Envisioning the future versus Digital Myopia

An exchange at the beginning on the first session of the BIS Select Committee Broadband Enquiry encapsulates what is a stake in the current broadband debate. The Chairman asked what was driving demand for super high speed other than inter-active gaming. One witness said “Video”. Another said that broadband today is “pretty good” and that 2 mbs would deliver things like BBC iplayer at 600 – 700K bps to a “decent sized TV screen”.    

Meanwhile the Pacific Rim is driving towards interactive HDTV quality video as “the standard” – with more to come.

The problem for the next Government, of whatever complexion, is that the uniquely vigorous and successful UK drive towards local loop unbundling has helped bring cheap always-on Internet, suitable for text based communications and low resolution streamed video, to most of us …

but has severely weakened the business case for investing in mass market fibre to the premises.

Meanwhile the take-off of legitimate streamed video services like the i-player has clogged the backhaul pipes of ISPs who are making little or no margin to pay for upgrades.

Is “state regulated rationing” (to eke out the installed capacity) the answer?

– including reinforcing caps on downloads and other action aginst those exchanging large files – because they might be pirated or illegal

Or can Ofcom change its spots?

Can the “Office of Canal Regulation”, designed to protect consumers (by monitoring carriage charges and conditions) and encourage competition (by controlling lock charges at major junctions) really be used to “encourage investment” in “High Speed Rail”?

The reality is that we have a situation where no centrally planned “national” business case will get past the City, let alone HM Treasury. Meanwhile “local” business cases, other than for already prosperous  commercial centres and conurbations, depend on “imaginative” deals with municipalities, property developers, major customers and those willing to pay premium prices up-front. And the municipal involvment (whether or not supported by Central Government subsidy or EU funding) may bring accusations of “state aid”.

What can we realistically expect a regulator to do, beyond work to protect the deals it has done with the incumbents and their allies, to encourage them to stretch their incremental investment plans?

Is the need to bulldoze fiscal and regulatory barriers to enterprise out of the way – to genuinely encourage competition wherever and whenever the markets will stand it?.

Do we need a bonfire of regulations akin to that which allowed the UK to lead the world into the Industrial Society and Railway Age in the late 18th and early 19th centuries?

When I did the Masters programme at London Business School in the early 1970s I did the module on regulatory policy: including past and current attempts to handle cartels and “natural” monopolies. Most attempts, short of trust-busting to create genuinely open markets, had led to economic inefficiency, with regulated prices and profitability discouraging innovation and investment. 

After Business School I spent several years with the Public Corporations (Gas, Electricity, Water, Steel, Coal and the Post Office) Sector of ICL, ending up as Sector Comptroller and Business Development Manager.  

I put together theory I had learned at Business School with the reality I had learned from taking apart the accounts and business plans of our customers (to understand their likely  future computing needs, including timescales) when I worked in the late 1970s, as a volunteer, on the exercise that led to telecoms liberalisation and privatisation.

I, and more particularly my colleagues, were reasonably successful in limiting political expectations as to what regulation, however good, was likely to achieve. Many of the “first generation” regulators of the 1980s and 90s were similarly influenced by the early work of the London and Manchester Business Schools. But most of the current generation of UK regulators appear to believe they are are living in a brave new world – while they repeat old mistakes (at both strategic and operational levels) as was feared and predicted two decade ago.      

They think they are leading the world. And in a sense they are. For nearly a decade the rest of the world has indeed seen the UK as a case study to learn from: how not to do it.

That is, perhaps, unfair. The political pressures on them make any other course of action irrational. The “real” task is to change the political pressures. 

The anthropology of regulation, with symbiotic relationships between regulators, politicians and the incumbent players, does not augur well for the future competiveness of a communications infrastructure where the stimulation of investment is left to Ofcom – as opposed to being part of the mainstream economic responsibilities of HM Treasury.

We need to focus on removing the barriers to open-ended investment, rather than trying to predict the future.

We need to remove the barriers to innovative forms of infrastructure investment – with the landscape of organisers ranging from local co-operatives and municipal enterprise through regional consortia and a reinvigorated BT to the local operations of the multinationals.

A particular need is to encourage long term service contracts (with bandwidth upgrade clauses akin to those for rural broadband in the Irish republic) which enable risk investment in infrastructure to be turned into leasing deals.

We also need to take a cool look at what we mean by “open access” to shared wayleaves and infrastructure. A “duct” can turn out to be a cable covered in concrete. The poles and pylons of the electricity companies (or the pipes of water and sewage) may well provide a more robust and suitable infrastructure than that of BT in many parts of the UK.

Meanwhile it will almost certainly be easier for a local co-operative or council to negotiate locally on wayleave charges with Country Landowners and Farmers than to do so regionally, let alone nationally.  

We need to open our eyes to more than just the headline debate on speeds.      

 

 

 

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