The British Infrastructure Group report publicised in the Daily Telegraph today uses available data (assembled by the House of Commons Library) but puts on it a rather different interpretation to that recently used by BDUK to boast of its achievements to date and thsoe in the pipeline. The consequent call for action is backed by 120 MPs. Whether the break up of BT is the right action is another matter. If it were to be the right “answer” that raises the more interesting questions of whether “merely” separating out Openreach would achieve the objective of stimulating BT to invest in infrastructure (back haul as well as local loop) as opposed to content (alias subsidising premier league football) and whether that would be enough.
Can BT afford the scale and nature of investment necessary to build the communications infrastructure needed to underpin a “smart society”? A ‘smart society” is one in which everything is interconnected: from smart phones, TVs, toys and consumer goods, through smart meters, cars, buildings, telecare and telemedicine to smart grids and cities. It is also one in which those dependent on on-line medical devices (for example) may die when networks go down.
It is not just that BT has not maintained its previous rate of investment in recent years – it does not appear to have plans to increase it in the future and may find it hard to do so. We might have expected to see further refinancing announcements (additional to those announced alongside the merger plans) now that the EE merger has been agreed – but now is not a good time to be raising money from the City.
In consequence those cities who are serious about leading the way into the 21st century, like Bristol, are looking to alternative suppliers, like City Fibre. Meanwhile US players like Zayo are investing heavily in UK back haul networks to fill the gaps left by BT (business parks, commercial centres etc.) and meet to the growing needs of the mobile operators. In parallel Gigaclear has just received backing from the European Investment Bank to leapfrog BT’s offerings in rural areas and Hyperoptic (backed by George Soros and others) is able to put 100 mbs symmetric fibre into social housing for less than BT charges for slowband over a 40 – 50 year-old copper/aluminium twisted pair.
We should also juxtapose the recent CMA judgement with regard to the take-over of EE by BT, “two cash-strapped dominant players trying to cut costs by converging their broadband, wifi and mobile operations” with the deal under which Arqiva is putting 4 and 5G aerials into Canary Wharf, to be shared by all mobile operators We already need 4 – 5 times as many aerials to address current problems with overload and notspots. The problem is about to become very much worse as we transition to a world of ubiquitous wireless communications piggybacking on “fibre to the femto”.
Over recent years the BT has accounted for a decreasing proportion of investment in UK communications infrastructure and that proportion looks set to fall further. The task for DCMS is therefore to enable our newly competitive market to flourish, with investors getting rapid payback from supporting the construction of new, “future proof” networks so that we are no longer critically dependent on a single set of crumbling, bottlenecks, increasingly liable to serious outages. A that dependence reduce it should also become easier for BT to focus on what it does best and enter into serious partnerships, rather than pretend it can do everything.
I am currently working on a Communications Manifesto for the London Mayoral Candidates (and would welcome inputs) but in the meantime readers might like to read my personal submission in response to the “Building the Foundations” section of the recent DCMS Digital Strategy “consultation”
Creating a 21st Century Communications Infrastructure
Summary and Key Points
1. Society is increasingly interconnected and dependent on reliable, resilient and ubiquitous on-line communications: from smart consumer devices and buildings to telemedicine and care. People will die when networks goes down as they have in recent weeks . 70% of on-line consumer time is now spent using mobile devices, roaming across wireless connections to domestic or workplace routers, wifi hot spots and mobile networks. All need fibre backhaul, but with the transition to 4 and 5G, many times more aerial sites are needed to maintain the mobile connectivity and reliability of a decade ago when traffic volumes, using different parts of the radio spectrum, were much lower.
2. The rewards for investment in new infrastructure do not necessarily accrue to current operators, who may prefer to ration current capacity or invest in content. Collapsing prices (down 75% over the past year for the routers and servers used for new fibre networks) mean new entrants can build more powerful networks, more cheaply, provided they can obtain the access and wayleaves necessary. Meanwhile, as with the construction of many of the railways, the biggest short term beneficiaries are landlords and property owners whose sites and buildings rise in value with better connections. It is no accident that Hong Kong’s main communications companies are linked to property companies.
3. Given the need for resilience and the effect of public sector procurement on communications investment, multiple (at least dual) sourcing should be mandated wherever practical: requiring the use of at least two networks which are not mutually independent. This is becoming easier as less of the UK is critically dependent on BT owned bottlenecks but there is a need to underpin competitive investment (including back haul and bottleneck bypasses) across those parts of the UK that are not yet well served, even if the alternative routings are mainly used for hot standby.
4. Government should increase the pressure on those running separate public sector networks, e.g. those linked to road and rail transport, health and education, to make these available to multiple network operators in return for improved national cover and resilience arrangements rather than departmental income, above that to cover any incremental costs.
5. Valuations for business rating purposes should be based on actual revenues and changes in property valuations, not estimates based on limited historic data. This will remove an obstacle to investment in advance of demand and in standby facilities. It will also result in overall economic benefits, including to HM Treasury, well in excess of the limited revenues foregone .
6. Past national agreements for utility access and wayleave arrangements are problematical for all sides. The consequent cost of negotiating individual agreements can account for over half the set-up and installation costs. For some the rental from masts/aerials rental can be a significant source of income. Others, e.g. commercial landlords and building managers, are more concerned about the risk of disruption to existing services to tenants. Government should support collective exercises to agree new generations of access and wayleave arrangements (fixed, mobile and converged) and should mandate their use for public sector properties.
7. Government should support exercises to agree planning guidance and building regulations that make it easier to install and maintain a choice of multiple (and changing) fixed, mobile and converged networks across existing buildings and estates as well as new build. It should mandate their use across publicly owned properties, including those where the management is outsourced.
8. Central Government support for the construction, upgrading and/or operational subsidy of communications services which are not otherwise commercially viable, should be subject to open market testing and/or competitive tender for each local authority requesting funding under national or EU programmes. There should also be a programme to help local authorities with market testing, including both supply and demand, with regard to the areas for which they are planning to seek support.
Almost every paragraph raises more questions that it answers. I therefore look forward to working with many of the “BIG” supporters in ensuring constructive public debate.
P.S. I will blog separately on my responses on how it should address skills gaps and “transform government” .