Copper and fibre: the price relationship

An interesting report has been published on the relationship between the pricing of telecoms services over both old-style copper wiring and new-fangled, so-called next generation (glass)fibre.

Written for ETNO – the European Telecommunications Network Operators’ Association – the report was published initially last month by Plum Consulting, but I’ve seen it as a result of a news item concerning an ETNO workshop held this week and intended to raise awareness of the impact of the pricing of copper-based services on the case for investment in next generation networks.

Copper pricing, which refers to the bit that we pay for our residential telecoms services either to BT or, where the line is BT-owned but leased to another, to that retail provider, is a topical issue not least because Ofcom has recently launched a new consultation on the prices that Openreach – BT’s provider of wholesale network services – can charge its own customers (which then sell retail services to us). So, the timing of the workshop and the publication is highly important in the UK context.

Plum Consulting makes several points in its document, among them that the running of copper and fibre networks in parallel during the period of transition from old to new will present serious challenges as regards pricing – not least that falling copper prices may well discourage investment in next generation fibre since there would be less incentive for customers voluntarily to migrate to (more expensive) fibre. This would act in turn to reduce retail price levels for high-speed broadband, thus jeopardising the investment case. The prospect of fibre investment being treated in the same way as copper – by being subject to continuing price reductions – is also likely to provide room for second thoughts among investors.

In some ways, this might well be a ‘Well, they would say that, wouldn’t they?’ scenario given the nature of the commissioning body, but Plum Consulting is right to point out that adoption of, and investment in, next generation fibre is not a given and that the policy framework must seek to ensure that incentives to operators are correctly aligned with the public policy goals for high-speed broadband. This means, not least, that copper prices should be maintained at levels which support efficient migration to next generation fibre, thus assisting operators with investment cases, and that – inevitably – fibre pricing must ensure cost recovery and deal with the long-term nature of investment and the uncertainty of demand. The latter is uncontroversial – but the former ought to provide some considerable food for thought for Ofcom, and other regulators across Europe.

Return of the landline duty?

thinkbroadband.com is today reporting that Internet Service Providers have put the issue of a residential broadband levy back on the agenda in a meeting with Ed Vaizey, Minister for Communications, Culture and Creative Industries, which took place earlier this week. The story first appeared on ISP Review, where there is a little more detail about the meeting.

The story is a little confused, not least by the context of the meeting being intended to discuss the controversial rating system for fibre installation, but ISPs appear to have suggested that the government institute an £8/year levy on residential fibre to the home connections of 1ooMbps.

The purpose of the levy is not clear, and neither is Vaizey’s reaction to what was apparently a ‘lively’ discussion. The last government intended to legislate to raise a £6/year levy on ordinary telephone landlines so as to generate funds to roll out fibre in the ‘final third’, but this was derided by the Tories in opposition, with George Osborne taking great delight in cancelling the by then already-dropped plans in June’s ’emergency’ Budget. It is not evident that this newly-proposed levy would be used in this way. Further mystery is added by the absence from this week’s meeting – apparently invitations weren’t extended – of both BT and also Vtesse Networks, the latter of which has made probably the most amount of noise on the issue of the rateable value of fibre installation which was, after all, the purpose of the meeting [Edit 14 January: ISP Review has since corrected its report to state that, although not being invited to the original meeting, Vtesse was represented, by its Finance Director, at this week’s re-scheduled one].

An £8/year levy on residential 100 Mbps connections isn’t likely to raise much money – though getting the principle in place would be a useful start to raising the sorts of money that would be required to make a serious dent in the ‘final third’. Neither does Vaizey have much political scope for manoeuvre on the issue, given both Osborne’s actions in dismissing the landline duty so comprehensively and the Tories having also dropped their manifesto commitment to reviewing the tax paid on fibre connections. Though this of course wouldn’t be the first policy U-turn by this ConDem government, even this week.

A broadband strategy worthy of the name?

Jeremy, er, Hunt today launched yet another new ambition for the government in the area of high-speed broadband: for a digital hub in every community. An ambitious government is a welcome thing and having a strategy for broadband is also applaudable (although I thought that Digital Britain had already set that out some eighteen months ago), while Hunt himself talks a good game – but, once again, I find myself regarding the scale of the ambition as being somewhat less than the words espoused to tout it. Again, we need some more detail about what exactly it means, but what Hunt is calling a ‘digital hub’ seems to me to represent little more than fibre to the cabinet solutions which, although clearly an advance and worth having by itself, does not seem to stack up to the futuristic concept of a ‘digital hub’. And the notion of communities then taking responsibility themselves for extending the network to individual homes raises the inevitable questions of how? and who will finance? without decent answers to which the notion perhaps ought not originally to have been raised, especially not in the context of what is meant to be a strategy.

It is also not by itself going to give Britain ‘the best broadband network [or system] in Europe by 2015’ – though here some more detail was fleshed out in that it will be a ‘composite measure‘, a ‘scorecard which will focus on four headline indicators: speed, coverage, price and choice’ (would it be too cynical to think that this means that Britain will, indeed, turn out to have ‘the best…..’, whether or not an independent observer would think the same? An early plea for the measure to be turned over to a sort of Office of Broadband Responsibility, if you like).

And another £50m for more pilot projects doesn’t seem to be a particularly forward-thinking other than an expression of the need to prove that Something Is Being Done: the existing four pilots, announced in October, are not really yet underway, still less in a situation of being able to identify the lessons which might – or might not – indicate the need for more pilots. A further delay in the timetable by which we might attain a digital Britain is, perhaps, in the interests of few of us. On the other hand, progress by a rolling series of pilot projects – provided they’re sustainable and link into the national strategy, is still progress – as is BT’s own pilot of a 1Gbps network in Kesgrave, Suffolk, also announced today.

A national strategy worthy of the name and the ambition would commit serious funds to a project of this type – especially if it is all ‘about jobs‘, with Hunt citing sources indicating that a high-speed broadband network could create 280,000 – 600,000 new jobs. Hunt again references South Korea in the context of 90% of the funding being committed by private sources – which seems to come from this report – but which seems rather conveniently to ignore the reference in the same report to this referring only to local access links to a $24bn high-speed core network built by the government (with the private sector investment also being drawn from soft loans). Facts do need to be straight.

In contrast, the UK government is offering £530m – the government has been speaking of £830m by 2017, but the remaining £300m comes beyond the life of the spending review period, and the lifetime of this parliament; and, even if it is to be drawn from the BBC licence fee whose six-year period stretches beyond 2015, we should ignore the additional £300m since it is outwith the period by which the government has committed itself to achieving its aim. The government needs to recognise that this is peanuts. No-one is seriously calling for government investment at the South Korean level – BT has committed itself to matching what is available publicly and can do a serious amount of work with it, as its partnership with the Cornwall Development Company proves – but if it’s South Korean speeds that we want, we are deluding ourselves if we think that this is going to come entirely – or almost entirely – from the private sector, especially when we are ignoring key facts about the use of South Korea as an example.

Broadband and the cuts

Broadband is reported today as having ‘survived the cuts‘.

Except that it hasn’t, of course. True, Bullingdon George outlined plans for £530m to encourage fibre investment in rural areas yesterday – albeit that £300m is pre-committed as part of the BBC licence fee, and which the Tories had said would be extended into the next licence fee period (and also now dictated settled), but the remaining element of which appears to be new money.

But in the face of the scale of the investment required to deliver next generation broadband rights across the country (about which I blogged below), and the need for the engaged involvement of the public sector if that is to happen outside the most profitable areas, let’s not kid ourselves that this is anything but a cut.

Public investment in fibre (again)

I blogged a few days ago about the public-private partnership lined up to provide high-speed broadband fibre throughout Cornwall and the Scilly Isles.

A couple more details have come to light here [paywall may be involved], albeit in the context of a weekly review on which the detail is scant. Essentially, however, the additional detail is that the take-up of broadband is 12% higher in Cornwall and the Scilly Isles than in the rest of the UK, which means that the risk of the investment to BT is a lot lower than otherwise; and the second is the comment from the development manager of the Cornwall Development Company (which is also involved with the project) that there is pent-up demand for high-speed broadband links in rural areas because of their isolation.

If true, this would turn conventional wisdom somewhat on its head (and we should also remember here that incoming money has made Cornwall, while still isolated, an awful lot less of a rural backwater than it used to be, which does make the county a more complex proposition). Of course, it may not be true (and the CDC may well still be in hype mode). If it was true, however, then the £100/head of public money which is being used for the project would seem to be much less risky an investment in the sense that public authorities could have confidence that take-up would be high and that investment on this scale would seem to provide value. At the same time, this brings us a little closer to the ‘crowding out’ thesis of the right – i.e. that public investment would, in this situation, be more or less replacing private investment since it would be more likely that, where demand was likely to be high, the private sector would be more inclined to get involved.

We can probably discount this, on the evident fact that the private sector is not getting involved in fibre provision extending into the ‘final third’ (or, indeed, not even as far as this). Nevertheless, it does raise the suspicion that, if there is pent-up demand, not only is the economics of fibre in rural areas less tough than hitherto envisaged but also that the telcos may be withholding somewhat.

Intriguingly, the £100/head of public investment being provided by the ERDF indicates, if the Cornwall example is generalisable, that the 20.6m people in the ‘final third’ (on the basis of a UK population of some 61.8m) would cost £2.06bn in public finance as regards rolling out extensive fibre connections – almost exactly the £2bn that Steve Robertson, CEO of Openreach, had already indicated would be the public cost of achieving the government’s ambitions of having the best high-speed connections in Europe (or less, given that there is likely to be fewer than 20.6m people in the ‘final third’). This is an interesting comment, given that there is extensive fibre to the premises solutions envisaged in the Cornwall project, on what could be achieved with a relatively small amount of publicly-sourced finance.