September was a busy month for next-generation access (NGA) in the UK. First the Broadband Stakeholder Group (BSG) published its report, The costs of deploying fibre-based next-generation broadband infrastructure (carried out by Analysys Mason), several days later, Francesco Caio’s review of barriers to investment in NGA was published, then the European Commission released its draft recommendation on regulated access to NGA networks, and finally, Ofcom published its consultation on setting the right policy framework for ‘super-fast broadband’.
There are some common themes throughout these documents, as well as some interesting differences. The BSG report estimates the costs of FTTC and FTTH deployment. For this report, we modelled a number of scenarios, including use of BT’s, Virgin Media’s and others’ duct networks to aid deployment and differing levels of duct re-use depending on available duct space, and we looked at the implications for competition. It is clear from the magnitude of the costs and the need for high levels of take-up (see Figure 1) that fibre replicability, in all but the most favourable areas, is likely to be limited or non-existent.
Figure 1: Impact on costs of take-up and duct re-use in the UK [Source: Analysys Mason]
Since the Caio report, ‘The Next Phase of Broadband UK: Action now for long-term competitiveness’ was written for the government, it concentrates on policy issues that go beyond Ofcom’s remit, e.g. better co-ordination of streetworks and relaxing constraints on the deployment of overhead (aerial) lines. However, it is clear that Caio felt that now was not the time for major government intervention in NGA, because we are at too early a stage to warrant it. Whilst Virgin Media, BT and others have announced fibre investments, we are still a long way off wide-scale availability. However, Caio does leave the door open for intervention in the future, should the UK follow a different evolutionary path from other major markets. Given that carefully planned interventions can take years to come to fruition, some public sector bodies may be wondering whether action sooner, rather than later, is the right approach.
Caio also acknowledges the importance of economies of scale in NGA by recommending that a new ‘umbrella’ organisation be set up to support local fibre developments which would, for instance, oversee the development of a standardised wholesale product set that would reduce potential barriers to adoption by service providers. This is consistent with one of our recommendations in our BSG report, Models for Efficient and Effective Public Sector Interventions in Next Generation Broadband Access Networks.
The European Commission’s draft recommendation includes potential remedies that initially appear to be a significant departure from today’s regulation, where LLU is the primary ‘passive’ remedy. In an NGA world, the analogous passive remedy would be dark fibre, whereas the Commission now indicates a preference for deeper passive remedies, i.e. both existing and newly built ducts. The pricing controls associated with new ducts, in particular, should include a project-specific risk premium, although there is no clear guidance on what premium would be acceptable. The Commission has made it clear that any potential foreclosure, e.g. through the lack of space in a cabinet or ducts, or non-provision of a suitable backhaul product, will be problematic. The Commission has also given a indication that it expects services over NGA networks to be incremental upgrades and therefore not new markets. This means that it is likely that there will be wholesale broadband access remedies. However, NRAs might limit the extent to which incumbents have to unbundle their fibre. For example, the CMT's 10 October 2008 consultation document proposes bitstream over fibre only for speeds up to 30Mbit/s, with cost-based pricing applying only in certain geographic zones.
Perhaps the most interesting aspect of Ofcom’s consultation, Delivering super-fast broadband in the UK, is the section on pricing for both active and passive products, where it outlines the importance of pricing on incentives to invest, competition and consumer demand. For passive products, Ofcom’s duct survey should provide some useful data on space availability in BT’s duct by the year end. For new, active bitstream products, which will be essential for future competitiveness, Ofcom’s current thinking is that price regulation may be disproportionate, at least in the early stages of market development. Ofcom also acknowledges the economic challenges with sub-loop unbundling, and suggests various ways in which the business case could be improved, including joint investment models.
Joint investment models appear to offer at least one way forward to solving the economic challenges of NGA. There are a number of difficult issues to be solved, but perhaps now is the time to investigate such models with new vigour.