S
Steiny
Guest
As those of you from #barrysworld will know, I've been preparing a submission to the government enquiry about their new Whitepaper on Communications. Why does this matter to BW's fine folk? Because the Whitepaper ( http://www.communicationswhitepaper.gov.uk ) will determine how telecoms in the UK are regulated for the next few years. What has inspired me to write to the Committee conducting the enquiry is the complancency about Broadband services which the paper displays.
The government appears to think that there is nothing wrong with the way that broadband is being rolled out in the UK. I'm sure that many of you would disagree. It is for you that I am posting the 1800 word first draft of the submission below, so that you can make comments and suggestions before it gets sent off to the polticians. Once submitted, the document becomes the property of the committe until ( and if ) the it decides to publish. This is the first and last chance to see it until then, and the only chance to change it!
I hope you find this enjoyable, informative, or whatever you want it to be
If you'd like the more readable Word version, just email me....
Steiny
---------------------------------------------------------
Evidence for the Culture, Media and Sport Committee enquiry into the Communications Whitepaper: Comments concerning Competition in Broadband.
From: Tom Steinberg, Institute of Economic Affairs
Tom Steinberg is a researcher and the IT manager of the Institute of Economic Affairs, Britain’s oldest public policy think tank. He has written for the Parliamentary IT Briefing and The Register and has been cited by the BBC and most of the British broadsheet press. The following is an expression of the views of the author, and not of the IEA which has no corporate view.
Contents
The evidence presented contains two concerns:
· That the Whitepaper unjustifiably takes for granted that Broadband, the key to convergence, will actually be delivered to the UK in a satisfactory manner.
· That the Whitepaper does not sufficiently address serious structural flaws in the nature of competition in the UK data delivery market.
1 - Broadband
Almost all convergence problems dealt with in the Whitepaper are a consequence of the rise of broadband technologies. However, the white paper does not reflect the industry view that broadband rollout in the UK has been and will continue to be seriously problematic. The primary purpose of this submission is to warn that the Whitepaper could create the worlds first truly converged regulator only to find the UK trailing unrecoverably behind the rest of the world in terms of actual convergence.
Extreme delays in getting ADSL rolled out have left Britain lagging notably behind other countries in terms of both availability and the speed of services offered. In March last year Oftel reported that the UK was ‘last’ in terms of progress with ADSL rollout compared to a variety of major OECD nations . A home in France or the US is six times as likely to be broadband enabled as one in the UK, and in Germany it is three times as likely . The UK also suffers in terms of the breadth of bandwidth offered. Parts of America are already benefiting from the DSL technology two generations ahead of ADSL, working at up to 7Mbit/s, whilst in Sweden and Denmark services are available from private sector firms which are 20 times faster than those available in the UK, for less than half the price . The Whitepaper’s own annex defines ‘broadband’ as 2mbit transfers per second , yet there is no such service for residential customers available anywhere in Britain at the time of writing . The costs even for businesses of such a service are over £2500 per year for ADSL, and over £10,000 for synchronous access via a leased line, and even these services are not available in the majority of the UK. Giant ISP America Online report that even after unbundling of the local loop, broadband in the UK will be ‘amongst the most expensive in Europe’ .
It is a serious concern that discrepancies in performance and price between Britain and elsewhere should be so great. Without a healthy broadband infrastructure citizens and companies in the UK will suffer. Businesses will be missing a vital tool which will give other countries a competitive advantage over Britain. Consumers will watch as the rest of the world surges ahead in terms of the quality of home services provided. Socially cohesive tools such as cheap video conferencing will remain out of reach of most of the population. Thousands of associated technologies, such as those which will form wired homes, will be denied because the one technology they are all reliant on, broadband internet access, is not available.
The signs are that the broadband market in the UK is far from healthy. According to the BBC, “Telewest, NTL, Global Crossing, Worldcom and KPNQwest are all scrapping their DSL plans” . Major complaints have been voiced by Microsoft, AOL and the Institute of Directors. BT rolled out ADSL nearly 2 years late, and now faces a back log of allegedly over 100,000 orders. All the while it is offering a service which counts as only a quarter the speed of what the government itself calls ‘broadband’. Cable modem operators benefit from the limited extent of the competition they face and also offer similarly clocked services. Services which are far slower than were hoped for even 3 years ago.
The government should be extremely concerned about the problems outlined above. Primarily they should be concerned because the Broadband situation in the UK threatens to undermine the first and most important of the three key government objectives concerning communications:
“We will make the UK home to the most dynamic and competitive communications and media market in the world”
It may seem easy to dismiss all the above as a form of “Hysteria about teething troubles”. It could be argued that the rollout of broadband in the UK has been tardy, but that this was simply a case of bad management which could have happened anywhere. Sadly, this is not the case. There are systematic reasons to think that broadband in the UK will remain inferior unless reforms are enacted. Both the problems and possible solutions are detailed in the second section of this submission.
2 – Competition
The problems listed in the previous section are causally related to the structure of competition in UK telecoms. In brief, there is too little competition, and it is structured in a manner which is too limiting to significantly improve the quality of UK broadband provision.
At the moment, it is not possible to receive domestic broadband services from more than 2 operators: one franchised cable operator, plus BT managed ADSL. This, of course, is competition of a kind. In practice, though, the duopoly has produced only price competition which reflects public perceptions of the companies involved: BT, safe and more expensive, and cable operators, risky and cheaper. Broadband service speeds are identical from both cable operators and BT, and there is no choice of speeds available for home users. The modern communications market is one which has vast scope for technological competition; however, the market is distinguished by a rash of nearly identical products only differentiated by their pricing plans. This is not the sign of healthy competition.
The government understood this, and OFTEL introduced Local Loop Unbundling ( LLU ) as a cure. LLU has attempted to rectify this problem by opening BT’s exchanges to the use of other companies. This is a flawed way of introducing competition into this market for a number of reasons.
· It makes the classic mistake of being overly technology specific policy. It is locked to the assumption that ADSL will remain the primary form of broadband communications. It will not, and when technology changes again, Ofcom and BT will have to go through a repeat of the struggle witness over the last year to work out how to share the new technology.
· It does nothing to deal with the fact that as a market dominating company BT has a greater incentive to make money through stifling competition and holding back on investment than it does through improving its own services. It has, as Oftel pointed out, obfuscated the path to broadband for all players in the UK market: government, companies and consumers.
· It reduces the scope for radical cost savings. Companies are forced to bill at the minimum level that BT charges them, as determined by OFTEL. The possibility that other companies might be able to actually construct and supply broadband services for less cannot be tested because other companies are dependent on BT’s own efficiency level.
There is a far better, non technology specific way of improving broadband competition. It is to repeal the legislation that gives monopoly franchises to single cable television operators. At present, this legislation means that in any street in the country there can never be more than one cable company serving homes and businesses, plus BT. The original regional monopolies system was put in place in the nascent days of cable television when it seemed that it would not be possible to persuade companies to invest in laying cable unless they were also given sole rights to operate in that area.
Since then, the communications landscape has changed radically, and the unforeseen rise of the internet makes the role of cable operators quite different to what they were. Owning cables in streets is now a far more profitable enterprise than it was when only analogue cable TV was available. Yet although companies like NTL and Telewest are far larger and more successful than was expected when the original cable TV legislation was put in place, they are not exposed to any competition, except from British Telecom. Removing the franchise system, or at least opening it up, would allow new networks to install their own cable systems and exchanges
LLU will not create the same type of strongly competitive market that relaxing the franchise system could. So long as BT remains a company which provides both communications and service, there will always be a stronger financial incentive for it to suppress rival technological advancement from rival operators than there will be for it to invest in technology itself.
For a case study in this phenomenon, examine ISDN. High business pricing of the ageing ISDN technology created a huge incentive for BT to hold back ADSL as long as possible; revenues from a single metered ISDN line on all day in a business are over £6000 per year. BT consequently delivered ADSL as late is it could without being formally censured.
The danger of LLU is that each changeover to a new technology will be just as slow and tortuous as the move from ISDN to ADSL was. This could mean that every generation of new technology will see the UK slipping further and further behind countries in which there is strong competition. OFCOM must be given the power and the mandate to reassess the monopoly franchise system for cable TV operators to prevent this from happening. Duopoly competition in street-level telecoms provision is a real danger for the UK, especially as cable companies have been consolidating at such a rapid rate that it is reasonable to expect that there may well be only one major cable operator left by 2002.
Caveat
It is sometimes alternatively argued, as by Mike Grabiner, Chief Executive of Energis², that to solve the competition problem, BT should be broken into cable and service companies, each beholden to different shareholders . This argument is seductive, but assumes that BT have an unassailable advantage in the form of their exchanges and their network. This is an overly pessimistic view. The rise of Orange and One2One show that hugely expensive new phone networks can not only be built profitably, but can rival incumbents with pre-existing infrastructure. Additionally, legislating to keep phone lines out of the hands of service operators seems unnecessarily interventionist: who knows if a major telecoms company can even survive without owning its own lines?
Additionally, it may happen that cable-only companies arise of their own accord. With open franchises on streets, companies interested in long term investments might decide that laying out infrastructure, and then renting it out to other operators provides a more secure investment in telecoms than owning a service operating company itself. Such business models are not new, but an opening of the franchise system may well see the market provide the type of services that Mr Grabiner longs to see.
[Edited by steiny on 09-01-01 at 16:14]
The government appears to think that there is nothing wrong with the way that broadband is being rolled out in the UK. I'm sure that many of you would disagree. It is for you that I am posting the 1800 word first draft of the submission below, so that you can make comments and suggestions before it gets sent off to the polticians. Once submitted, the document becomes the property of the committe until ( and if ) the it decides to publish. This is the first and last chance to see it until then, and the only chance to change it!
I hope you find this enjoyable, informative, or whatever you want it to be
If you'd like the more readable Word version, just email me....Steiny
---------------------------------------------------------
Evidence for the Culture, Media and Sport Committee enquiry into the Communications Whitepaper: Comments concerning Competition in Broadband.
From: Tom Steinberg, Institute of Economic Affairs
Tom Steinberg is a researcher and the IT manager of the Institute of Economic Affairs, Britain’s oldest public policy think tank. He has written for the Parliamentary IT Briefing and The Register and has been cited by the BBC and most of the British broadsheet press. The following is an expression of the views of the author, and not of the IEA which has no corporate view.
Contents
The evidence presented contains two concerns:
· That the Whitepaper unjustifiably takes for granted that Broadband, the key to convergence, will actually be delivered to the UK in a satisfactory manner.
· That the Whitepaper does not sufficiently address serious structural flaws in the nature of competition in the UK data delivery market.
1 - Broadband
Almost all convergence problems dealt with in the Whitepaper are a consequence of the rise of broadband technologies. However, the white paper does not reflect the industry view that broadband rollout in the UK has been and will continue to be seriously problematic. The primary purpose of this submission is to warn that the Whitepaper could create the worlds first truly converged regulator only to find the UK trailing unrecoverably behind the rest of the world in terms of actual convergence.
Extreme delays in getting ADSL rolled out have left Britain lagging notably behind other countries in terms of both availability and the speed of services offered. In March last year Oftel reported that the UK was ‘last’ in terms of progress with ADSL rollout compared to a variety of major OECD nations . A home in France or the US is six times as likely to be broadband enabled as one in the UK, and in Germany it is three times as likely . The UK also suffers in terms of the breadth of bandwidth offered. Parts of America are already benefiting from the DSL technology two generations ahead of ADSL, working at up to 7Mbit/s, whilst in Sweden and Denmark services are available from private sector firms which are 20 times faster than those available in the UK, for less than half the price . The Whitepaper’s own annex defines ‘broadband’ as 2mbit transfers per second , yet there is no such service for residential customers available anywhere in Britain at the time of writing . The costs even for businesses of such a service are over £2500 per year for ADSL, and over £10,000 for synchronous access via a leased line, and even these services are not available in the majority of the UK. Giant ISP America Online report that even after unbundling of the local loop, broadband in the UK will be ‘amongst the most expensive in Europe’ .
It is a serious concern that discrepancies in performance and price between Britain and elsewhere should be so great. Without a healthy broadband infrastructure citizens and companies in the UK will suffer. Businesses will be missing a vital tool which will give other countries a competitive advantage over Britain. Consumers will watch as the rest of the world surges ahead in terms of the quality of home services provided. Socially cohesive tools such as cheap video conferencing will remain out of reach of most of the population. Thousands of associated technologies, such as those which will form wired homes, will be denied because the one technology they are all reliant on, broadband internet access, is not available.
The signs are that the broadband market in the UK is far from healthy. According to the BBC, “Telewest, NTL, Global Crossing, Worldcom and KPNQwest are all scrapping their DSL plans” . Major complaints have been voiced by Microsoft, AOL and the Institute of Directors. BT rolled out ADSL nearly 2 years late, and now faces a back log of allegedly over 100,000 orders. All the while it is offering a service which counts as only a quarter the speed of what the government itself calls ‘broadband’. Cable modem operators benefit from the limited extent of the competition they face and also offer similarly clocked services. Services which are far slower than were hoped for even 3 years ago.
The government should be extremely concerned about the problems outlined above. Primarily they should be concerned because the Broadband situation in the UK threatens to undermine the first and most important of the three key government objectives concerning communications:
“We will make the UK home to the most dynamic and competitive communications and media market in the world”
It may seem easy to dismiss all the above as a form of “Hysteria about teething troubles”. It could be argued that the rollout of broadband in the UK has been tardy, but that this was simply a case of bad management which could have happened anywhere. Sadly, this is not the case. There are systematic reasons to think that broadband in the UK will remain inferior unless reforms are enacted. Both the problems and possible solutions are detailed in the second section of this submission.
2 – Competition
The problems listed in the previous section are causally related to the structure of competition in UK telecoms. In brief, there is too little competition, and it is structured in a manner which is too limiting to significantly improve the quality of UK broadband provision.
At the moment, it is not possible to receive domestic broadband services from more than 2 operators: one franchised cable operator, plus BT managed ADSL. This, of course, is competition of a kind. In practice, though, the duopoly has produced only price competition which reflects public perceptions of the companies involved: BT, safe and more expensive, and cable operators, risky and cheaper. Broadband service speeds are identical from both cable operators and BT, and there is no choice of speeds available for home users. The modern communications market is one which has vast scope for technological competition; however, the market is distinguished by a rash of nearly identical products only differentiated by their pricing plans. This is not the sign of healthy competition.
The government understood this, and OFTEL introduced Local Loop Unbundling ( LLU ) as a cure. LLU has attempted to rectify this problem by opening BT’s exchanges to the use of other companies. This is a flawed way of introducing competition into this market for a number of reasons.
· It makes the classic mistake of being overly technology specific policy. It is locked to the assumption that ADSL will remain the primary form of broadband communications. It will not, and when technology changes again, Ofcom and BT will have to go through a repeat of the struggle witness over the last year to work out how to share the new technology.
· It does nothing to deal with the fact that as a market dominating company BT has a greater incentive to make money through stifling competition and holding back on investment than it does through improving its own services. It has, as Oftel pointed out, obfuscated the path to broadband for all players in the UK market: government, companies and consumers.
· It reduces the scope for radical cost savings. Companies are forced to bill at the minimum level that BT charges them, as determined by OFTEL. The possibility that other companies might be able to actually construct and supply broadband services for less cannot be tested because other companies are dependent on BT’s own efficiency level.
There is a far better, non technology specific way of improving broadband competition. It is to repeal the legislation that gives monopoly franchises to single cable television operators. At present, this legislation means that in any street in the country there can never be more than one cable company serving homes and businesses, plus BT. The original regional monopolies system was put in place in the nascent days of cable television when it seemed that it would not be possible to persuade companies to invest in laying cable unless they were also given sole rights to operate in that area.
Since then, the communications landscape has changed radically, and the unforeseen rise of the internet makes the role of cable operators quite different to what they were. Owning cables in streets is now a far more profitable enterprise than it was when only analogue cable TV was available. Yet although companies like NTL and Telewest are far larger and more successful than was expected when the original cable TV legislation was put in place, they are not exposed to any competition, except from British Telecom. Removing the franchise system, or at least opening it up, would allow new networks to install their own cable systems and exchanges
LLU will not create the same type of strongly competitive market that relaxing the franchise system could. So long as BT remains a company which provides both communications and service, there will always be a stronger financial incentive for it to suppress rival technological advancement from rival operators than there will be for it to invest in technology itself.
For a case study in this phenomenon, examine ISDN. High business pricing of the ageing ISDN technology created a huge incentive for BT to hold back ADSL as long as possible; revenues from a single metered ISDN line on all day in a business are over £6000 per year. BT consequently delivered ADSL as late is it could without being formally censured.
The danger of LLU is that each changeover to a new technology will be just as slow and tortuous as the move from ISDN to ADSL was. This could mean that every generation of new technology will see the UK slipping further and further behind countries in which there is strong competition. OFCOM must be given the power and the mandate to reassess the monopoly franchise system for cable TV operators to prevent this from happening. Duopoly competition in street-level telecoms provision is a real danger for the UK, especially as cable companies have been consolidating at such a rapid rate that it is reasonable to expect that there may well be only one major cable operator left by 2002.
Caveat
It is sometimes alternatively argued, as by Mike Grabiner, Chief Executive of Energis², that to solve the competition problem, BT should be broken into cable and service companies, each beholden to different shareholders . This argument is seductive, but assumes that BT have an unassailable advantage in the form of their exchanges and their network. This is an overly pessimistic view. The rise of Orange and One2One show that hugely expensive new phone networks can not only be built profitably, but can rival incumbents with pre-existing infrastructure. Additionally, legislating to keep phone lines out of the hands of service operators seems unnecessarily interventionist: who knows if a major telecoms company can even survive without owning its own lines?
Additionally, it may happen that cable-only companies arise of their own accord. With open franchises on streets, companies interested in long term investments might decide that laying out infrastructure, and then renting it out to other operators provides a more secure investment in telecoms than owning a service operating company itself. Such business models are not new, but an opening of the franchise system may well see the market provide the type of services that Mr Grabiner longs to see.
[Edited by steiny on 09-01-01 at 16:14]