportunity for Australian designed and developed applications and services that can serve a domestic as well as emerging international market. New services for broadband connected homes will emerge in areas such as energy management services, home telecare and telehealth, teleworking and video delivery, to name just a few."
Networking and interoperability between devices and services in the home are key to unlocking the potential of the connected home:
"Increasingly the connected home comprises a much larger number of devices sharing a common local network, that can all access the Internet through a common connection – typically via a home router… Just connecting homes to an advanced broadband service will not, by itself, lead directly to innovation and value. Instead, it will be the complex interplay between connectivity, devices, platforms and applications with people, service providers and application developers that will shape the pattern of innovation for such services."
The characteristics of the NBN should help to encourage such innovation:
"The NBN environment provides an opportunity for multiple value added service providers to deliver a variety of services on the same common (NBN) infrastructure, in theory with the possibility of doing so completely independently from any one data service provider. The NBN model also effectively decouples the need for a service provider to invest in network infrastructure, and, as an example, it is expected that service models well emerge where content owners provide their content directly to consumers. In theory, in such a scenario, a video service provider could deliver a video service into your home, completely independently of the broadband data service supplier, which, using NBN terminology is called the Retail Service Provider (RSP)."
The NBN opportunity is about more than providing faster speeds:
"Overall, the significance of increasing bandwidth is not that we can download or upload files faster or have a more responsive browsing experience, but that new applications and services will be enabled by higher bandwidth and symmetry."
Encouraging interoperability between devices, applications and manufacturers is key to creating the vale proposition for consumers, for example in relation to the potential for home automation:
"Consumers may simply not be swayed to buy the same brand of TV, washing machine and dryer to allow them all to be controlled by a single application. They would, however, benefit from an environment where a single application could be used to control or monitor some or all their connected devices, regardless of manufacturer. The lack of broader industry commitment to interoperability could be an important factor hampering useful and wide adoption of connected devices...The connected home is therefore ripe for a revolution similar to that experienced by mobile phones, where common platforms across a range of devices are the catalyst for a significant leap in device capability and usability in the home. This will be particularly important as the next wave of connected devices such as connected appliances, lights, energy monitoring and audio/video systems begin to have broader penetration in homes."
Cloud developments, facilitated by the bandwidth provided by the NBN, are also noted as being likleyu to have a key influence:
"The present maximum downstream rate for NBN is only about half the performance of the lower end locally attached drives. With the future projections for NBN capability, network connection speeds may well make remote storage viable, having the same performance as a locally attached disk. Given the obvious benefits to consumers of not having to manage their data locally, and the potential benefits of consolidating large amounts of reliable storage in the network, it is expected that use of reliable, cloud-­‐based storage, will emerge as a key new business opportunity in the future."
Connected home services described in the report include:
  • Energy monitoring and management
  • Cloud storage and data services
  • Education and information
  • Sensor and home automation services
  • Collaboration and teleworking
  • Health and wellbeing
  • Audio and video
The opportunities in relation to health and wellbeing are particularly timely in relation to aging populations worldwide - see this previous post for more on this. The NBN offers a new opportunity for Australia to be  a world leader in broadband innovation:
"Australia has an opportunity to become a global leader in the development of applications, platforms and services for the broadband connected home. There is a role for development of standards, and more importantly, for industry participation and collaboration to realise the wealth of additional value that is yet to be discovered. There are also important consumer privacy and security issues that need to be addressed. To be successful, our challenge is to facilitate industry sectors working together to create platforms that consolidate, simplify and enhance offerings for consumers across a broad range of devices and services."
I'm sure both the BSG and ACBI reports will make for fascinating reading when we look back to 2012 in ten years' time.

Thursday, October 18, 2012

Scotland & Wales broadband update

Earlier this month, the Scottish Government announced that Scotland is set to benefit from nearly 15,000 new jobs thanks to investment in broadband infrastructure. These figures formed part of the first annual progress report of the Scottish Government’s digital strategy - Scotland’s Digital Future. From the press release:
"The jobs will be created across the economy in areas such as e-commerce, engineering, social media, tourism, laser technologies, cyber security and research and development. The investment will also help job seekers, older people and those with disabilities gain access to employment. The employment opportunities are forecast to emerge over the next 15 years as the Scottish Government invests in providing faster, next generation broadband access for businesses and communities...The Scottish Government is investing nearly a quarter of a billion pounds to deliver improved broadband access for people across Scotland. This includes a £120 million broadband boost specifically for the Highlands and Islands and £5 million to assist community groups in rural areas gain access to broadband networks." 
The Scottish Government has set the following targets for broadband in Scotland:
  • next generation broadband will be available to all by 2020 with significant progress by 2015; and
  • the rate of broadband uptake by people in Scotland should be at or above the UK average by 2013, and should be highest among the UK nations by 2015.
The report's summary of progress lists the following as the Government's achievements in relation to broadband infrastructure:
  • Published Scotland’s Digital Future – Infrastructure Action Plan in January 2012 and the Step Change 2015 Procurement Plan in May 2012 setting out how we will deliver world-class digital connectivity for Scotland by 2020 with a step change in speed and coverage by 2015.
  • Secured an additional £32 million of UK Government funding for Next Generation Broadband resulting in a national fund of over £240 million.
  • Reached the final stages of a procurement to deliver Next Generation Broadband across the Highlands and Islands following an intense period of competitive dialogue.
  • Commenced the procurement of a second contract, to be awarded in the first half of next year, to provide a significant improvement to digital infrastructure across the rest of Scotland by 2015.
  • Launched the Community Broadband Scotland Programme to enable local communities to take positive action to deliver connectivity within their communities.
  • Lobbied the UK Government and Ofcom successfully on 4G Spectrum to improve the levels of 4G coverage in Scotland that will be delivered following the forthcoming spectrum auction.
Coverage from ISP Review here, with further information on recent broadband developments in Scotland here. Two related recent interesting reports from Scotland are Scotland's Digital Future - Delivery of Public Services, published in September 2012, and the eHealth Strategy 2011-2017, published in September 2011.

In Wales, an additional £20m for broadband in Wales was announced at the beginning of October 2012, as part of the draft budget for 2013-14. From the Welsh Government press release:
" additional £175m in capital investment over the next two years to support strategically important projects throughout Wales, creating or supporting up to 3,000 jobs. This includes...An additional £10m in 2014-15 for high-speed broadband to ensure universal access by 2015.  This builds on the additional £10m we are allocating in 2013-14 for Next Generation Broadband Wales from the Centrally Retained Capital Fund..."
More on recent broadband developments in Wales here and here, with coverage from ISP Review here.

Ofcom: Further progress in accelerating the roll-out of 4G

Ofcom have today announced further progress in the speed-up of delivering 4G to consumers: EE, Telefónica O2, Three and Vodafone have formally created one of the key institutions required to ensure the rapid roll-out of 4G services next year. From Ofcom's press release:
"The four operators have formed a jointly controlled company called Digital Mobile Spectrum Limited, originally called MitCo, and appointed Andrew Pinder as interim chairman. It will be responsible for ensuring that consumers continue to receive clear Freeview TV signals following the roll out of 4G mobile services in the 800 MHz spectrum band from the Spring of next year. Deployment of 4G services in other frequency bands does not require similar measures to be put in place. Creating the company now will further accelerate the rollout of competitive 4G services next year. It will be funded by the successful bidders for 800MHz spectrum in the forthcoming auction and provisions exist to make sure that if any other party acquires some of this spectrum in the auction they can immediately become a shareholder in the company"
More on 4G interference issues in this previous post. Ofcom have published a letter sent by Ofcom Chief Executive Ed Richards to Culture Secretary Maria Miller, which identifies progress in other areas too:
"I understand from officials in your department that the Mobile Operators Association (MOA) has had productive discussions, led by DCMS, with DCLG and DEFRA, on measures to streamline planning processes for 4G deployment (and more generally), working towards a package of measures to be consulted on as soon as it has received Ministerial clearance. I understand that this is a high priority for the Government on which further progress is expected in the coming weeks and months. From our perspective I would welcome your continued support in this area."
The letter also confirms that no further legal challenges will be forthcoming:
"I have been in contact with the CEO of each of the MNOs this week and they have all confirmed to me that they do not intend to bring a legal challenge to either our Auction decision or our 1800 MHz liberalisation decision."
Bidding in the 4G auction process for 800 MHz and 2.6 GHz spectrum will now commence in January 2013. Coverage from ISP Review here.

Friday, October 05, 2012

More Google Fiber analyses

Two more interesting analyses of the Google Fiber project (about which more here), following on from this previous post. An article in the Wall Street Journal ("Web rivals want what Google got") reports that rivals are seeking the same concessions Google obtained from Kansas City to support their network builds:
"For the past few months Time Warner Cable has been negotiating with Kansas City, Kan.,to get a "parity agreement" granting it the same concessions as Google got, the city and the company says. Time Warner Cable has already signed such a deal with Kansas City, Mo. AT&T also has approached Kansas City, Mo., for the same deal, according to a person familiar with the matter."
The permission granted to Google to prioritise roll-out areas based on demand has also been criticised, with rivals having to provide more complete coverage:
"Several cable executives complain that the cities also gave Google the unusual right to start its fiber project only in neighborhoods guaranteeing high demand for the service through pre-registrations. Most cable and phone companies were required by franchise agreements with regional governments to build out most of the markets they entered, regardless of demand."
According to the article, Kansas City is asking AT&T and Time Warner Cable for offers similar to those made by Google to provide free connections to public sites such as schools. There is no mention whether AT&T and Time Warner Cable would be prepared to offer a "free" consumer Internet service like the one Google is offering, where an Internet service of up to 5Mbps down/1Mbps up is provided free for a period of not less than 7 years once a one-off connection fee of $300 is paid. The article does consider whether Google's fiber ambitions reach beyond Kansas City, quoting a Google spokesperson as saying "right now we're focused on Kansas City, but we hope to expand to other communities in the future."

An article in the Kansas City Star suggests that Google will have to demonstrate that 1Gbps speeds are a "must have" and turn a profit if the project is to be considered a success and have a wider impact:
"If consumers start to demand the new speeds, that could coax, prod or shame the cable and telephone companies to deliver them elsewhere. If Google demonstrates it’s lucrative, the sellers of old-school Internet connections could rush to turbo-charge their service. But if we use Google’s service as just another way to watch TV and a mildly better way to surf the Web, any rush to broader broadband could end with Kansas City."
The article also offers some analyses of take-up of the service and also what could be a potential flaw in Google's plans - the provision of a free service:
"The Google Fiber business model is intent on only taking the service where great demand exists. Its late-summer rally to identify such places qualified 180 out of a possible 202 neighborhoods. But those numbers could be suspect. Community groups worked hard to get people to pre-register, even putting down the necessary $10 for some households. People who need $10 to express an interest in service aren’t the best candidates to sign a two-year contract to pay $120 a month for TV and Internet. That could undercut Google’s plan to quickly and cheaply wire large numbers of customers. Google’s also offering free Internet hook-ups (after a $300 installation fee) of 5 megabits per second — speeds far slower than its other plans, but typical of what most homes buy today. The hope is that those people will upgrade. Their “free” service is essentially subsidized by the high-end subscriptions. What if customers decide the slower Internet is fast enough, particularly at a price that can’t be beat? Not only would that slaughter Google Fiber revenues, it would lower the number of people Web surfing at warp speed. That, in turn, could dash new innovations that depend on large numbers of high-end users."
This YouTube video of a speed test of Google's service is impressive, but it's questionable the extent to which the applications demonstrated here require gigabit speeds. This is the old chicken and egg conundrum: which should come first, the applications or the bandwidth? Some more thoughts on this here; we'll just have to wait and see.

I'm hopeful Google's project will be a success, both in terms of demonstrating a "must have" user experience and proving the viability of such investments.

The Connecting Europe Facility (CEF) & broadband investment

Earlier this week the European Commission convened a high-level conference in relation to its proposals for the Connecting Europe Facility (CEF). The CEF is a €50billion plan for strategic infrastructure investment in transport, energy and broadband infrastructures - see this video clip for a brief overview.

It is intended that CEF investments will plug the gaps that would not be filled if the market or existing public sector instruments were the only options. Strong support for the proposals was expressed at the conference. From the related press release:
"During the event speakers and participants appreciated the innovative character and important added value that the Connecting Europe Facility would provide. The Connecting Europe Facility would help getting strategic infrastructure off the ground that helps "Europe to compete and to grow" in a globalised world, in line with the Europe 2020 strategy and the recently agreed Compact for Growth. Without it, participants agreed, many necessary infrastructure investments in transport, energy and internet in the EU would not happen if dealt with purely at national level. This is particularly true in the on-going crisis, which hampers for example bank lending for infrastructure investment. Most participants expect significant private investments thanks to innovative financial instruments linked to the Connecting Europe Facility, like project bonds, and the longer term orientations and planning security it provides."
Just over €9billion will support investment in broadband infrastructure. Neelie Kroes, Vice-President of the European Commission responsible for the Digital Agenda, delivered this speech at the event:
"The CEF sets aside nine billion euros for digital public services and high-speed broadband. Today I want to make three points. First, the money for broadband - one billion euros per year - is an investment worth making. ICT investment is the most productive you can get; it builds growth and it creates jobs. For example, in Germany alone, up to 2020, broadband upgrade plans could boost the economy by 170 billion euros, and create nearly a million jobs. And no wonder! Think of the extra services fast broadband enables. In the EU, eProcurement could save 100 billion euros a year; cloud computing 250 billion. E-Health, eGovernment, smart cities: they can generate jobs, improve lives, and make public funds work harder. All of those innovations are worth investing in: but they all need fast internet. The fact is we are far from hitting the ceiling of Internet innovation. Let's not tie ourselves down with slow connections. Second: remember financial instruments attract significant private sector leverage: so every cent works around seven times harder. Every Member State will get back more total investment than they put in. And remember, a financial instrument isn't a donation, it's a loan. The EU budget gets its money back: with interest. In fact, I want all the broadband funding via those financial instruments. For maximum leverage, coverage, and taxpayer value. Third: you only get those benefits at EU scale. Through the EIB; and using EU-wide funding schemes to draw in long-term investors, such as institutions like the Caisse des Dépôts. National funding alone doesn't offer markets the same economies of scale, or diversity of risk; and it won't attract as much public and private funding. If this support isn't European, it won't happen."
More in a similar vein on her blog. Further information about the CEF and the "financial instruments" mentioned above is available in this overview. The European Commission expects the majority of CEF investment in broadband to be in the form of these instruments, rather than grants:
"...sparsely inhabited areas (so called “white” areas), where the business case is less evident will rely on Structural Funds and other national/regional public grants. CEF Digital will intervene in the so-called “grey” areas in the middle, using financial instruments to help mitigate the risks, and thereby making these high-speed broadband projects commercially viable...In contrast to the domains of transport and energy, CEF Digital will deploy predominantly financial instruments to roll-out the high-speed network throughout Europe, rather than focusing on grants. Grants, however, will be used for technical assistance and for the development of Digital Services; hence CEF Digital will be managed in close coordination with the Structural Funds, which offer grant support."
Project Bonds are envisaged as the main financial instrument for the CEF:
"The Europe 2020 Project Bond Initiative, for which the pilot phase has been launched in 2012, is envisaged to become the main EU instrument to help the promoters of individual infrastructure projects attract private sector investors, in particular insurance companies and pension funds. This initiative will enable the issuance by project companies of long-term well-rated bonds instead of relying only on bank lending. The participation of the European Commission and the EIB (European Investment Bank) will mitigate some of the risk associated with a project bond issued to finance a specific project. Member States, infrastructure managers or companies will therefore be able to access a competitive source of finance and consequently improve the cost of financing such projects."
The operation of Project Bonds is explained in more detail in the example on page 7 of the overview; essentially, CEF funding will provide capital contributions to the EIB as a "risk cushion", to cover a portion of the EIB's risk in financing eligible projects. Individual projects can then raise funds by selling project bonds to capital market investors, the involvement of the EIB ensuring projects are an attractive investment proposition. This mechanism could prove more timely and have a bigger impact than grants (or gap funding?), given the current economic climate and state aid considerations:
"The credit shortage and the new regulatory requirements of Basel III currently limit the appetite of commercial banks for exposure to infrastructure financing. CEF Digital will enable the European Investment Bank (EIB) to fill this gap by taking on more risk in the broadband infrastructure sector. Thanks to these financial instruments, the CEF will be almost budget-neutral and have a high leverage effect (one Euro of EU investment will trigger between 5 and 10 Euro of private investment). Operators, in particular those where the investment climate is particularly harsh, will in turn benefit from lower interest rates due to the EIB’s AAA rating. Time-to-market with CEF is likely to be much shorter than with structural funds, if only because support through financial instruments does not qualify as state-aid, clearances for which can easily take up to two years."
The CEF overview document is clear on the importance of investment in broadband infrastructure:
"High-speed broadband investments create jobs in the short term as they are installed, but the transformative impact is in their boost to productivity, in the modernisation of public administration, and in the improvements to the quality of life by tackling the exclusion of isolated communities, or by enabling new applications in eHealth. High-speed broadband investments generate a higher sustainable level of employment in all sectors of the economy; according to the OECD, an increase in 10% of broadband take-up in any year results in a growth of 1.5% in labour productivity over the following five years. 
Ten years ago, dial-up was the standard, DSL was under development and neither YouTube, nor Facebook or Skype existed. Without basic broadband, these platforms would have never been created. We cannot predict which new platforms will be developed by 2020, but one thing is clear: they will need more bandwidth than we have now. High Definition TelePresence requires at least 24 Mbps, eHealth applications need up to 100 Mbps, and cloud computing depends on high-speed symmetrical connections. Just as dial-up is now obsolete, first generation broadband networks will soon become a relic of the past and Europe cannot lag behind."
CEF proposals are expected to be adopted before the end of 2013. On the same day, Neelie Kroes gave a closely related speech at the ETNO FT 2012 CEO summit, flagging the great potential of broadband as an investment opportunity:
"...(we) need to show investors that the European telecoms sector represents a growth story. A sound long term investment, and a credible way to rebuild our economy. Overcoming that chilling factor is our main challenge, going beyond the finer details of this or that regulation. This growth story is waiting to be told. Just look at how, over recent decades, people have taken to new technology: and valued its benefits. Many products that ten years ago were a luxury, are now lifestyle essentials: which people don't think twice about spending money on. Just look at all the new products and services that could come onto the market in future, from cloud computing to connected TV, online Universities to virtual operating theatres, smart cities to the Internet of Things. Think how much value those will add to people's lives, businesses' bottom line, government services. And how much they will be prepared to pay to get that value, via fast broadband services...(we need) to make investors confident that fast broadband networks are safe, profitable, and worthwhile"
Her words about the efforts being taken to ensure the right European regulatory framework for network operators, as set out in July 2012, offer an interesting counterpoint to the recent issues over the roll-out of 4G services in the UK:
"...this isn't a squabble about who gets a bigger or smaller share of the pie. It's about making the pie bigger. The more people get ultrafast access, the more they will demand new online applications; the more market players will supply them; the more their neighbours, families and friends will see those great benefits. And the more demand will soar. As demand grows, will create a growing business in supplying connectivity: and boost revenues. That's good for you, it's good for consumers, it's good for the economy: and that's the environment we are creating."
ETNO's statement in support of the Connecting Europe Facility proposals is available here.

Wednesday, October 03, 2012

Peace breaks out over 4G

The agreement reached in yesterday's talks between Culture Secretary Maria Miller, Ofcom and the mobile operators will lead to an accelerated rollout of 4G mobile broadband services in the UK, by both EE and other operators.

From the DCMS press release:
"Later this year Ofcom will begin auctioning the spectrum that many mobile companies will use for 4G services. Over the last month, instigated by the Government, Ofcom, mobile network operators, Digital UK, TV broadcasters, and others have been working to speed up the process of making that spectrum available. The Culture Secretary welcomed the close cooperation in helping to accelerate 4G roll out. Today’s meeting dispelled any fears of litigation and the Culture Secretary welcomed the co-operation of the operators. Thanks to a number of initiatives, mobile operators will be able to roll-out 4G services to the vast majority of the UK in the first half of next year – six months earlier than previously estimated.  This will follow EE’s launch of a 4G service ahead of Christmas this year."
Key to this agreement are plans to speed up the clearing of the spectrum that 4G services will use, the establishment of a body to address digital terrestrial TV (DTT) interference issues earlier than anticipated and continuing dialogue to consider how the planning process might be streamlined to speed up the deployment of mobile infrastructure. Ofcom has also issued a statement on the agreement:
"Ofcom plans to start the auction process to release spectrum at the end of the year, with bidding starting early in 2013. Ofcom’s consistent objective has been to ensure that the 4G spectrum – at 800 MHz and 2.6 GHz – is made available as soon as possible. Following discussions with TV broadcasters, Digital UK and the transmission company Arqiva, Ofcom has secured the earlier release of frequencies that were previously used for digital-terrestrial broadcasting. This spectrum will now be cleared and ready for 4G mobile services across much of the UK five months earlier than previously planned, from spring 2013. This has only become possible in the past few months as a result of the significant progress that has been made to date with the digital switchover and the clearance programme itself, which has been running ahead of schedule. This means that more UK consumers will be able to benefit from a competitive market for super-fast mobile broadband sooner than previously possible."
Coverage from the BBC here. A separate DCMS announcement reports that a  part-time Chair of the Interim Mitco Oversight Board has been appointed, Mitco being the body being set up and funded by the mobile network operators to manage the provision of assistance to those television viewers who are likely to suffer interference to reception from 4G services operating in  the 800MHz spectrum. The statement includes a link to a letter sent by Communications Minister Ed Vaizey to Ofcom in July 2012 confirming the establishment of the MitCo Oversight Board, illustrating the significant scale of likely DTT interference issues:
"Ofcom's figures, developed in discussion with industry stakeholders, indicate that  around 2.3 million households could be affected. However, only 900,000 are likely to rely on  DTT for their primary viewing, so in effect, fewer than a million people will  be directly affected. The rest will  be viewing television on satelite, cable or broadband. It is these 900,000 homes which should receive the assistance necessary to enable them to continue to view the services they are used to."
The scale of the problem is underlined by the funding ceiling proposed for MitCo, which is set at £180million, with any underspend to be returned to the funding mobile network operators. More on this from ISP Review.

Tuesday, October 02, 2012

Unleashing the Potential of Cloud Computing in Europe

Last week the European Commission published Unleashing the Potential of Cloud Computing in Europe, its strategy for speeding up and increasing the use of cloud computing across the economy. From the related press release:
"'Cloud computing' refers to the storage of data (such as text files, pictures and video) and software on remote computers, which users access over the internet on the device of their choice. This is faster, cheaper, more flexible and potentially more secure than on-site IT solutions. Many popular services such as Facebook, Spotify and web-based email use cloud computing technologies but the real economic benefits come through widespread use of cloud solutions by businesses and the public sector."
Key actions of the strategy include:
  • Cutting through the jungle of technical standards so that cloud users get interoperability, data portability and reversibility; necessary standards should be identified by 2013;
  • Support for EU-wide certification schemes for trustworthy cloud providers;
  • Development of model 'safe and fair' contract terms for cloud computing contracts including Service Level Agreements;
  • A European Cloud Partnership with Member States and industry to harness the public sector's buying power (20% of all IT spending) to shape the European cloud market, boost the chances for European cloud providers to grow to achieve a competitive scale, and deliver cheaper and better eGovernment.
Clearly the widespread availability of broadband infrastructure is a prerequisite if the strategy is to be a success:
"The cloud could be especially important for small businesses in struggling economies or remote and rural regions to tap into markets in more buoyant regions. For example using broadband infrastructures to overcome the "tyranny of distance", the whole range from high tech startups to small traders or artisans can leverage the cloud to tap into remote markets. This opens up new economic development opportunities to any region that has ideas, talent and a high speed broadband infrastructure...Other initiatives, such as on broadband access, roaming or open data also contribute to an environment conducive to faster cloud adoption, particularly for consumers and SMEs."
The Commission will report on progress by the end of 2013 and present further policy and legislative proposals initiatives as needed. Commentary from Public Service Europe (and a nice infographic) here.

Decision time for 4G

A number of sources report on a meeting being held today between Culture Secretary Maria Miller, Ofcom Chief Executive Ed Richards and the heads of the four major mobile operators. This follows the ending of a four week standstill period, agreed following EE's soft launch last month of its 4G service ahead of Ofcom's forthcoming 4G auction, based on its existing spectrum holdings (more here). This from ISP Review:
"According to the Sunday Times, Miller has drafted a proposal with Ofcom’s CEO, Ed Richards, that could bring forward the expected auction and or spectrum release date in order to satisfy any concerns about EE being given a head-start. This could reduce EE’s advantage but any auction would still take time to complete and thus it’s unclear how attractive such a solution would really be."
This from the BBC:
"Ahead of the meeting, Ofcom has told the government that the process could be accelerated to launch 4G networks in many places by May or June. It had been thought that it would take until the end of the year. The move may appease O2 and Vodafone which had expressed anger that rival network EE - formerly known as Everything Everywhere - had been given permission to use its existing 1,800Mhz spectrum to launch a 4G service earlier. O2 had threatened legal action to prevent EE gaining this advantage. A deal could pave the way for EE to announce its 4G launch date, which could be before the end of this month."
Bringing forward the date when rivals are able to offer 4G services is key here, which will be achieved chiefly by accelerating the process of clearing the spectrum that 4G services will use. This will minimise what other operators see as EE's first-mover advantage; issues around the iPhone 5 haven't helped matters either. More detail on BBC Technology Correspondent Rory Cellan-Jones's blog:
"The January date of the auction itself can only be brought forward by a couple of weeks, but much more has been done, says Ofcom, about the process of clearing the spectrum for use by its new owners. With analogue television and air traffic control currently using some of the airwaves, it was expected to take until the end of 2013 for this job to be completed. Now, says Ofcom, the hope is that it can be completed in the late spring, so that new 4G services could start rolling out to many parts of the UK in May or June 2013. The other issue for O2 and Vodafone has been that EE might try to delay the process. A new body Mitco, financed by all the operators, has been created to ensure that 4G signals do not interfere with digital television. The fear was that it would be in EE's interest to make sure this work did not proceed too rapidly. But on this point too, Ofcom has been eager to reassure the government that Mitco will do its job as rapidly as possible. All in all, Ofcom believes that EE's period of being the only 4G game in town will shrink from as much as 18 months to as little as six months."
Fingers crossed for an amicable resolution today.