Ministers and regulators have just two years to find ways of encouraging investment in the next generation of high-speed broadband, or the UK’s competitiveness will suffer, according to a report published on Monday.

10) This raises a dilemma: there is a strong probability that higher speed broadband will be crucial to maintain competitiveness. However, there is, as yet, no clear commercial model for widespread next generation access deployment. The policy istinct where there is a lack of evidence will be to do nothing.

It may be that UK businesses might be disadvantaged versus European competitors by having only 24 Mbps but in these cases, the market will work because the incentive is financial. Businesses are willing to pay much higher communications fees than homes anyway and because these are also more heavily populated premises so economies of scale work better too (24 Mbps will be ok for teleworking for some time to come I expect).

Let's just take at face value for a minute that 24 Mbps actually means 24 Mbps sustained utilisation: that is at least 3 concurrent TV channels (or 600 concurrent telephone calls) per household. Do we need more than that at home? Probably eventually, yes, but one step at a time, eh? Lets sort out the commercial, backhaul and routing issues first to make what we have work efficiently, rather than pumping in tax-payers money.

The nearly £10bn subsidy proposed is just under 5 times what Gordon Brown got hammered in the weekend's press for losing on his gold transactions. Imagine the headlines: "Free Doesn't Pay" with Charles Dunstone's face superimposed on some vegetable. £420 per household is £420 on my council tax bill and I am really struggling to see that being accepted by anyone, even those who can see next generation broadband being the outcome. If people could see the value, they would of course buy the service from the market. If the government is forced to fund it, it will be because people don't think it is worth it...

So while I disagree on the case for public subsidy at this time, that is not to say that I believe that the market will necessarily work out the all the answers. The thing is that we don't know which answers will come from the market and which won't because the market has not been given a chance. Jumping the gun and ploughing public money in now (or even in a couple of years time, before the market has matured), is almost certain to distort the market.

Going back to Hillegom's network again. 4,600 subscribers out of 5,400 homes passed (85% penetration rate) signed up for the service. Those interested in the Digital Divide may also take note of the 2,031 homes in the town that were not thought deserving of FTTH - that is 27% of the population, the consumers that the market will not work for. You have got to be able to generate higher ARPUs though because on a straight cost savings basis, FTTH (using Hillgom numbers) does not pay off against LLU in less than 25 years. Using BSGs lower cost per household, you are still looking at over 10 years to pay back the capital.

There is clearly no room for competition on a route by route basis if you need 85% penetration to make the numbers work, even over such a long period. But what about multiple local monopolies? That sounds to me a lot like the cable franchise scenario replayed and consider how messy, not to mention lengthy and expensive, the consolidation of that industry was/is. Are investors willing to risk all those bankrupcies all over again? I suspect not.

One thing we do know: we don't need is forced competition at an infrastructure level, doubling up (or worse) on network construction costs because this is hugely inefficient and IP is a Natural Monopoly. IDATE have published research that states that Civil Works accounts for 70% of fibre construction costs (there is a breakdown of this here). An alternative view, albeit one produced in 1997 with the help of Vint Cerf before he moved over to the Dark Side can be found here, showing build costs at 75%. For an investment to have the best chance of a return, competition needs to be minimised, not maximised and this is the crux of the problem facing both the BSG and Ofcom.

Neither group is allowed to call for a monopoly! Ofcom because it has a duty to "promote competition, where possible" and the BSG because a large number of its stakeholders will lose out. Cross subsidisation of unattractive areas by excess margins elsewhere is essential to making the business case work nationally. Critically, this is why we have 99.6% broadband coverage: BT has by and large been forced to sell Wholesale IP Stream Access at a fixed rate (give or take £1 or so) whether their margins are 50% or -50% on an individual user. The monopoly and market price control comes with a responsibility to deliver a universal service - with great power comes great responsibility.

So in the end we are left still looking for answers. The BSGs conclusion, if you read the report rather than the PR, is to watch, listen and learn which is actually about right. We don't know what we don't know yet and acting before we even understand the question we are trying to answer is probably not such a good idea.

* 201DN = 201st Decade Network. Its not going to serve us through 'til 2099 if 24 Mbps is the limit...!