Friday, October 19, 2012

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.

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