Covid and Lockdown changed “everything”, including the context in which investors look at broadband. They are no longer interested (if they ever were) in looking at the investing in those building networks to fit the capital intensive, high risk, slow pay-back, business models assumed by Ofcom and DCMS. They are looking to fund converged (fixed and mobile) backhaul and masts, with revenues underpinned by long term contracts to reduce and/or remove most, if not all, of the risk.
The accelerating scale and pace of change
Unfortunately neither DCMS nor Ofcom appear to have yet appreciated the scale, nature and speed of the changes over the past six months as the world moved on-line and broadband (including mobile) became the critical infrastructure keeping both business and society going. With the rise of home-working and the fall of city centres, the workers and jobs of the future are moving to where the broadband is. But policy makers and regulators are still using a legacy, BT-centric reference model to deploy public funds to expedite investment in areas for which this model has failed in the past and is not relevant to the future.
We need to unpack the current business models
Around the world it is increasingly rare for network operators to build or own the infrastructures they use. Even BT Group does not own much of the infrastructure used by its fixed and mobile (EE) retail operations (including Plusnet) and maintained by Openreach.
The UK’s main future ready network, JANET, uses infrastructure from a kaleidoscope of owners (from BT, through players like SSE to the Universities themselves), to link IPV6 and 5G users and Smart City trials as well as research centres, science parks and the Grids for Learning. Then there are the fractious negotiations between BT/EE and the other mobile operators over access to the masts and aerial sites operated, but not necessarily owned, by their respective service businesses.
Meanwhile major business customers want seamless roaming and hot standby for their data centres and cloud-based services. Lockdown and home-based working and learning have taught SMEs and Schools and schools that they have similar needs for resilience.
The impact of regional BT and Virgin service failures during lockdown, with major switching centres taken off air by a fire and an “unplanned excavation” respectively indicate that the current regulatory business model and plans to mandate infrastructure sharing in Government support programmes both are inadequate for a critical infrastructure utility.
Unfortunately, while most of the interest groups representing network operators, large and small, fixed and mobile are having good meetings on how to encouragement investment in their members current business models (or rather the ones they will public admit to), none is looking at the issues from the perspective of potential investors, let alone in the round.
Where is the debate happening?
I therefore look forward to the discussion at Digital Policy Alliance ZOOM on the economic models for investing and developing 5G infrastructure (noon on Thursday 3rd September). Those who think that 5G investment is “different” have not understood that it is entails building the infrastructure to carry backhaul and local connectivity for a world in which the final connection is wireless (whether from the router/booster in the corner or the mast outside) trunked by fibre. With the risk reduced or removed by anchor contracts with public and private sector landlords and tenants. The contracts commonly cover social and other housing complexes, health and welfare services, business centres, science parks and businesses who now have (collectively) several million home-based workers.
The DPA Digital Infrastructure Group meetings are fun because the Parliamentary chairman combines insights from the European and UK Parliaments with those from his current role as chairman of a LEP with major high tech employers and logistics centres and a remote rural hinterland dependent on tourism but used to self-help. The industry chairman is from a provider with a similarly kaleidoscopic view. I also look forward to hearing about progress with an exercise to produce a grid of the different business models around the world and the technologies/markets for which they have been used.
This meeting is for DPA members and registered observers only. If you are interested in becoming a member they would welcome your attendance as a taster, but before any further participation, you would then need to join. More details are available at: https://www.dpalliance.org.uk/join-us/.
Now add the Smart Agenda
We also need to consider the changing investment climate for urban broadband. Demand to extend the infrastructures that already underpin Smart City pilots will increase as central and local government come under ever increasing pressure to use on-line technologies to deliver better services at lower cost. The business case has changed with the need to, for example, provide telecare, welfare support and social contact to those who will remain in isolation, in social and/or sheltered housing, for months to come, if not the rest of their lives.
I recently received an invitation from DPA to help with inputs to the production of a POSTNOTE on Smart Cities and the infrastructure they require. This is an extract from the summary of what POST has in mind:
Potential benefits of smart cities include more efficient infrastructure and access to services, improved energy efficiency, and environmental benefits such as improved air quality. However, there are also challenges associated with them. In some areas internet coverage or speed may be insufficient to support smart devices, or physical infrastructure may be outdated and incompatible with more modern technology. This may introduce or exacerbate existing inequalities across different regions. There are also concerns around data security and privacy, as smart city sensors could collect extensive data on citizens and their behaviour.
Growing digital divides
My son is now rapporteur for the DPA’s work on SMART and on Cyber. We have discussed the way growing digital divides are driving the convergence of the smart and broadband agendas around, for example, the shared networks to support telemedicine, CCTV, traffic control and emergency services at the same time as seamless business, social media and content access. All of us have now experienced the joys and frustrations of having to rely on-line products and services of variable quality with sporadic slow-downs and/or short outages.
Those of us who was used to the on-line world take the problems in our stride but they dent the confidence of the majority of voters who have been exposed to them. For some the results have been serious, leaving them unable to make effective use of on-line education, health and welfare services etc. Those without good broadband to start with are vociferous whenever they get the chance to express their views. That is why so many backbench MP are unimpressed by claims of theoretical cover or performance
The movement of home-workers as well as business to where the broadband is best
Meanwhile the experience of large-scale home working has led many large organisations to upgrade the equipment used by their employees for resilience and security. Few expect now the majority of their employees to return to the office for more than a couple of days a week. Therefore, instead of investing in office upgrades to handle social distancing, they are increasingly issuing laptops and mobiles with pre-installed identity and security, for work use only, over corporate VPNs. Many are also reviewing the quality and resilience of their connections with employees
One result is pressure on employees to relocate to where they can obtain better fixed connections and/or mobile cover, perhaps paid for by the employer. In parallel, employees who no longer have to commute to work every day are also thinking of relocating. The two come together with homes in attractive locations with good broadband selling rapidly in an otherwise thin property market. This adds to the pressure on property developers to include full-fibre connectivity in new developments.
Meanwhile lockdown and the switch from high street or out-of-town retailing to on-line ordering and delivery has led to a sharp-rise in demand for distribution and logistics sites with multiple broadband services (for resilience), while the rest of the commercial property market is in dire straits. This has caused landlords to look at how to increase the value of their properties.
How should DCMS and Ofcom Respond? How should YOU “help” them?
Over the past decade I have given many answers. They have been overtaken by events. The business and investment climates have changed. We must move on policies based on filling the gaps in BT and Virgin business models that are both more than forty years old. But that is not enough. One size polices will not fit most of the UK.
The work of interest groups like INCA and ISPA is important but needs to be complemented by that of the Digital Policy Alliance in helping identify what is in the common interest and what is at stake when the interest groups disagree. Nearly twenty years ago, as Secretary-General of what was then EURIM, I chaired meetings to help plan the legislative scrutiny process and timetable during the run-up to the formation of Ofcom. It was “quite hard” to get the lobbyists to agree what it was on which they were in broad agreement and what they would have to fight over, to the death if necessary.
That type of scrutiny process is equally important today.
But it requires those at least twenty years younger than me.
If successful infrastructure investment is important to your organisation you should join the Digital Policy Alliance and help, including via the Digital Infrastructure and SMART Society groups.