£200 million fund can speed up demand for speedy FTTP broadband

The value of the government’s £200m broadband fund should not be measured in monetary terms, but in terms of demand generation, says Lyndsey Burton, founder of comparison site Choose.co.uk

For a digital economy worth £180bn a year, £200m may not sound like an awful lot – in national terms, it probably isn’t. Yet as the amount of new funding the Budget announced for “full-fibre” broadband projects, its value shouldn’t be measured in simple monetary terms.

Instead, it should be evaluated according to what it could set in motion – or, rather, it should be evaluated according to how it will provide an injection of the one ingredient the market for fibre-to-the-premises (FTTP) broadband is missing: demand.

By providing funding for local projects, funding the aggregation of public-sector demand for FTTP broadband and providing businesses with vouchers for FTTP installations, it will create demand where broadband providers themselves have struggled to create it.

Even if the demand it generates will initially be localised, it will encourage providers to invest more in rolling out full-fibre broadband, which in turn will cause demand to spread further outward to the rest of the UK, in a virtuous circle.

That demand is the key missing ingredient in the FTTP market is evident in how, despite full-fibre broadband being entirely ready on a technological level, only 1.7% of the UK is presently covered by a full-fibre internet network.

BT has been offering full-fibre services to businesses and the public since 2012, when it launched its FTTP Fibre-on-Demand service. The name of the service is key, since in offering full-fibre broadband only when a customer explicitly demanded it, BT betrayed their belief that there wasn’t enough general demand to make widespread investment in FTTP worthwhile.

This belief has become something of a self-fulfilling prophecy. In giving their Fibre-on-Demand service a one-off installation charge of £500, a line rental of £496 and fibre costs starting at £200 for a premise up to 199 metres away from the nearest cabinet, BT made sure that demand would remain relatively low.

Even looking to the future, BT still aren’t willing to do anything extra to goad demand for full-fibre. By 2020, they plan only to make FTTP available to two million businesses and homes, limiting the expansion of their full-fibre network mostly to new-building housing developments and neglected business parks.

Government fills demand gap

With their risk-averse – if understandable – reluctance to take that leap on FTTP, it’s clear that someone or something else is needed to step in to fill the gap. While it can be said £200m isn’t a large amount of money, it represents a very decisive step forwards.

With the creation of projects to provoke public-sector demand, and with the handing out of business vouchers totalling £3,000 each, there’ll be an accumulating willingness in the UK to pay for FTTP broadband. With hospitals, local councils, schools and companies hooking themselves up to a full-fibre network, BT and the UK’s various altnets will receive much-needed reassurance that FTTP is worth increased investment.

They’ll also receive increased revenues, thereby making them more financially able as well as more willing to invest in full-fibre broadband.

Yet, even more importantly, the stimulation of demand in the public and private business sectors will create a “trickle-down effect”, accustoming the wider UK population to FTTP broadband in such a way as to make people want to have gigabit broadband speeds in their own homes.

Such an effect might not seem immediately obvious, yet corroboration of its potential comes from the European Union (EU). In September 2016, the EU outlined plans to have 1Gb broadband installed in “all main socio-economic drivers” by 2025, so as to “foster familiarity with and demand for Gigabit internet access”.

Being able to enjoy truly ultrafast broadband speeds in professional and public spaces will make the British public less willing to tolerate questionable “superfast” speeds at home.

A loose analogy to this would be the reported decline in drinkers of instant coffee, which has increasingly fallen out of favour as a result of people becoming accustomed to the taste of fresh espressos and cappuccinos.

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What’s more, for those who are sceptical of EU policy, confirmation of the government’s demand-provoking approach also comes from South Korea, which currently boasts the world’s fastest broadband speeds.

Here, FTTP uptake as a percentage of total broadband subscriptions has reached 72.5%, and it’s done so largely because of government policies intended to aggregate “demand for broadband among public bodies to provide an established initial market for services”.

This goes to show that, while £200m isn’t too much, it will provide an essential shot in the arm to UK’s scarcely existent full-fibre broadband market. Of course, even in addition to the £400m coming from the Digital Infrastructure Fund, it will still need to be expanded on significantly in the coming years.

If nothing else, this is because the cost of covering the UK with FTTP has been estimated to be around £28.8bn, a figure that suggests £200m won’t be enough on its own to stimulate a sufficient degree of demand.

Still, the figure represents an encouraging move on the part of the government, which, in true Keynesian fashion, appears to be stepping in where private companies are sheepishly holding back.

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