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Dear Ofcom
By jpenston | November 12, 2007 |
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Now that the buzz caused by The Minister’s involvement has dissipated and we have all had a little time to rationalise our positions, the time has arrived to take a stance and write our responses to Ofcom’s consultation into “Future Broadband - Policy Approach for Next Generation Access“.
My Starting Point
So what do I think? Perhaps more importantly, why should you care..? After all, I have no real stake in the result - I don’t represent anyone other than jpenston.com trading as The IP Development Network. This is not a ghost written piece advancing the interests of a telco and I am not employed by anyone to lobby for a particular outcome.
As an independent consultant, my role might be more tuned to working out how to deal with whatever the outcome is, rather than trying to say what I think that outcome should be. But I have a view, and anyone who has met me or has read my blog over the last 12 months or so, will know that it is very difficult for me to keep quiet when I have an opinion.
Objectives and Objectivity
So what is the objective of the consultation? I understand that Ofcom want to trigger a “widespread debate”, but a debate about what? And more importantly, a debate with what boundaries? Perhaps at the highest, UK Plc level, you might see the debate being about:
- Does faster internet access correlate with economic expansion
- Does slower internet access correlate with reduced global competitiveness
- Does internet access need to be at a certain level to deliver social benefits
- Is there a digital divide
- If there is, is the digital divide a problem
- Is there a right to high speed internet access
- Is infrastructure a natural monopoly
- What level of responsibility should the state take for infrastructure
- What responsibilities does the incumbent have to the country
- What is the role of competition
- How can the various “shades of grey” between 8, 9 and 10 be managed
- How should government contracts be awarded to avoid distorting the market
Flaws in the Structure
There is a serious flaw in the discussions that I have heard on the NGA subject: some believe that many of these issues are outside of the scope of this consultation… When I attended the BSG review of the consultation, one of the common themes was that “addressing the digital divide is not Ofcom’s role”.
Those that made such statements were clearly experienced regulatory lawyers and I don’t know enough to say whether they are right or wrong, technically. But actually I don’t care for the minutia of whether this is in or out of scope - it stinks of a culture where people are afraid to say what they think in case they tread on someone else’s toes. Corporate politics only leads to bad things.
What is clear to me is that any changes to Ofcom policy resulting from the consultation will determine whether the Digital Divide gets worse, better or stays the same. Anything that encourages “selective investment” will make the divide worse, with the opposite also true. Whether or not “addressing the Digital Divide” is Ofcom’s role, the divide is a natural result of Ofcom’s policies on the competitive structure of the market.
Political Objectives Should Drive Regulation
I have heard it said that this set of questions are actually for the politicians to answer. The structure that exists says that the politicians determine the objectives for Ofcom to achieve using the competition policy levers at its disposal as a regulator.
While conceptually valid, this puts Ofcom into an awkward position because perhaps it is not fair to expect the politicians to have the industry specific expertise to know what the right answers are without advice from Ofcom. It is therefore incumbent on Ofcom to advise the government on what the decisions should be which will inevitably mean asking Ofcom to question its own role.
It is therefore vital in my view that the role of Ofcom be at the centre of the NGA consultation. Avoiding this question will naturally lead to certain answers being rejected even before they have been analysed for their worth.
The Positioning of Responses
What is clear to me is that most respondents will take a much more narrow view and that it will be up to Ofcom to interpret those positions determine the answers to the Plc questions. Looking at the stakeholder positions is always going to be challenging because self-interest will immediately explain the conclusions. I suggest that the various stakeholder objectives may include the following:
- Increase “my” regulated rate of return
- Let “me” choose when and where to invest and allow me to build barriers to entry where I do
- Ensure availability of wholesale 100Mbps and allow “me” to choose where I buy it
- Ensure the infrastructure exists as an enabler for “my” services
- Ensure “I” have a choice of providers
I could go on, but you get the picture. The stakeholders are wide and varied: infrastructure owners, wholesale customers at various levels, service providers, application providers, users in schools, homes and businesses, investors…
Collective Responsibility
While it may be very difficult for a commercial entity to do this, it seems necessary to me that we take collective responsibility for what is “best for us” rather than simply what is “best for me”. This is probably asking too much, but it makes decisions much harder if a filter has to be applied every time a response is read.
Such collective responsibility will involve understanding your place and what you need from others to achieve your objectives. It also means understanding what they need from you and occasionally putting short term self interest aside so that a bigger and better market results. Central to this is agreeing who makes the investments, where they get the money from and how much others should be prepared to pay as a premium for someone else taking the risk.
A key question for Virgin Media for example is how they approach NGA where they have cable compared to where they don’t…
Lessons from the Past
The historical background is important. What we have learned is that if you want to make a step change happen that makes binary changes to the country - internet access (yes or no), broadband (yes or no) - a monopoly investment is the way forward because you can cross subsidise to deliver the benefit to all.
However, once that monopoly investment is made, if you want to maximise utility, then competition is the way forward. Of course that leaves some people behind which will eventually run full circle until the point where monopoly investment (or taxation-based subsidies) is required to correct the imbalance.
We have lurched from one to the other and back again in the UK ever since competition was introduced in the 1980s, but I think we are seeing the problems that such lurches in policy cause. LLU brought with it a degree of certainty, but already we can see the flaws in the digitally excluded. One of the major hurdles to solving this is uncertainty on spectrum policy and how wireless will be used in the future.
Uncertainty
Freeing up the analogue TV spectrum could bring a viable alternative to fixed infrastructure if it is regulated a certain way. Alternatively, it could be ring-fenced, assigned to certain niches or auctioned in an attempt to let the market itself decide. It may be that all of these are combined - which will it be? Until you know, you can’t compare that option to an LLU footprint expansion or a NGA BT Wholesale product.
Actually what is done doesn’t matter as much as when it is done. If spectrum policy is decided before FTTx investments then those investments can take wireless factors into account. If spectrum policy decisions are deferred then the uncertainty into the LLU expansion case is only going to lead to sub-optimal decisions being made.
We need to gather together all the technology forces and try and look at the bigger picture. We need to decide what we want that bigger picture to look like and then (and only then) we should make decisions into what the best structure is to arrive at that objective. Once we make that decision, we shouldn’t tinker with it.
We are where we are
We cannot avoid the position we are in. My belief is that right or wrong, we have started down a path where the primary objective is competition. We are in an environment where our collective political economic philosophy is that competition is the best way to maximise the outcome in any given environment.
But competition can occur on many different levels and this is where regulation comes in because it artificially decides what that competition should look like. LLU was a major shift from the IP Stream (and CPS-like) model where competition was on service and not infrastructure.
LLU encouraged competitive investments deeper into the networks and allowed those that invested the chance to benefit from those investments by building scale. LLU undeniably forced the recent wave of consolidation and we now have a situation where 5 players rule the market.
Please, not again - let’s have some stability!
There would have to be very clear evidence that LLU has failed before we should alter or even tinker with the policy that last changed dramatically in 2004. I simply don’t believe that we have given this enough time to have such evidence of failure. I believe that the case for change is not proven.
This may be a very boring conclusion to some who want big money investment in fibre to the home, perhaps using some form of state aid to help oil the wheels. But “do nothing” is always a strategic option and should not be confused with inertia (where you know something needs to be done, but can’t decide what).
Do we need to ”Do Something”?
I want to briefly unpick the case for “do something” as I think it is based on a False Sense of Certainty. The main false premise for me is that “we will not be able to deliver 100Mbps without massive investments in the access loop to the home”. We have seen in recent weeks how copper may not be quite as dead as we thought.
Furthermore, we conveniently ignore the fact that we use around 1% of the existing local loop capacity - perhaps because that does not sit comfortably with the far more sexy alternative of spending lots of someone else’s money.
Thirdly, we need to consider the implications of cheaper storage and the possibility that affordable terabit storage may find its way into people’s homes and businesses in a relatively short period of time (quite possibly much faster than we can lay new fibre optics). Such storage built into consumer devices would dramatically change the ability to offer on demand TV services that receive their signals from existing broadcast. internet based multicast or even P2P services.
And last, but by no means least, we need to ask ourselves whether television really belongs on the internet. Not to be confused with video on demand, IPTV theory seems to centre around the belief that we would choose the long tail of archives over and above the current set of linear programming - if it were equally easy to select. We might well dabble occasionally, but the the popular stuff available through the storage model described above, it might be a case of 80% of the money being spent to deliver 20% of the value.
Summary & Conclusion
The Ofcom consultation does not ask the right questions. We should start with the political, social and economic requirements of the country and only then should we start looking at what to do to deliver what we want.
When we come to that second phase, we should look at all the technology options and we should lay out policy on all of them, on the same basis, at the same time. For example, if we are to mandate wholesale (open access) to fibre investments, we should do that same with cable, wireless and any other technology which achieve the same access result.
Once we have made those decisions, we should have a period of complete certainty lasting perhaps as long as 10 or 15 years during which we allow the policy time to become established and the market time to evolve. We should not tinker with it once we have established the structure. If we screw up, we should trust the market to find a workaround - if competition really is our primary goal, we should trust it to work.
Follow Up
That’s it for today. Over the coming weeks, I will be writing more in specific response to the actual questions in the consultation:
Question 1: When do you consider it would be timely and efficient for NGA investment to take place in the UK?
Question 2: Do you agree with the principles outlined for regulating NGA?
Question 3: How should Ofcom reflect risk in regulated access terms?
Question 4: Do you agree with the need for both passive and active access remedies to promote competition?
Question 5: Do you consider there to be a role of direct regulatory or public policy intervention to create artificial incentives for earlier investment in NGA?
Topics: FTTH, Ofcom, next generation networks |
November 15th, 2007 at 3:53 pm
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