Did Westminster and Kensington stuff BDUK for Christmas?

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Shortly before Christmas the FT carried news that O2 had beaten Sky and Virgin to win a  contract to provide wifi to Westminster in time for the Olympics. The article speculated that this could provide a model for other councils. The recommendation of the Officers to Kensington (which will share the deal) indicates that the cost of the consultants who helped negotiate the deal was £9,000. It does not state the cost of legal advice but I am told this was not much more. I commented on the expertise of the small consultancies advising Local Authorities compared to the competance of the big names advising Central Government when the Country Alliance wrongly blamed councils for delay in spending the sums allocated to help bring forward investment in rural broadband caused by the latter. I had not realised quite what good value some of those used by local government were. 

If your local council has a choice between receiving an upfront payment plus profit share for getting ubiquitous broadband by the time of the Olympics and bidding for an unknown share of £100 million (which will be shared with at least ten others, not received before late 2012 and matched from funds they have not got), what would you expect them to do?  Given that their choices, unlike those made by Central Government, are open to public scrutiny, what would you think of them if they spent your money participating in another Whitehall inspired procurement paperchase instead of trying to copy Westminster and Kensington?  

If one includes potential savings to the councils' own communications costs, the deal appears worth more than the funding that DCMS/BDUK is likely to have allocated for the whole of London. It probably covers the financial hole left when Westminster's plans for late night parking charges ran foul of the courts, let alone public opinion. Meanwhile O2 has dramatically cut the cost of upgrading its services to London's West End to meet rocketing demand.

The deal looks to be a true win-win.

How many other urban areas have the potential for similarly attractive win-win deals?

How many rural areas could benefit from similar approaches as the fixed and mobile broadband markets converge?
Is it proof that market forces can indeed overcome regulatory failure and change the nature of the game when the will and the imagination are there?

I suspect that what has changed to make such a deal attractive to a mobile operator was the traffic volumes during the Royal Wedding followed by the speed of the transition to smartphones. The traffic forecasts for 2012 may already have been exceeded. the mobile operators can no longer wait for the delayed 4G license auctions. They have to get "fibre to the femto" (or at least to the micro-cell) before their networks collapse under the weight of  social media and internet browsing traffic over mobiles (smart-phones, tablets etc. not just netbooks and laptops). This now looks set to overtake that over fixed connections by next summer. It may have done so in London during the Christmas sales, as it did during the Royal Wedding and routinely does in other parts of world. We should not forget that, outside North America and Europe, the majority of Internet Traffic already originates from mobiles. 

Is the FT correct? Will the Westminster and Kensington deal set the tone for a series of auctions in which "mobile" operators will seek to outbid the "fixed" operators, let alone each other, for access to council owned infrastructures in order to provide "ubiquitous broadband"?

If so, the value of the packages on offer (including to help cover the cost of switching from fixed to mobile ICT systems for running council services without the back office overheads) is likely to dwarf the £100 million announced for "Superconnected Cities" announced in the Autumn statement. But more importantly, the approach enables an administrative transformation of Local Government on positive cash-flow, without the need for up-front investment. Meanwhile, however, Central Government appears about to be paralysed as the dinosaur suppliers of the past go to the courts to resist change.   

So who stands to lose most?

In the short term the answer appears to be BDUK and Ofcom 

BDUK because it will be overtaken by market developments unless it stops seeking to recreate a centrally planned and regulated market. Its "deficit funding" approach for disadvantaged areas is not necessarily wrong. Its attempt to impose standard procurement frameworks is. Its "one-size only" rural model fits no-one well and has already got in the way of bringing in alternative sources of funding to reduce the "deficit". Its urban model looks set to do likewise - and needs a short order rethink.

Ofcom because it looks to be stuck preserving past deals and is faced with a delayed 4G auction will which raises much less than it would have done last year - because the mobile operators will have spent their budgets on upgrading the networks of those local authorities and utility providers who have responded to their need to move fast and given them access in return for slashing their own communications costs.  

I am unsure how much the fixed line providers will lose, if anything. The volumes of traffic to be trunked over their fibre networks will soar. Fibre to the femto may also be a more profitable business than fibre to home, provided the existing customer base can be retained by bundling domestic broadband with ubiqitous wifi access. BT is already the UKs largest provider of wifi, 2.8 million hotspots and rising, on the back of such a package.

I suspect the most visible losers will be those in the candy-floss layer of resellers, lured in by the dead-end policy of local loop unbundling. The future will lie with "competition in the local loop", as envisaged by the previous Conservative Government. That vision was for former telecoms (fixed and mobile) and broadcast (wireless and cable) competing to provide broadcast quality, real time video services to the home, across the UK, by 2002. 

We are ten years late - but have added an ubiquity that we did not envisage when that policy was set.

Now that "vision" is about to become reality, we to also look again at the mainstream HMG IT, Communications and Cybersecurity Strategies. Like the Defence Review they can be seen as rearguard actions to defend the institutions of the past against change. The mindsets of those who produced them assumed a world of fixed line communications infrastructures with mobile as an add-on. But we have crossed the watershed into a world of ubiquity in which with mobile is the default - and FTTC means "fibre to the cell" rather than "fibre to the cabinet" [albeit the cells will have to be smaller, hence my preference for FTTF ("fibre to the femto") or FTTM ("fibre to the micro-cell")].

Hence also the pressures to switch-on and interogate the "trusted computing" chipsets so that the devices used for access can be identified and traced as they move from cell to cell before the cost and complexity of information security spirals even further out of control.  Hence also the new round of privacy conferences obsessing over location services.

Recession is a time of real change, when we can no longer afford to throw money at problems. We have to think instead.

BDUK and Ofcom are not the only ones who got stuffed for Christmas. 

1 Comment


A great analysis. In thinking, it is often good to ask questions......

In that context, surely the next Communications Bill is the best place to reset the UK's Telecoms agenda? I recently replied to the second question on the recent consultation (http://www.culture.gov.uk/consultations/8636.aspx) as follows:

What action can be taken to facilitate greater innovation and growth across the wider competition regime, and how can deregulation help achieve this?
What if we let the local markets decide on the "what" and the "how" and dissolved the regulator over a period of 3-5 years (as was the original intention when Oftel was set up in the mid 1980s)?

What if the regulator stopped devising market remedies (based on BT's product set) and devised a scheme to support local communities and councils to take over the rule-making?

What if we treated our communications infrastructure using the analogy of a garden - as a gardener might - with a seed-bank, a greenhouse, and flower beds and vegetable patches. What would that look like? No room for a regulator - just local gardeners.

What if we designed an environment where innovation and growth were seen as normal, natural things that did not need near monopolistic interventions from national organisations that have significant self-interest in keeping the status-quo?

What if local authorities could buy-back their communications infrastructure from BT in order to upgrade it on a 20 year investment horizon - or at least co-invest with BT (rather than give them charitable donations - like the BDUK Framework).

What if we looked at the UK's communications infrastructure through the same lens as the Canadian State Pension Fund currently does?

What if competition was not seen as the be-all and end-all? And that over-competition is as damaging as a dominant monopoly?
What if we, as the UK, were clear which industries we were going to be

REALLY good at - and encourage cooperation as much as competition - much like the Japanese do?

What if we believed that international competitiveness is as much about creating coherent onion-ring networks of co-dependency WITHIN the UK that can sustain the knocks of international attacks (both malicious and industrial) in the coming years?

What if we changed the concept of de-regulation from one of regulating and creating remedies on existing products and structures to an environment where it pulled organisations into the future with innovative structures that forced the pace of change and gave Britain some new ideas to export?

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This page contains a single entry by Philip Virgo published on December 28, 2011 8:12 AM.

KYC = Kompromise Your Customer (by exposing their credentials to unnecessary risk) was the previous entry in this blog.

Will 2012 be the Year that convergence finally happens? is the next entry in this blog.

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