Why Digital Britain needs a boost

When communications minister Stephen Carter published his Digital Britain interim report in late January, the UK joined a process that has been going on in Europe for at least five years, and one of which most Britons are unaware.

When communications minister Stephen Carter published his Digital Britain interim report in late January, the UK joined a process that has been going on in Europe for at least five years, and one of which most Britons are unaware.

On the day that Carter launched Digital Britain, the European Commission announced it would make available €1bn to help member states support the extension of broadband networks into rural areas.

The EC is putting up the money because it expects a huge return on its investment. Noting that 93% of Europeans already enjoy a high-speed online connection, the EU believes making broadband universally accessible will create one million jobs and boost the EU's economy by €850bn between 2006 and 2015.

Broadband study

Evidence for this comes from the Micus study, entitled "The impact of broadband on growth and productivity", published late last year.

The study used three main indicators for its conclusions: the development of the broadband infrastructure the readiness of the population to use broadband-based technologies, IT skills and affinity to new technologies and awareness of the benefits of broadbandintegration of broadband-based services into companies' processes.

Unlike Digital Britain, Micus cast its net wider. It said the following telecommunications technologies are "broadband": ADSL, VDSL, cable modem, fibre optics, wireless, satellite internet, mobile broadband (UMTS, HSPA) and internet through the electric power transmission network (powerlines).

Based on a review of the development plans of the main national telecommunications services providers, Micus said broadband penetration would reach 81% of European households by 2015. This includes households that use broadband over mobile links and do not subscribe to a fixed-wire service.

Making progress

Micus made two in-depth studies to give its analysis some basis in fact. One was the Actnow regional broadband project in Cornwall, the other was the Wi-Pie project in Piedmont, Italy. Both focus on the adoption of value-added broadband services by companies and public services.

Four years after Actnow kicked off, Micus could tell that Cornwall was outperforming the rest of Britain by 10% in economic growth and 7% in productivity per year. Two years after Piedmont started, the regional IT observatory recorded progress of 9% per year on average in regional broadband-related economic indicators.

To understand better how broadband affects company activity, Micus modelled broadband-related productivity improvement, structural displacements within the economy and innovation-driven growth.

It found broadband-based processes improve employees' labour productivity on average by 5% in the manufacturing sector and by 10% in the services sector. But due to the slow take-up, especially among small and medium firms (SMEs), the economic impact of broadband was restricted to average annual GDP growth of 0.29% between 2004 and 2006.

Impact on employment

Micus found that broadband speeded up information flow between companies. This led to a demand for knowledge workers, who had to come largely from other activities.

All told, Micus said broadband will destroy 725,000 jobs per year in Europe in traditional economic sectors, but it would create 989,000 new ones in business services such as IT, engineering, accounting, legal and financial services or research.

This net gain of 105,000 jobs would yield a productivity improvement of 0.15% per year at the European level and foster innovation, it said.

Taken together, the process improvement, increased specialisation in knowledge-intensive activities and broadband-based development of innovative markets resulted in a growth of the European gross value added (GVA) of €82.4bn per year (+0.71%) from 2006 to 2015, Micus said.

In modelling the effect of broadband, Micus found the speed of broadband roll-out affected its economic impact.

"The successful development of innovative activities, which constitutes a large share of the positive impact of broadband, requires remaining at the forefront of worldwide development," it said.

Opening up access

UK optical fibre plans announced so far will provide high-speed service to less than half the population by 2015. This is far from the targets other developed countries are setting.

Fibre accounts for 45% of all broadband subscriptions in South Korea and 39% in Japan. The EU and the US have 1.4% and 1.5% respectively.

In terms of access to fibre, penetration rates averaged 21.7% in EU27 in July 2008. Europe is led by Denmark, the Netherlands, Sweden and Finland, which topped the Organisation for Economic Co-operation and Development (OECD) with penetration rates above 30%. The penetration rate in the US is 25%.

Figures released at the Fibre to the Home conference in Copenhagen showed Britain was not in the top 100 countries.

Countries that are now rolling out national 100mbps services are planning to upgrade them to 1,000mbps within a decade. Carter's starting point? An "up to 2mbps" service.

Carter is expected to produce his final report, which will become government policy, in May or June. If the UK is going to be economically competitive when the recession ends, the communications minister may have to raise his game100-fold.

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