Expert warnings over super-fast broadband 'game'
BT's decision to throw allow its rivals to install their own broadband lines in its infrastructure was not the political victory being claimed by the Conservatives, according to experts - nor will it necessarily lead to any increased competition.
Earlier this week, BT chief executive Ian Livingston described himself as "relaxed" about providing access to the company's millions of miles of underground tubes that house its phone lines and called on rival firms to open up their infrastructure.
The move was warmly welcomed by the Tories who had been pushing for the move and believe that promoting infrastructure competition will bring the next generation of super-fast broadband within the reach of more of the nation's homes.
"We welcome BT's announcement that they are preparing to open their underground ducts to other broadband providers," the party said earlier this week. "This is something the Conservative Party has been calling for for over a year and is a central part of our plans to roll out super fast broadband across the country."
Super-fast broadband services - offering speeds of up to 100Mb per second - require the installation of fibre optic cabling.
Virgin Media has already upgraded its existing fibre network, which actually uses copper lines for the final connection to homes, so that it can offer 50Mbps now and speeds of over 100Mbps in future.
BT, on the other hand, is rolling out its own fibre network at the rate of 80,000 new premises per week. It is pushing fibre to roadside cabinets, using copper for the final connection and its BT Infinity service offers speeds of 40Mbps.
Meanwhile, BT's Openreach business is offering its fibre network to rival ISPs such as Zen Internet. Openreach was set up under a deal with regulator Ofcom in 2005, and controls BT's local network to ensure that any company can use it to offer services at regulated prices.
Prohibitive costs
Despite this investment, however, neither BT nor Virgin Media reckon that fibre will get beyond about 60% of the country because the costs are prohibitively high. The government has proposed levying a 50p a phone line tax to raise funds to extend coverage to 90% of households by 2017 but the Conservatives would rather use part of the BBC licence fee to pay for the extension of broadband into more rural areas.
The government has already earmarked that cash to ensure that everyone can get a basic broadband service by 2012.
Analysts are unconvinced that opening up ducts will make any great difference to coverage, while some in the telecoms industry believe BT's fiercest critics - TalkTalk and BSkyB - are actually dragging their feet in order to protect the hundreds of millions they have spent on existing infrastructure by putting their own equipment into BT's local telephone exchanges.
Duct sharing is already available in other countries, such as France, where the incumbent has an even fiercer grip on the market than BT, but there has not been significant take-up. Livingston himself said duct sharing is "unlikely to be the silver bullet to get fibre to every home" but it might "help BT and others extend coverage".
In a note on the move, Cazenove's well-respected head of European telecoms and media research Paul Howard described BT's move as "sensible and well thought through".
"It feels premature to be worried about competing fibre investment and (I) would highlight some 'game-theory' at play here," he added.
The European Commission, for example, is already on track to mandate access to ducts.
"The bigger question is whether the likes of Carphone and Sky really want access to BT's ducts in order to invest in their own fibre and what the practicalities of such access would be. It is hard to envisage duct access providing both Carphone and Sky with even half of their long-term provisioning requirements. In addition, we suspect investors in both TalkTalk and Sky would be very nervous regarding any planned fibre investments," he said.
Earlier this week Jeremy Hunt, shadow culture minister, told the Financial Times that he had talked to some of BT's rivals and "there is a willingness to invest substantial sums of money" in fibre.
No equivalents
Industry insiders, however, are unconvinced. Both companies have spent large sums putting their own equipment into about 1,000 of BT's 5,500 local telephone exchanges - essentially those exchanges in large metropolitan areas.
Taking part in the process of local loop unbundling has allowed them to stop buying BT's wholesale broadband service and instead merely 'rent' BT's local copper lines. It is a switch that has helped turn TalkTalk's broadband business into a major money-spinner that Carphone Warehouse is now looking to demerge from its retail operation.
But there is no equivalent 'local loop unbundling' process for BT's fibre network and both firms risk seeing their investment superseded by BT and Virgin's cable networks. TalkTalk was involved in BT's trial of fibre technology in North London but has yet to sign up to Openreach's wholesale fibre product. Sky, meanwhile, has been very quiet on its fibre plans.
Both companies have complained, however, that Openreach's wholesale fibre - or Generic Ethernet Access - offering is inadequate. They want more 'flexibility' so they can use BT's fibre to create their own products.
Cazenove's Howard reckons neither company is keen to put its own cash into building a brand new network and anyway, "having multiple fibre investments would represent a negative for the whole industry and (I) suggest the local loop should be considered a natural monopoly or at least a duopoly in urban areas given the cable industry."
"We believe regulation should focus more on achieving adequate wholesale access to an incumbent's fibre network."
"The difficultly is that regulators across Europe have provided incumbents with certain regulatory freedom (for example no formal price controls over BT's fibre network) in order to promote investment in high speed networks," Howard added.
"Sky and Carphone are therefore forced to focus on the threat of alternative investments in order to persuade BT to tailor a more suitable wholesale product. We suspect Ofcom's current vision, which we suggest is one where BT Openreach deploys fibre on behalf of everyone and provides access at reasonable wholesale prices is still the most appropriate.
"However, we should expect a lot of noise and politics to cloudy the issue in the short to medium-term."
'Very odd'
Any regulation is only likely to fall on BT. Ofcom has not found that Virgin Media has significant market power, which would bring it within the regulatory framework. Any publicly-funded fibre roll-out programme, meanwhile, would almost certainly come with 'open access' conditions attached and so BT is likely to be the only builder.
Over at Morgan Stanley, Nick Delfas has looked at the Conservative Party's plans to ensure that speeds of up to 100Mbps are available to half the population by 2017 and branded them "very odd".
"Virgin alone will shortly provide this much; Virgin is already at 50 Mbps but getting to 100 Mbps... is in the works. So this is a policy commitment to let what will naturally happen take its course."
"It is already EU policy to unbundle ducts," he added. "The French have already concluded a huge project to map and price all the ducts in the country. Even so, competitors say operationally it is difficult to get access. In the UK we doubt there is a comprehensive map of the ducts; BT may even not know itself where they are or what exactly there is in them. And then there is the issue of capital availability for an operator to take advantage of them."
Livingston himself suggested as much when earlier this week he stressed "duct access has been adopted in other countries but normally as the only way for companies to access an incumbent's network.
There are plenty of existing ways in which companies can access BT's network and so its impact may be less dramatic in the UK. We will only know for sure once they are opened. BT is taking a considerable degree of commercial risk by rolling out fibre and it will be interesting to see if others are willing to join us."
Richard Wray, communications editor
Thursday 11 February 2010 07.30 GMT
guardian.co.uk © Guardian News and Media Limited 2010
BT's decision to throw allow its rivals to install their own broadband lines in its infrastructure was not the political victory being claimed by the Conservatives, according to experts - nor will it necessarily lead to any increased competition.
Earlier this week, BT chief executive Ian Livingston described himself as "relaxed" about providing access to the company's millions of miles of underground tubes that house its phone lines and called on rival firms to open up their infrastructure.
The move was warmly welcomed by the Tories who had been pushing for the move and believe that promoting infrastructure competition will bring the next generation of super-fast broadband within the reach of more of the nation's homes.
"We welcome BT's announcement that they are preparing to open their underground ducts to other broadband providers," the party said earlier this week. "This is something the Conservative Party has been calling for for over a year and is a central part of our plans to roll out super fast broadband across the country."
Super-fast broadband services - offering speeds of up to 100Mb per second - require the installation of fibre optic cabling.
Virgin Media has already upgraded its existing fibre network, which actually uses copper lines for the final connection to homes, so that it can offer 50Mbps now and speeds of over 100Mbps in future.
BT, on the other hand, is rolling out its own fibre network at the rate of 80,000 new premises per week. It is pushing fibre to roadside cabinets, using copper for the final connection and its BT Infinity service offers speeds of 40Mbps.
Meanwhile, BT's Openreach business is offering its fibre network to rival ISPs such as Zen Internet. Openreach was set up under a deal with regulator Ofcom in 2005, and controls BT's local network to ensure that any company can use it to offer services at regulated prices.
Prohibitive costs
Despite this investment, however, neither BT nor Virgin Media reckon that fibre will get beyond about 60% of the country because the costs are prohibitively high. The government has proposed levying a 50p a phone line tax to raise funds to extend coverage to 90% of households by 2017 but the Conservatives would rather use part of the BBC licence fee to pay for the extension of broadband into more rural areas.
The government has already earmarked that cash to ensure that everyone can get a basic broadband service by 2012.
Analysts are unconvinced that opening up ducts will make any great difference to coverage, while some in the telecoms industry believe BT's fiercest critics - TalkTalk and BSkyB - are actually dragging their feet in order to protect the hundreds of millions they have spent on existing infrastructure by putting their own equipment into BT's local telephone exchanges.
Duct sharing is already available in other countries, such as France, where the incumbent has an even fiercer grip on the market than BT, but there has not been significant take-up. Livingston himself said duct sharing is "unlikely to be the silver bullet to get fibre to every home" but it might "help BT and others extend coverage".
In a note on the move, Cazenove's well-respected head of European telecoms and media research Paul Howard described BT's move as "sensible and well thought through".
"It feels premature to be worried about competing fibre investment and (I) would highlight some 'game-theory' at play here," he added.
The European Commission, for example, is already on track to mandate access to ducts.
"The bigger question is whether the likes of Carphone and Sky really want access to BT's ducts in order to invest in their own fibre and what the practicalities of such access would be. It is hard to envisage duct access providing both Carphone and Sky with even half of their long-term provisioning requirements. In addition, we suspect investors in both TalkTalk and Sky would be very nervous regarding any planned fibre investments," he said.
Earlier this week Jeremy Hunt, shadow culture minister, told the Financial Times that he had talked to some of BT's rivals and "there is a willingness to invest substantial sums of money" in fibre.
No equivalents
Industry insiders, however, are unconvinced. Both companies have spent large sums putting their own equipment into about 1,000 of BT's 5,500 local telephone exchanges - essentially those exchanges in large metropolitan areas.
Taking part in the process of local loop unbundling has allowed them to stop buying BT's wholesale broadband service and instead merely 'rent' BT's local copper lines. It is a switch that has helped turn TalkTalk's broadband business into a major money-spinner that Carphone Warehouse is now looking to demerge from its retail operation.
But there is no equivalent 'local loop unbundling' process for BT's fibre network and both firms risk seeing their investment superseded by BT and Virgin's cable networks. TalkTalk was involved in BT's trial of fibre technology in North London but has yet to sign up to Openreach's wholesale fibre product. Sky, meanwhile, has been very quiet on its fibre plans.
Both companies have complained, however, that Openreach's wholesale fibre - or Generic Ethernet Access - offering is inadequate. They want more 'flexibility' so they can use BT's fibre to create their own products.
Cazenove's Howard reckons neither company is keen to put its own cash into building a brand new network and anyway, "having multiple fibre investments would represent a negative for the whole industry and (I) suggest the local loop should be considered a natural monopoly or at least a duopoly in urban areas given the cable industry."
"We believe regulation should focus more on achieving adequate wholesale access to an incumbent's fibre network."
"The difficultly is that regulators across Europe have provided incumbents with certain regulatory freedom (for example no formal price controls over BT's fibre network) in order to promote investment in high speed networks," Howard added.
"Sky and Carphone are therefore forced to focus on the threat of alternative investments in order to persuade BT to tailor a more suitable wholesale product. We suspect Ofcom's current vision, which we suggest is one where BT Openreach deploys fibre on behalf of everyone and provides access at reasonable wholesale prices is still the most appropriate.
"However, we should expect a lot of noise and politics to cloudy the issue in the short to medium-term."
'Very odd'
Any regulation is only likely to fall on BT. Ofcom has not found that Virgin Media has significant market power, which would bring it within the regulatory framework. Any publicly-funded fibre roll-out programme, meanwhile, would almost certainly come with 'open access' conditions attached and so BT is likely to be the only builder.
Over at Morgan Stanley, Nick Delfas has looked at the Conservative Party's plans to ensure that speeds of up to 100Mbps are available to half the population by 2017 and branded them "very odd".
"Virgin alone will shortly provide this much; Virgin is already at 50 Mbps but getting to 100 Mbps... is in the works. So this is a policy commitment to let what will naturally happen take its course."
"It is already EU policy to unbundle ducts," he added. "The French have already concluded a huge project to map and price all the ducts in the country. Even so, competitors say operationally it is difficult to get access. In the UK we doubt there is a comprehensive map of the ducts; BT may even not know itself where they are or what exactly there is in them. And then there is the issue of capital availability for an operator to take advantage of them."
Livingston himself suggested as much when earlier this week he stressed "duct access has been adopted in other countries but normally as the only way for companies to access an incumbent's network.
There are plenty of existing ways in which companies can access BT's network and so its impact may be less dramatic in the UK. We will only know for sure once they are opened. BT is taking a considerable degree of commercial risk by rolling out fibre and it will be interesting to see if others are willing to join us."
Richard Wray, communications editor
Thursday 11 February 2010 07.30 GMT
guardian.co.uk © Guardian News and Media Limited 2010
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