. This is a serious problem so that means getting into more detail about the network and the factors that are creating the problems.


The first point to make is that for all the fuss about Fibre to the Home (FTTH), that is only one part of the jigsaw in delivering video to people's homes. The local loop is one of four major choke points on the access network side that need to be considered. Sitting alongside those access issues are considerations of how the internet routes packets and how and where those packets are stored.

In fact, for all the hype, it may be that FTTH is one of the least pressing of the issues that stand in the way of the internet's ability to deliver the larger and much more lumpy video traffic on the horizon. At some point, the last mile will again be the most significant bottleneck - as it was when all we had was dial up - but right now, how many people would be able to use a 100Mbps local loop if it magically turned up on their doorstep?

Would the architecture support it? Would there we enough capacity in the home and on the core network to use it? How many knock-on issues would we need to solve before we spend the money on fibre in the local loop? A chain is only as strong as its weakest link...

The Home Network (x, in the diagram above)
A good place to start: it is undoubtedly the most complex issue because of the anarchy that exists in this space. There is no control over end points and how they are attached to the network, or indeed which network they are attached to. Security? It is best not to ask - denial is a wonderful thing...

Consumers are truly left high and dry to build the wireless / ethernet / homeplug network for themselves. If they are really lucky, they can get a friend / son / daughter to do it for them.

This makes the introduction of new hardware and new services that would use the 100Mbps a significant challenge. The customer may not have a network, or it may be "a bit flaky" such that when they come home with shiny new CE equipment, they are disappointed (or worse) to find that it doesn't work. So they make a call to the ISP but after a long wait, they find that their "service" provider isn't there to help.

Do you phone a friend every time you want to install a new device in your home? How soon before your DIY network starts to creak and your friend's generosity starts to get seriously tested? If everyone suddenly had 100Mbps to the home today, very little of it would be usable because the capacity of the last yard is significantly below that. Before FTTH, we need a solution that simplifies the home network and extends management of that to a real "service provider".

The Local Loop (y)
No-one is happy with the current state of affairs. That is not to say that everyone agrees that access networks are too old and slow and are in dire need of an upgrade - LLU has yet to be fully exploited, so perhaps we should start getting the best out of that? There are two conflicting priorities that need to be managed: ultimate speed is one of them, but at least as important is ultimate reach.

Looking first at speed, there seems to be a clear assumption made by many that we need more than ADSL2+. This point is worth explaining because this is not about headline speeds: 24Mbps for all would be enough for a fair few years. But ADSL 2+, like ADSL 1 speeds degrade with distance, so only anything substantial can only be delivered in real time over relatively short distances.


This table is from the BSG report, Pipe Dreams. Links to articles covering that and other articles can be found on the

Busy Hour Planning
There is a huge difference between how computers are used on the internet and how TVs are used. Watching television is much more heavily concentrated: peak audience (of all channels) is around 2.8 times the average audience over a 24 hour period, whereas for web surfing this is nearer 2.1. P2P actually generated very good peak load efficiency because the ratios of download applications that use P2P is around 1.4.

What on earth does this mean...? In simple terms, you need to provide 33% more capacity for watching TV as you would for viewing the same volume of data on the web because you have to build for the peak unless you want congestion on the network. Furthermore, congestion for streamed services like TV is far more serious than for web access (where building to the 95th percentitle was commonplace).


The chart shows how the usage of various applications varies and where the peak loads are on the respective networks. There is no weighting for file size - the area under each line has been rebased to 1,000 units. The aim is merely to show the peak to mean traffic profile of video is significantly higher than for web and P2P.

This reiterates the point above that for the same volume of data, you need more network for video than you do for other internet applications.

Which makes a situation which is already very bad, even worse - the capacity that we actually use today is only a fraction of what is available on existing local loops. Average usage of around 5GB per month on a 2Mbps circuit uses 0.8% of the connection's maximum capacity. There are over 8 Exabytes (8,912 Petabytes) per month of unused capacity on existing networks.

A 2Mbps link is enough capacity to deliver 146 hours of 1080p programming per month - the average household watches just over 100 hours per month. What we have today could deliver what we need tomorrow.

It highlights the inefficient use of the total available resource... The problem is "on-demand".

Labels: BT, digital divide, FTTH, next generation networks, Ofcom, timeshift TV, video on demand

Labels: BT, FTTH, next generation networks, Vigin Media

The reason ISPs lose their investment is because once you have made the investment, the next rational move is to reduce pricing in order to fill the network you just built because your incremental costs are extremely low. Obviously if everyone sees it this way (and they do) you end up with a continuation of the price war, only this time with a much lower floor.

This is not a unique problem for telecoms. Washing powder and countless other FMCGs have the same dynamic - for them investment in LLU is replaced by investment in production capacity. Once you have invested and find competitors have done the same, you might as well throw the original business plan away because the pricing power assumptions you might have made are just no longer there.

Recreating the Monopoly
The way out of this predicament is to rebuild your monopoly power through acquisitions, but when you do that you are again paying over the odds because the companies are valued by stock markets knowing the very weak position in which the buyer finds themselves. That's why so many companies that went on acquisition sprees find themselves in a bankruptcy position. The Goodwill you are buying is just not real because the product is such a commodity.

The final problem is that if you are really successful and get too big or rebuild the monopoly too far, you have the spectre of regulation and consumer group pressure as the US carriers are now finding since the re-creation of AT&T.

The Incumbents
The above is a very long winded answer to most of the question, but it still only deals with the position of a competitive carrier. The position of an incumbent is very different indeed.

There are really two incumbents in the UK - BT of course and Virgin Media will all the old cable franchise assets. I'll come back to BT in a minute because that is where the profits that Chris mentions in his question are being made.

Virgin has found itself in a strong market position - a superior service technically to BTs for the 47% on a cable run - but in a mess organisationally. Trust me, acquisition integration is nowhere near as easy as the CEOs will perhaps suggest in their briefings to investors. I liken it to spaghetti - a lot of customer service and network management systems that have been designed in isolation but have been brought together under one brand. I feel a huge amount of sympathy for support agents dealing with quad play customers because the information they have at their disposal is so poor!

BT is very different - they have a monopoly over the infrastructure serving the 53% and they face a very different problem. They make huge, humongous investments on a periodic basis like they are with 21CN which give them far more capacity than they need immediately on the routes they build. They are regulated to wholesale this product but they can't suddenly drop the prices to their new costbase because there is no immediate demand, so they have to leak it out gradually.

Nevertheless, both incumbents are in the same position: they have made investments and their shareholders want a return before the next wave of spending is released. Virgin in particular need to give back before they take more - which is why Private Equity has been circling the company. Both BT & Virgin have assets and market power and are in a position to make significant cash returns by slowing investment.

There is also the point worth considering that if BT moved too quickly fighting tooth and nail for the attractive markets, it could obliterate the competition that Ofcom has strived for twenty-something years to foster. Sure that would address the speed and capacity issue for some, but leave BT as a re-established monopoly responsible for a widening Digital Divide. Be careful what you wish for...

Ofcom's Attempt to Solve the Problem
So onto the final part of the question: what is wrong with Ofcom's gunboat diplomacy - get all these players, the OLO/ISPs, BT and Virgin to invest in a network for the 21st century and not just the 202nd decade?

Perhaps nothing, it was a similar strategy that led to the change in attitude by BT which got us to where we are now. Line everyone's business models against the wall at gunpoint, shine a light in their eyes and ask them some difficult questions.

Notice that I haven't mentioned the iPlayer at all in this analysis because the picture is much much bigger than the BBCs rather limited application. It could as much apply to YouTube, Joost or any other mass traffic source like Google or Yahoo!

The problem it seems to me is that it is very difficult to work efficiently at gunpoint. What is needed is for the ISPs and the content owners to stand down from the confrontation that has been bubbling up ever since AT&T vs Google in the network neutrality debates and work on a better way to make sure that the money flows down the value chain. It is absurd to expect a commercial entity to invest without the promise of stability and an ROI. ISPs today have neither.

Conclusion
The iPlayer's unique position as a free, advert-less, quasi-publicly funded product makes it an ideal political football. We are behind because of the unintended consequence of a regulatory decision in the 1980s to regulate NTS - long before most people had ever heard of the internet - and Ofcom is using the iPlayer as a battering ram to solve the unintended consequence of its actions years ago.

There is a very real danger that yet more aggressive action could have further unintended consequences. Ofcom may argue that actually it was the BBC Trust that had the final say on the iPlayer, but it would be naive to believe that this approval would have been given had Ofcom raised the ISPs concerns more strongly than they did in the MIA.

They may have plausible deniability but I think Ofcom knew exactly what they were doing and perhaps it will have the intended result - but it is a high risk strategy.

Labels: BT, digital divide, FTTH, iPlayer, ISP Products, next generation networks, Ofcom

Only 40% of the population will notice any speed difference from ADSL 2+ compared to ADSL Max. That is the point that David Brunnen makes in his comment and he is right: without any shortening of the loops, 60% of us are stuck where we are now.

David Harrington, Leader Regulatory Affairs at the CMA, notified me of the recent resolution passed by MEPs on 19th June, where among other things, they called on member states to ensure "a future where no European child and no individual involved in educational programmes is left off line in Europe".

"Think of the children" is an evocative call, but in this case I think it is a fair enough plea. Education is one of the major beneficiaries of the leaps in technology over the last 15 years, with the PC (teacher can now read your homework) and of course the internet (your homework might teach the teacher something). If the historical infrastructure that this generation has inherited is not up to the job in some places, there will be massive inequalities in the standard of education available to different children.

With that in the background, perhaps you might expect some leniency with regards to the state aid issues raised by Mr. Brunnen in his comment, when governments start trying to level the playing field between citizens and with their neighbours. The need for this levelling between countries is partly evident in the table posted over the weekend on the Broadband User Group site, that shows the average retail cost per megabit per second throughout the EU.

The UK is clearly in a 3rd tier with the likes of Portugal, Spain, Poland and Ireland. My suggestion to those in the UK wishing to lobby for the rules on aid to be set aside would be to take a step back and let those countries fight the battle for you. The EU seems to find it very difficult to say no when those four come cap in hand... For the big bad UK to come and demand special treatment evokes memories of Thatcher, Maastricht and Vetoes which we are still paying for in political currency even now.

The comment by JFK raises an interesting contradiction for me. The Digitally Poor in Kent and Essex clearly do not have the same ability to pull at heart-strings as do their peers in rural Wales, but they if they are disadvantaged to the same level is this fair...? There is a risk here that social jealousy can lead people to think that hey, these people are rich and can afford to sort the problem out for themselves, why should I pay for it in my tax bill?

The Digitally Poor in those counties may be Commercially Rich in comparison to the folks in Dyfed, but I would argue they are still not rich enough to be able to afford to rectify the problem for themselves. They can't go out, hold a village fete and expect the proceeds to fund a new telephone exchange - this is an expensive upgrade we are talking about here. You'd have to be David Sullivan to be able to afford to solve the problem for yourself.

At some point your economic prospects and social and physical well-being might be determined by the length of the copper wire connecting your house to the rest of the world. At that point, the residents of Essex and Dyfed alike might expect their follow UK citizens to ensure a level playing field, much as we've had in the past with the roads or the railways. Is subsidising the broadband access any different to the subsidisation of the transport system?

My illustration in the last post about how much difference two miles can make was a real-life case study. Two miles from where I live there is a village called Shepreth. Its a nice enough place, like every other village it has a recreation ground, but Shepreth also has a primary school and a pub that has been converted into a fancy wine-bar / restaurant - making it a home from home for the Londonders fleeing the nightmare of city dwelling.

On top of all this, Shepreth is lucky enough to have a wildlife park with a couple of tigers and a mainline railway station on the London line. Until recently, the only downside was that it had a pig farm and when the wind blew on a hot sunny day, the place earned its nickname - "Stinky Shepreth".

Shepreth though is connected to the Melbourn exchange, which as the crow flies is 3.5kms away, over the fields and across the A10. I can't tell you the copper lengths, but having lived there for 6 months, I can reveal that the best internet connection you are likely to get is between 500k and 1M, even on ADSL Max. Having moved two miles up the road and now that I am connected to a different exchange, I now have much higher speed access - not 8M by any means, but at least 5 times what I had in Shepreth. Is this fair or is it just life?

Of course I don't think that this is a life and death matter (yet), and any impact on welfare will take a long time to become clear enough to justify my council tax money going into subsidising the resolution of the issue.

When I first read the BSG Report my view was that we should let the market do its thing and I still believe that the likely result of interference is a massive knock on distortion of the rest of the communications market. What I had failed to consider at that time and is becoming more important in my thoughts now, is the shift towards using the internet for social welfare purposes where people, regardless of their economic power, deserve to be treated equally.

Labels: BT, digital divide, FTTH, next generation networks

• 450 have only have one LLUO
• 625 have between 2 and 5 LLUOs
• 400 have more than 6 LLUOs
• 1 exchange has 11 competing providers

So there is competition for BT meaning ADSL 2+ available already to 80% of the population. To keep up / leap ahead (depending on who you believe) BT is building out its 21st Century Network.

21CN Solution to a 21C Problem
21CN is starting with a controlled rollout in Cardiff and will then cover the rest of the country, starting with the bigger exchanges. It will take a while for it to filter down to the regions. During that time the haves might have 20 times faster connections again than the have nots, but eventually the have nots will catch up.

It might be a bit more than 0.4% of the population that miss out this time, but my exchange is in the smallest 3% and the switched-on date for 21CN is in the Spring of 2009. So some people will have to wait... It didn't matter last time, so why should we be concerned about it now? I'll get ADSL 2+, just not for a couple more years.

It seems clear to me that the 21CN commitment will deliver me and almost everyone else in the country who live within 3km of our exchanges, a substantial boost in bandwidth. We might have to pay more for our petrol, but at least we can put the horse out to pasture.

Labels: BT, digital divide, FTTH, next generation networks, Wi-Fi, WiMax

Why does it matter?
The answer dictates the role that governments should play in telecoms policy making and infrastructure build.

After concluding in a recent article that BT were right to return cash to shareholders rather than invest in FTTH, and looking at the (remote) possibility of anyone else doing the same, it has been clear to me that we will be hearing ever more pleas for government intervention (as in April's BSG report). These pleas have come from all over the place, why?

Partly because no-one wants to spend the tens of billions that it may cost, I'm sure. If I want it, but I can't afford it, of course the government should buy it for me, right? Seriously though, is it because the economic value of broadband to a country stretches far and wide, well beyond the "telco value chain"? Can the breadth of benefits ever accrue back to a commercial entity making the investment, without distortion from naive attempts at creating artificial competition?

Market Failure
Of course, post Adam Smith, we are predisposed to giving the market a chance to achieve development and innovation without intervention from public funds, but are the benefits from broadband (the Broadband Dividend) too complex for the market to work out quickly without intervention? Would we have a ubiquitous phone network without earlier (direct) intervention? Where would we be without the phone...? Is the whole market-based philosophy wrong for such a national asset?

Ofcom are busily trying to figure out the Digital Dividend - the value of freeing up the spectrum that is still used by analogue TV - but I wonder whether this is missing the wood for the trees.

They are spending 56% of their £126.7m annual budget on spectrum allocation work, so let's hope they get this right. They can probably afford to put a little of this into answering the bigger question: Is broadband worth anything? Or is it that it will cost us to not have it? The answer to these questions matter a lot.

While it makes sense to look at spectrum allocation policy, I am struggling to understand how this can be ring-fenced from other digital transmission, wired and wireless. In the end, it is all just ones and zeros that can be used for anything from a phone call, to a TV station, a public health service to telematics. Call it digital if you will, but in order to encompass what I think is a much wider view than is described by "Digital Dividend", I am using the term "Broadband Dividend".

What am I talking about?
What is the Broadband Dividend then? Do countries need broadband in order to compete? Or is it even more acute: do their people in fact need broadband to access basic public services - to take part as citizens in society? Perhaps not today, but is that where we are going?

Consider this vision of the Broadband Dividend taken from a Memo to the Select Committee on Culture, Media and Sport:

The source may surprise you - it is taken from a submission by NTL... Admittedly, its dated October 2005, but it was quirky so I thought I'd include it.

What's wrong with the approach?
If this is the future, then perhaps we should be challenging some of the core assumptions underlying current government, regulatory and spectrum allocation policy? Viviane Reding certainly seems to think we should. "I do not believe that high stakes auctions in which only those with the deepest pockets can take part would be effective. We need to encourage investment and competition — we need cheap, wide-band services for all"

If we auction the valuable resources, we artificially inflate the cost of access. Auctions are nothing less than an airwave tax which filter down to increased prices to users. But, argues Ofcom, "It is the organisations that have the business plans to make the most effective use of that spectrum and maximise revenues [that will win out] if we have an auction mechanism."

The Politics
Network Neutrality the Sequel: this time the battleground is the ultra-valuable UHF spectrum, with Google arguing that this should not be hoarded by netcos as a defensive measure against competition for their sunk assets. The problem for regulators is that in many cases, the cost of sunk assets was a direct result of regulatory policy at the time of investment - like the auction of 3G licenses.

Although there may, even now, be a case to tear up history for the sake of the greater good going forward, doing so might trigger a lawsuit or two from those who have invested in the past in good faith. Companies bought licenses or sunk fibre on the basis that doing so gave them a certain competitive advantage over those who did not. If there is a risk that today's investments could be invalidated by swings in regulatory policy tomorrow, that investment won't happen and there will be no Broadband Dividend. That, I'm afraid, is the flip side of the argument: just tabling the possibility of a rethink may ensure a failure in the overall objective of encouraging investment in new capacity.

But that is not how some see it. Of course spectrum should be given away to anyone and everyone, argues Google, how else will users be able to get onto their services? How can we make money if users have to pay someone else first, they might ask (I made that up, but I'm getting an increasing feeling of a dark side to the big G).

Although I am uncomfortable with Google's role in the debate as they so clearly stand to gain commercially from the outcome, their position raises an important point on Broadband Dividend question that I think is being fudged because of the difficulties balancing past policy with future opportunities and needs.

The Greater Good
If broadband is required by countries, to establish favourable conditions for business and to citizens, to enable them to take part in society, we are now talking about a higher goal than can be catered for in a "business plan" as suggested by Ofcom. In fact, business plans and economics in general assume scarcity, whereas the higher goals mentioned require equality, ubiquity and perhaps even subsidy.

Does Broadband become a requirement in order to interact as a citizen with your government, and the public services that they provide you? If it is a requirement on the citizen to interact in this way with their government (because it makes government more efficient) or if it gives you advantages over your fellow citizens who do not have access, then does the government have the obligation to ensure that equality of access is available to all?

If the Broadband Dividend is significant, it suggests that countries need to ensure ubiquity of access within their territories to level the playing field for their citizens and maximise the use of scarce land & property resources. For business, high bandwidth might give the country a competitive edge with their neighbours so it may not be enough to simply ensure ubiquitous coverage - ubiquitous high speed coverage may be required. Is this a recipe for success in the global market economy? Or a lavish white elephant like the Millennium Dome?

Some Reference Points
The Central Development Corporation states that for Canada at least, the Broadband Dividend is CA$ 75bn annually (£36bn) or CA$ 2,500 (£1,200) per citizen. There seems to be no other source for that number, but if nothing else it's a stake in the ground.

When the Korean government undertook their thought leading intervention in 2004, they estimated that their project would add US$ 225bn of economic value over 10 years and lead to the creation of 820,000 jobs. Clearly, this is not a zero-sum game in their view... I wonder how much of this saving came from a reduction is the cost of the clergy?

Citynet quotes a study by the Allen Consulting Group in Brisbane, Australia into the value of broadband there, but it all seems a little woolly. Another stake in the ground, if nothing else.

Intangibles
What is a country's Broadband Dividend except a wild guess anyway? Measuring the impact has not yet started because we do not understand where all the benefits, and costs, of internet access are. Consider some of the contributing factors to an answer, and how little of these benefits will ever accrue back to the commercial entity making the investment in the infrastructure that makes all this possible.

Last week BBC Newsnight ran a feature on rural communities which included a piece on a Dipsticks Research. They employ around 30 people and are based on an old farm in Northumberland (far, far away from some of their competitors in Central London). "Emmerdale with Laptops", they said. Certainly, what they do is not possible without broadband.

Such outward migration of the population - away from the cities but still "connected" by broadband - can save companies and employees huge sums of money in rents and other costs and it leaves some of the benefit as new money into the host communities. This benefit might just be the occasional £50 for a tank of petrol at the local station or an employee or two deciding to relocate closer to work - increasing house prices - but all of it increases the wealth in general of the host community.

For centuries, populations have migrated towards the cities and the coastal regions (see this map of population density), driving property prices in those areas skywards. While this has driven growth in those cities, it has left great chunks of viable land severely under-utilised simply because people living there have the economic power of an ant. If that space can now be used by people to live in without compromising their employment prospects, we might be able to host larger populations - with the associated growth in the economy as a whole.

Consider also the ongoing change to working patterns, in particular, to the regular place of work. Broadband does not eliminate travel, but it can significantly reduce it: "In spring 2005 there were around 3.1 million people in the UK who worked mainly in their own home, or in different places using home as a base", according to the ONS. This was up from 2.3m in 1997, saving ever more time that would otherwise be wasted commuting. The economic and environmental impact of broadband driven reductions in travel could be very significant, but we do not understand the question let alone the answer. Don't forget the benefit to those that remain in the city - one less person trying to squeeze on the Tube in the morning...

Over and above the impact on travel, there is a positive impact on innovation and entrepreneurialism. Starting a business from an office with fixed costs from day 1 can break a business plan. Now of course, it is possible to run many businesses from home just as effectively as from the centre of a large metropolis. 62% of those home workers in the ONS data are self-employed and while many of them may make only a marginal contribution to the economy there are of course diamonds hidden in the rock that could make a big difference, especially in knowledge based sectors.

The End
I could go on working through the various areas where broadband can have a fundamental economic impact on a citizen or on a country, but like everyone else's attempts, it would be partially complete. Solving this question will take some big brains a lot of time (and money). My aim in this post is to get some thoughts going because as Confucius said "a walk of a thousand miles begins with a single step".

Labels: digital divide, FTTH, Google, next generation networks, Ofcom

Labels: BT, FTTH, next generation networks, share buy back