The government should leave the roll-out of high speed broadband in the UK to market forces, an influential report has recommended.
An investigation by Francesco Caio, vice-president of Lehman Brothers, concluded that the government need do nothing different in the short term. However, the report said the government would need to revise regulations governing telecoms in the medium to long term.
Shriti Vadera, minister for business and competitiveness, said the government accepted Francesco Caio's recommendations in principle. It would now form an implementation team to seek ways to encourage even more competition among suppliers of bandwidth, access and applications.
The Department of Business, Enterprise and Regulatory Reform (BERR) commissioned Caio in February 2008 to look at barriers to investment in next generation access (NGA) and networks.
Caio said the existing regime had succeeded in making broadband access available to more than 96% of UK households. More than 60% had taken it up.
He said there was no "killer app" that made higher speeds imperative. Nor was Britain presently at a competitive disadvantage from not providing global access to high speed networks.
The bottleneck was the backhaul or core network, which did need upgrading, he said. "There's no point changing the size of your tap if the mains stays the same," he said.
He said speeds and prices of broadband differed around the country. Population density was crucial to broadband economics, he said. He hoped a change in the regulations and more transparency would allow network operators to differentiate products by quality well as provision of service.
He said he had no fixed view on what is "high speed". "It's a moving target," he said. "The technology changes so quickly." He foresaw a market where fibre, cable and wireless technologies would be available, and customers would choose the one(s) they preferred based on cost, services and content.
This lay behind his recommendation that the UK does not impose a universal service obligation on network operators, a move Brussels is discussing on a continental scale.
Network operators are likely to be disappointed by Caio's report because public investment in broadband is likely to be scarce.
Caio said competitive pressures has already encouraged new investment. The mobile networks' introduction of cheaper data transmissions at speeds up to 384kbit/s and its rapid uptake spurred Virgin Media to announce in January plans to upgrade its network to 50Mbits/s using optical fibre.
In July BT said it would spend £1.2bn to give one to two megabit/s speeds to 10 million households via existing copper phone wires.
In the medium to longer term, as the "internet of things" arises, the government and Ofcom would together need to create the enabling regulatory regime, Caio said.
"This is a massive undertaking," he said. It meant a complete overhaul of the interconnect regime that governs how messages are passed from one network to another, and who pays for what.