Future broadband

Future Broadband - Policy approach to next generation access

Issued December 5, 2007

Executive Summary

• BT is dedicated to helping its customers thrive in a changing world. That means delivering communications, faster, quicker and cheaper than ever before. The debate about Next Generation Access promoted by Ofcom, Government and other stakeholders is important and one that BT welcomes. It a debate primarily about services rather than technology – services that customers want, that aid competitiveness, and that augment the position of the UK as a leader in communications and innovation. 
• The UK is a world leader in broadband in terms of availability and take-up. Our broadband market is fast-moving, highly competitive and driven by the services customers want. The challenge to all industry players is to continue to innovate and meet customers’ increasing expectations. 
• At this stage the future scale of investment in next generation access remains unclear. But it is an important and welcome first step to be clear about the regulatory framework that will apply. Once settled, that should remove one area of uncertainty and risk from business cases 
• Fibre technologies will clearly play a part going forward but so will other technologies. BT will be rolling out broadband at up to 24Mbit/s nationwide over copper from spring 2008 and other technologies will also have a role to play and cable and wireless solutions are expected from others. Fibre is already provided extensively to businesses in the UK for broadband and other high speed services. 
• For the foreseeable future there will be a ‘mixed economy’ of technologies and providers. But it is not just investment in the access network that matters – BT, through its 21CN programme, is making substantial investments to improve the ability of backhaul and core networks to carry faster broadband services. These investments are arguably more important in the near term to enable users to get full benefit from their broadband applications. 
• Ofcom is rightly wary of international comparisons which are often misleading. BT agrees with Ofcom’s conclusion that there is no evidence of UK market failure. We also agree with Ofcom that although there is likely to come a point in the future when some consumers may demand services that require speeds greater than current networks can provide, the demand for such services is currently hard to judge. The commercial case for fibre investment is challenging for all industry players and needs to be market-led, based on consumers’ willingness to pay and taking advantage of the complementarity of different delivery mechanisms (i.e. narrowcast over broadband, broadcast over DTTV). Early fibre deployments, such as the Ebbsfleet new build site, will allow service providers to see what types of services might be developed to utilise the capacity and give a better idea of demand. 
• Ofcom is concerned to ensure that regulatory uncertainty is not a barrier to timely and efficient market-led investment. Its approach is about regulating NGAs once investment has taken place, rather than seeking regulatory means of incentivising investment. BT agrees with Ofcom on the regulatory principles underlying its approach which are fully consistent with the current regulatory regime, underpinned by BT’s Undertakings. Where BT will offer NGA products in the future, we will do so on a wholesale, equivalent basis – this is the key to a vibrant, competitive market - and we believe anyone building a next generation access network should have the same responsibility to make that available to all service providers. 
• It is important that the regulatory environment gets the balance right between the recognised need to protect and promote competition in the legacy copper world and the need to ensure that false signals are not given that deter industry from migrating onto new technology and new business models. The pricing of current generation wholesale services needs to be set at the right level to cover costs plus the required return. A coherent set of prices and margins across current and next generation access services is important if incentives are to be appropriately aligned. 
• BT agrees the need for a clear and transparent transition process for both industry and consumers from old to new technologies but there must be no continuing requirement to maintain a copper network alongside new fibre. 
• There is clearly a need to ensure that the appropriate return can be made on fibre investment to reflect risk and BT welcomes the consideration of innovative mechanisms, but equally a secure and enduring financial framework over the medium term is required to make major investment viable. If pricing is set purely in reference to today’s copper pricing, it may act as a considerable barrier to investment. 
• More fundamentally, there may be the need for a new industry model if major NGA investment is to be encouraged. The potential scale of NGA investment is daunting. In the absence of a proven commercial model, moving towards a UK NGA is only likely to begin as a series of incremental steps, each separately justifiable in its own right, which in time will, if applications emerge and value flows through to the access investor, build to a meaningful momentum. Such incremental beginnings are already visible: BT has made commitments in respect of new build sites and Virgin Media is extending the capabilities of its network. But the full benefits of NGAs are only realised if applications and services exploiting their capabilities emerge. That requires content owners to have confidence that they can address a growing customer base on similar terms and through common platforms and processes, irrespective of who the network owner is. 
• If, as seems likely, first deployments are limited and fragmentary, the issue which arises is how those deployments can be made available to the content, application and service provider industry, so that a significant addressable customer base is generated, and opportunities for service innovation maximised. It is also important for consumer choice that individual consumers are not left out of the competitive marketplace, with first movers creating a vertically integrated ‘lock-in’ for all next generation services for a particular household or geography. 
• Throughout the value chain, those building and those seeking to innovate and provide services on NGAs need to recognise their part in building towards a UK scale deployment. That means a common commitment to open wholesale access and a common commitment to open standards and platforms allowing downstream service, content and application providers and developers to engage on similar terms with all NGA deployments. It means equivalent access to bottleneck assets, in a way that preserves and enhances customer experience, taking advantage of the next generation technologies. 
• This form of collaboration will not necessarily arise without the direction and support of regulators, and the creation of enabling industry fora. But without it the content and applications industry will lack the scale of opportunity to build new services; and the virtuous circle of service innovation leading to improved returns on investment, leading to accelerated deployment could be stymied before it can begin. The vibrancy and benefits created by the current generation of industry structure will be lost. 
• Collaboration also relates to funding models. Just as content and application owners need access to the networks others build, so must they also be open to new commercial models which contribute to the costs of those networks. For example, some business models may lead to content owners or service providers supplementing the charge paid by a consumer for their broadband access where this would enable the provision of bandwidth intensive content. 
• Collaboration can also mean working together to ensure NGA deployment relates to areas of known and more certain demand. For example, service providers may be able to identify areas of intense demand and offer some form of security or commitment to encourage focussed network deployment. 
• Regional Development Authorities, the Devolved Administrations or sub-regional economic partnerships may value and wish to pay for the contribution NGAs may make to local demand stimulation and investment. Where funds are available and state aid rules permit authorities may wish to contribute to the construction of duct and access networks in specific locations. In these circumstances the question will arise as to how such networks are to be managed and provided to all parties on a non-discriminatory basis. There may well be a collaborative role for Openreach to play in these circumstances. Collaboration also means better coordination between regulators, government, planning authorities and RDAs to remove barriers to NGA and enhance conditions, both nationally and locally, to encourage the market to develop. 
• The UK is unique in the progressive regulatory environment Ofcom has promoted. The functional separation model and the creation of Openreach, unmatched in any other country, have created significant innovation, competition and improvements in quality on the basis of equivalence. The UK now has the opportunity to extend that model of equivalence into the NGA world and leap-frog the rest of the world in terms of a similarly competitive, innovative, customer-centric landscape, rather than, as seems to be the risk in other economies, setting out on a path that could lead to patchy geographic coverage with vertical integration denying effective consumer choice. 
• BT supports the principle of promoting competition at the deepest level in the network where competition is likely to be effective and sustainable. We welcome Ofcom’s recognition that an ‘active’ access remedy is likely to be the most efficient means of ensuring a competitive NGA wholesale market. BT’s proposed Generic Ethernet Access approach offers both efficient, economic delivery and the scope for innovation and competitive differentiation and BT believes that this approach, which Openreach are consulting on with industry in relation to Ebbsfleet, is the appropriate wholesale offering for both fibre to the cabinet and fibre to the home deployments. The technical problems and economic challenges arising from duct sharing, dark fibre and sub-loop unbundling suggest that the GEA approach offers the best prospect for sustainable investment in NGA networks and to support competition in NGA services. 
• BT welcomes the flexible approach shown to date by Ofcom in considering the regulatory regime for the early phases of the Ebbsfleet development. A pragmatic approach to regulatory obligations is essential to this pilot phase. It is important that Ofcom continues to recognise and encourage innovation and experimentation as industry tests the market for higher bandwidth services. At the same time, as deployments begin to take place, Ofcom has a role in ensuring that there is interoperability and open standards and we avoid a piecemeal approach with additional cost and complexity for downstream providers to the detriment of consumers. 
• BT agrees with Ofcom that there is currently no general case for direct public intervention in NGA investment given that the social value of higher bandwidth services is currently unclear. The public sector should be looking at ways in which it can encourage the market to provide rather than seeking to deliver such services itself. However, there may be a case for funding by RDAs or local authorities in certain regions, subject to those meeting Ofcom/BERR and state aid guidelines. Such local initiatives potentially offer the opportunity to increase the UK fibre footprint and allow some technical and commercial trialling. However, we would not want to encourage inappropriate uses of public money nor see a patchwork of different networks, built on different technologies, emerging. Similarly, we do not yet see a case for an interventionist regulatory regime designed to specifically engineer fibre investment but it is important to distinguish this from the need to ensure that the regulatory regime is not a barrier to new investment. 
• It is important that Ofcom acts with speed and clarity to take this debate forward. The sooner there is a clear statement about future policy such as the commercial framework for investment, the co-existence of copper networks and the protection of legacy obligations, the sooner industry can plan for the future and some initial deployments to test customer demand and applications can start.

BT would welcome any comments on the contents of this document. Comments should be addressed to Alan Lazarus by e-mail to alan.lazarus@bt.com.

Download the full response as a PDF document