Will the UK really have the best superfast broadband in Europe by 2015?
The government is well aware of the economic importance of the UK’s digital infrastructure. But is it focusing on speeding up existing links at the expense of getting the whole nation connected, asks Pip Brooking
This article appeared in the December edition of Business Voice, the CBI magazine
The Driftwood Spars Inn in the Cornish village of St Agnes has no mobile reception. If you stand in the middle of the road outside, you may or may not be able to send a text message, but you can forget about making a call.
And, in the past, granting guests Wi-Fi access succeeded only in bringing the pub’s internet connection to a grinding halt.
But the former tin mining warehouse has been propelled into the 21st century by signing up to a superfast broadband service that has a download speed of 38Mbps – five times faster than that of many connections in London.
This has created a world of opportunities for a business in a sector that sees 12 closures nationwide a week and where, as landlady Lou Treseder says, you need to innovate in order to survive. She is experimenting with “tele-wine-tasting” events, connecting via video conferencing with vineyards in France and New Zealand.
As a community hub, the inn has also opened its doors to remote e-learning initiatives. And it is attracting more business visitors, who demand good web connectivity, to stay in its B&B accommodation outside the traditional summer season.
The pub is one of many businesses to benefit from the £132m “Superfast Cornwall” scheme, co-funded by the European Regional Development Fund, the county council and BT, which aims to transform Cornwall’s economic competitiveness by supplying fibre-based broadband to 90 per cent of the county and improve connectivity for the remaining ten per cent by 2014.
The scale and speed of the implementation has shown what can be achieved when the public and private sectors work together and there is money to play with – as has another EU-funded project that has delivered superfast broadband to 95 per cent of Northern Ireland’s population.
Central government has similar ambitions for the UK as a whole: it wants to have the “best superfast broadband in Europe” by 2015, with speeds of at least 24Mbps for 90 per cent of the population and at least 2Mbps for the remainder.
This is a stretching target: OECD figures show that, while the country was ranked eighth among its international rivals for penetration of fixed-line broadband at the end of last year, it was only 16th when it came to speed and 17th for fibre penetration.
But the latest CBI/KPMG infrastructure survey shows why improvements are needed: 82 per cent of firms said that the quality and reliability of the digital infrastructure were significant factors when they were deciding where to invest.
A similar number said that access to improved broadband services was crucial or very important to their growth.
From http to GDP
“Digital infrastructure is incredibly important to the economy,” says Ed Vaizey, minister for communications, highlighting the UK’s existing strength in e-commerce.
A Boston Consulting Group report has shown that the internet contributes a larger share to GDP in the UK than in any other G20 country.
And a study by the McKinsey Global Institute has concluded that the internet has contributed 23 per cent to the country’s GDP growth in the past five years. It states that, for every job the internet displaces through productivity gains, a further 2.6 are created through innovation and new business opportunities.
Vaizey stresses that progress is already being made in the networks that support this. “We’re moving rapidly up the average-speed league table, we have very high penetration of broadband and we have among the lowest prices,” he says. Ofcom figures, for example, state that the average speed of a fixed-line link in the UK has risen by 69 per cent (to 12.7Mbps) in the past year.
Jonathan Liebenau, a reader in technology management at the London School of Economics, agrees that the UK is investing more money than its European rivals in digital infrastructure.
Most of this is coming from the private sector: BT is investing £2.5bn to deliver superfast broadband to two-thirds of the UK by early 2014, while Virgin Media completed the installation of 100Mbps services covering half of all homes and businesses earlier this year.
Vaizey says the government is doing what it can to remove barriers in their way (most notably in the planning system) and it has also announced investments of £150m to help create a number of “superconnected cities” and a further £530m to promote rural broadband developments.
But it’s in rural areas where most barriers exist. It’s not viable for businesses to take new infrastructure deep into the country without subsidies.
It is telling that Cornwall, for example, was excluded from BT’s original roll-out plan. Yet universal high-speed broadband access will become more and more important as we move to an “e-society”, where even access to government services is “digital by default”.
And there are doubts that government can replicate the success of “Superfast Cornwall” under its current strategy – if, indeed, it has the right strategy at all.
An enormous digital divide
In July the House of Lords communications committee published “Broadband for all” – the findings of its inquiry into the government’s approach – and took issue with its headline ambitions.
“Broadband will be crucial for businesses and citizens, but [the minimum speed target of] 2Mbps [for ten per cent of the population] is pretty miserable,” says the committee’s chairman, Lord Inglewood.
Pointing to the rise of telemedicine as an example, he adds: “The more applications that are developed, the more this will change the quality of people’s lives, wherever they live.
It will become essential to the country’s economic wellbeing but, if you’re excluded, it creates an enormous digital divide.”
Inglewood explains that he thinks the government is focusing too much on speed rather than access, when even the term “superfast” means different things to different people. “Not everybody wants huge speeds now.
So you’re taking very high speeds to a large number of people who probably don’t want them. Equally, you’re leaving out people who do want and need high speed.”
But providing fibre connections for every premises in the UK would cost in the region of £30bn. And Vaizey says he doesn’t want to take a lowest-common-denominator approach. “It wouldn’t be sensible to put in place a network that effectively provides 2Mbps. We want to make sure that it’s future-proof.”
The committee’s report outlines an alternative approach, which focuses on rolling out the “middle mile” as far as possible to create a network of fibre-based digital hubs across the UK, and then leaving the “final mile” – the consumer connections – to market demand.
To this end, there are already examples of where community groups have built their own digital infrastructure in areas left out of roll-out plans, such as “Broadband for the rural north” in Lancashire. And BT has recently launched a fibre-to-premise on-demand package. “Choice breeds innovation, which breeds progress,” Inglewood says.
But competition is limited in the UK. Because the country has a copper cable network that still works, the government can’t really justify starting again from scratch, as those in Australia and South Korea have done.
But many in the industry argue that incremental improvements favour the incumbent provider, BT. Ofcom’s chief technology officer, Steve Unger, agrees that players need to have economies of scale to compete effectively, although he can cite measures that have levelled the playing field: BT has to share its telegraph poles and underground ducts with other infrastructure providers and give other suppliers access to its digital networks to ensure that there’s competition at a retail level.
Using the Cornish example, it’s also clear that BT has been driven to innovate to solve the challenges it has faced. It has developed fibre-optic cable suitable for stringing from poles to premises and it is launching a booster product to double speeds on copper lines where alternative infrastructure can’t be installed.
Furthermore, BT’s network director, Jeremy Stevenson-Barnes, says that the local competition for grants under the government’s “Broadband delivery UK” programme to support rural installations “certainly feels like a competitive process”.
But, despite nine initial expressions of interest from companies wanting to take part in this procurement process, only one other – Fujitsu – made the preferred-bidder list and BT has won all pitches to date, including those in Cumbria, Norfolk and Surrey.
This prompted an investigation by the EU, which has only just granted state aid approval for the scheme.
The delay this has caused will make the government’s 2015 deadline even harder to achieve, as the Cornwall project, expected to finish by 2014, has been at the planning stage since 2006 and deployment started in 2010.
According to Mark Heraghty, managing director of Virgin Media Business, there is simply not the “economic model to support competitive infrastructure providers [in rural areas], unless something changes dramatically”.
But he believes there is enough choice where there’s a high concentration of population and businesses.
This had led Virgin Media, together with BT, to question how the government is getting involved in the big cities – both firms have launched a legal challenge against Birmingham City Council’s plan to lay its own fibre network to cover a new enterprise zone, arguing that this would distort the market.
Yet Mark Collins, director of policy and regulation at CityFibre – a company with ambitions to install fibre infrastructure in the UK’s second-tier cities and towns – argues that, even here, the government is “sitting on the fence” regarding the competition issue by saying that it’s great to have, yet not doing enough to encourage it.
“Policy-makers need to better embrace and support the alternatives,” he says, adding that CityFibre is seeing a growing appetite from service providers for that alternative.
His company has attracted investment from Macquarie Capital and Citigroup by promoting its network roll-out as a long-term infrastructure project. It has already raised £500m to build a fibre network in 15 cities, starting with Bournemouth and York.
“We would love to scale that up – and we have got the investor appetite to do so,” Collins says. But first his business must overcome the market’s lack of confidence in new operators to deliver.
Improving the UK’s digital infrastructure is not only about making fixed connections, of course.
Vaizey argues that the arrival of fourth-generation (4G) mobile networks will also boost competition. After a contentious and drawn-out process, Ofcom finally gave Everything Everywhere (EE) the go-ahead to start upgrading its networks to this standard, before a more comprehensive and competitive roll-out that will follow an auction of the spectrum next year.
Martin Stiven, vice-president of business for EE, says 4G will be the “digital backbone of Britain”, adding that “where fixed broadband is in short supply, there are real opportunities for us to fill those gaps”.
Stiven also highlights the transformational effects of faster mobile data speeds: people will be more efficient and productive on the move when dealing with emails and attachments, while new construction sites or pop-up shops will be able to access a high-speed connection immediately, rather than waiting the typical 16 weeks to have a fixed line installed.
And ambulance services will be able to upload diagnostic information about a patient while they are on their way to hospital, he adds.
But here, too, there’s a sense that the UK is playing catch-up: 41 nations already had 4G before the first EE services went live in October. Ofcom says it’s determined not to let the same thing happen again and in November it announced measures that will free up the spectrum for what is likely to be a 5G auction in 2017.
“We are about to have 4G networks built across the country and that will make a very big difference,” says Ofcom’s chief executive, Ed Richards. “We’re in a good place for the next few years and we’re doing everything we need to. But you can’t rest on your laurels. If you don’t think eight years hence, things will catch up with you quicker than you imagine.”
Upgrading the UK’s digital infrastructure is one thing, but it’s pointless if people don’t know how to make the best use of it. Vaizey points to the government’s push towards “digital by default” services.
He expects a truly digitally enabled country to be transformational in the areas of health and education (see panel, page 34), “but there are still about eight million people who don’t use the internet. We need to bridge that digital divide.”
Inglewood agrees, lending his support to the schemes championed by Martha Lane Fox, co-founder of lastminute.com. “Digital services will be important in making government cheaper.
But people who aren’t digitally literate will miss out on what life has to offer, which is going to cost the rest of us more money,” he warns.
For the LSE’s Liebenau, it’s not only the public sector and consumers that need to learn how to use digital services more efficiently – too many businesses don’t know how to make the most of them, either.
But, back in Cornwall, Alun Morgan, technical director at Truro-based resistor engineering firm Arcol, has had a taste of what’s possible when the superhighway gets unclogged.
When the firm had a 1.5Mbps connection, he had to laugh when people used to phone up and try to sell him cloud computing services, having worked out that it would take nine days to complete a simple back-up.
The company also had to support flexible working hours just so that some of its 40 employees could send emails from home in the evening and come in late the next day. The frustratingly slow connection was hindering the business’s growth.
Arcol now has a 330Mbps link, which means that it can host video conferencing with clients overseas, who account for half of its turnover. Its sales director has been able to relocate to Berkshire, where he is better able to drum up new business, while staying in regular face-to-face contact with the rest of his office-based team.
And an account manager can work from home 40 miles away, yet easily access all the files she needs from the server.
High-speed internet access won’t make location irrelevant, as some people have suggested.
But there’s no doubt that it could have a significant impact on the UK’s economic prospects – and digital infrastructure is now being treated as seriously as our road and rail networks by the government. As Vaizey says: “This is the decade of building our digital infrastructure – and I think it’s going to transform the country.”
A Superfast revolution
“The ICT industry facilitates massive change, taking cost out while improving services. But, unless you’re a geek, no one notices,” says Mark Heraghty of Virgin Media Business.
This is especially true in local government, where budgets are getting tighter, he adds. “No one really sees the value of money spent in the back office.
So, when councils get the cost savings and the ability to serve online customers more effectively, they can afford to spend on things that people do value, such as libraries and schools.”
Heraghty cites the example of London Grid for Learning, which falls under the government’s consolidated public service network agenda.
Almost all London borough councils have pooled their ICT buying power and contracted Virgin Media to provide fibre connections for 2,500 schools.
“It’s about making the classrooms truly interactive, but with all the web security safeguards you’d expect,” he explains. “That contract is roughly half of the cost of the previous one.”
He also cites a small network in north Lancashire, supplied by Virgin Media, which allows doctors to diagnose stroke victims remotely. “That has huge implications from both cost and service perspectives.”
CityFibre’s Mark Collins shares Heraghty’s view on the transformational power of digital infrastructure investment.
He says that York is the only city in the UK that’s increasing its number of public libraries, because the availability of fibre connectivity has enabled the council to use them as centres for IT education.
State of the digital nation
69% - Rise in average speed of a fixed-line internet connection in UK over
the past year, from 7.5Mbps to 12.7Mbps.
65% - Penetration of superfast broadband in the UK – although only 7% of potential users have taken up the service.
10% - Proportion of internet users who consume half of all data transmitted in the UK.
x2 - Increase in amount of mobile data consumed in the UK since last year.