FOUNDATION FOR INFORMATION SOCIETY POLICY

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1 FOUNDATION FOR INFORMATION SOCIETY POLICY The need for a clear communications infrastructure policy Synopsis This paper presents the argument that the UK must put in place a long term communications infrastructure policy as soon as possible, together with a legal and regulatory environment to support that policy, since this is essential to the UK s position in the world economy. A. Why is communications infrastructure policy important? 1. A sudden removal of communications would not only bring business and commerce to a halt, but also our traffic, public services, finance, energy supply and much of our personal interaction - Digital Britain Report Digital networks already underpin the supply of electricity and water to our homes, help organise the delivery of food and other goods to shops, and act as an essential tool for businesses across the UK. And their reach is increasing as we connect our TVs, games consoles, and even domestic appliances - Cabinet Office The UK Cyber Security Strategy - Protecting and promoting the UK in a digital world - November There is barely an aspect of our daily lives that is not touched in some way by the Internet - House of Lords Select Committee on Communications - Broadband for all an alternative vision July These are just some examples of reports in recent times that have referred to the criticality of communications infrastructure and services to the performance of the digital economy. 5. Furthermore, there have been various reports that project the importance of the Internet (which is dependent on universally available and high capacity communications infrastructure) to economic growth. Recently, Policy Exchange, in its report The Superfast and the Furious 4, states that the internet economy accounts for over 8% of UK GDP and that this figure is forecast to rise to over 12% by 2016, with the internet now accounting for around a quarter of our economic growth. 6. However, a communications infrastructure policy is not only important for economic growth but, equally, to guard against economic harm that could be caused by disruptions to that infrastructure. This has been highlighted recently by Leon Panetta (US Secretary of State for Defence) who has said that the US could be at risk from a cyber Pearl Harbour 5 and that cyber-terrorists could paralyse and shock the nation and create a profound new sense of vulnerability by gaining control of critical utility, transport and communications networks. 7. A similar point was central to a speech by the Vice-President of the European Commission, Neelie Kroes, at Davos on 24 January 6, in which she referred to the proposed Cybersecurity Strategy for the EU and said that a key component of Panetta-warns.html 6 1

2 the strategy is to improve the overall resilience of networks and information systems. 8. We welcome the fact that the Cabinet Office is working to improve UK s ability to respond to cyber attacks on both public and privately-owned critical national infrastructure 7 and would hope that this has the full cross departmental support that it requires. A1. Comments: a. Current government policy focuses on relatively short-term broadband targets (i.e., the best superfast broadband network in Europe by 2015 ). This is open to varying interpretations and it could be difficult to measure success in meeting the target. Furthermore, this policy appears to put most emphasis on fixed (i.e., wireline) networks. b. Despite the statements from government sources summarised in A.1 A.3 above, and the work of the Cabinet Office, we would still question whether there is a full appreciation of the critical nature and role of our different communications infrastructures, both wired and wireless, across all parts of government. c. Whilst there is no doubt that fixed networks do need on-going upgrades, wireless networks, particularly mobile, have a significant role to play. The future success of the digital economy needs to capitalise on the benefits to users of greater mobility, personalisation and location which mobile services offer. d. In summary, we do not see a clear vision of how UK can move from where it is today to where it ought to be. As the House of Lords report pointed out, there has been an absence of an all-encompassing vision of pervasive broadband connectivity as a key component of national infrastructure. e. In a similar vein, Policy Exchange commented in its report The Superfast and the Furious in our view, the government s holistic broadband policy remains underweight compared to its strategic importance for the British economy. f. Our conclusion is that a communications infrastructure policy, looking beyond showpiece high-speed targets and positioning the UK against its competitor countries, should become a much higher priority for government. g. In this respect, we note that one of the key recommendations in the Policy Exchange report is that government should place a higher priority on communications when it comes to designing national infrastructure policy, including the importance of digital communications as an enabler for smart cities, intelligent transport and other future technologies particularly since small businesses rank communications second only to major roads when asked to prioritise different areas for infrastructure improvements. B. Where are we now? 1. Although DCMS has set the target that the UK should aim to have the best superfast broadband network in Europe by 2015, it does not address the more pertinent question of what role the UK s communications infrastructures are expected to play in terms of growth and societal development across the entire economy over the coming decade (and beyond). 2. In this respect, whilst existing network operators, fixed and mobile, may be making progress in terms of digital speed and coverage, it is not clear that such advances will achieve the objective of real universal connectivity which will be essential for both commercial and public sector services. 3. Understandably, the largest suppliers target higher density areas and, even if BT s rolling investments in fibre-to-the-cabinet (FTTC) upgrades lead to their Infinity services being available to c.90% of premises by 2015, there will still be a number of not spots, not all in remote areas. 4. In terms of other players, Virgin Media is leading the speed race, primarily because 7 The UK Cyber Security Strategy Report on Progress December

3 of the capabilities of its existing hybrid fibre-coaxial (also FTTC) networks, which are a legacy of policy during the 1990s. However, its coverage is unlikely to reach much above 55% of premises in the foreseeable future. 5. In addition to these two operators, there are other communications service providers who use BT s wholesale products to operate their own networks, and numerous local initiatives, some in receipt of BDUK funding and some commercially/community driven but these will still not address all not spots, for the medium term at least. 6. Mobile networks have greater coverage but we do not believe that government should rely on 4G to address not spots over the next 5 years. Experts are unsure of the rate at which smartphones will enter the UK supply chain with the 800 MHz version of 4G built-in. So, if relief is to come to very large numbers of users who get no mobile signal today, only GSM is likely to offer service certainty over the next 5 years. 7. In terms of demand, the existing fixed network operators, particularly BT, argue that this is overestimated (at least for the type of product that their network design allows) whereas the mobile operators have experienced higher than expected demand, and have been putting pressure on for the release of additional spectrum for 4G for some time. In response to this real and projected growth in demand (estimated in a recent Cisco study at 84% CAGR 8 ), Ofcom has already started to look at making further spectrum available for 5G even before 4G services are widely available. 8. Interestingly, whilst fixed network operators are concerned about the willingness of their customers to pay for superfast broadband, these same concerns do not seem to apply to the same degree for mobile. 9. Whilst noting these different views of the influences on take-up, it must be in the UK s best interests to ensure that our communications infrastructures are readied to support the efficient operation of existing markets and foster new, digitally enabled markets. 10. Other than reporting demand uncertainty, the existing players continue to refer to other barriers, such as the cost of civil works, difficulties with getting access to other infrastructure, rating valuations and planning rules, as reasons why more progress cannot be achieved. These issues are not new (and were flagged as areas that needed attention by government in the Broadband Stakeholder Group s Pipe Dreams report in 2007). However, we recognise that the Growth & Infrastructure Bill aims to address some of these barriers. B.1 Comments: a. In its response to the House of Lords, DCMS said the Government believes that the UK s communications infrastructure should have good coverage across the UK, and offer consumers the choice of providers and price competition in all markets. We believe this has been achieved, both in the fixed line and mobile sectors. The plans to deliver superfast broadband to 90% of the UK and at least 2Mbps for the rest, alongside the 4G coverage commitments, combined with effective regulation will ensure that this continues. b. This response implies that government is content with progress, which is an understandable reaction bearing in mind the fragmented market that has developed as a consequence of various policy and regulatory iterations over the past 30 years. However, it has to be assumed that government would like to improve on the above to achieve the best possible connectivity for all, not least on account of the need for economic rebalancing across regions and sectors. c. There will always be differing views over future demand and we will continue to face perceived barriers and disruptive influences that will make a coherent policy difficult to establish but these should not stand in the way of achieving universally available, reliable, secure and high capacity communications infrastructure(s) to support economic well-being. 8 Cisco Visual Networking Index: Global Mobile Data Traffic Forecast Update,

4 d. We would argue that there could be significant consequences if the UK does not address the economic benefit and security issues referred to above. C. Where should we aim to be? 1. Because of the dynamic nature of the demand for capacity on our communications highways, with future volumes of communications traffic difficult to predict, it could be argued that there is never a clear end point and that the setting of a national target in absolute numerical terms is unrealistic and misleading. 2. Whilst it may be that universally available fibre-to-the-premise (FTTP) is seen as the end game for fixed networks, there is no doubt that this would be costly to implement. 3. Similarly, it should be evident that universally available, high performance wireless networks are essential in the mobile internet age, when location and service personalisation will be of significant benefit to the digital economy. 4. However, it is not realistic to expect any developments to offer identical degrees of capacity, service level, reliability and security on a national basis and it should be accepted that there are likely to be regional (and local) differences well into the foreseeable future. 5. The critical requirement is that any user should have a minimum level of service well beyond what is currently projected for the final 10% ; i.e., greater than 2Mbs. Although this can be provided now by way of, for example, satellite and fixed wireless services, affordability becomes a key factor. 6. Furthermore, no user should have to rely on a single infrastructure. All citizens and enterprises should have alternative access to provide backup if one of their chosen networks goes down and it should be recognised that users bandwidth needs are not dependent upon location but on the services they wish to use. 7. The desired outcome is that there should be minimal differentiation between access speeds available to urban and rural users; e.g., individuals should be able to take their urban area workplace service to a rural home location with little significant impact on performance. C.1 Comments: a. We recognise that technology has enabled things well ahead of the demand for them (i.e., there has been technology push ). However, we do not believe that the UK can afford to wait for demonstrable market demand before taking action. b. We believe that the overriding aim should be to get our critical communications infrastructures ahead of the demand curve and to put in place a communications infrastructure policy that will deliver true universality of a common service level significantly greater than that currently projected (i.e., well beyond 2Mbs) over infrastructures that are highly reliable and secure. c. In terms of the other barriers referred to in B.10 above, one of the main reasons for the can t do attitude of the fixed network operators is the cost of civil works. As the ITU s Broadband Annual Report points out a network is composed of three distinct layers with very different characteristics in respect to their cost and return on investment. The first layer, the passive layer (civil works and dark fibre), can account for up to 80% of the cost and has a payback period of approximately 15 years. d. Whether or not a 15-year payback is applicable to the passive layer in all cases may be debatable but this layer continues to be seen as the most difficult hurdle to overcome and is, perhaps, where some government subsidy could be applied. The outcome of such subsidy could be open access passive infrastructure that could be under public or private sector management. In this respect, under EU telecoms regulation, Ofcom already has the power to impose access obligations vis-à-vis 9 4

5 passive infrastructure irrespective of whether the infrastructure owner is deemed to have significant market power (SMP). e. There is also a serious question as to whether all the new spectrum and new mobile technology will ever be able to address the compound growth rates of data now being generated by mobile devices. It is a matter of physics that all the new mobile spectrum and new mobile technology can never match the capacity of a fibre optic cable. The only solution for the long-term viability of the UK mobile networks is a substantial investment in higher density mobile networks (i.e., many more base stations through continuous cell splitting). One answer could be to switch on national roaming to jump start the process and which would require almost no new investment. f. In terms of policy, the target of the best superfast broadband network in Europe by 2015 is too short term since we need to look at least 10 years ahead. If we do not take a more far-sighted approach, this is likely to be damaging to the UK economy in the long term. A decade is probably the minimum interval between adopting a long-term broadband communications infrastructure policy and its full realisation and, with this in mind, the government should consider whether it is content to continue with a predominantly market led approach, since this could risk the UK lagging behind its major competitor economies. Policy and regulatory priorities should encourage commercial sustainability (whether privately or publicly funded) and it would also be valuable if a cost benefit analysis were undertaken to guide policy on the extent of infrastructure competition that is sustainable. With particular reference to the fixed local access network, the policy to encourage market entry on the back of the existing copper infrastructure may have deflected investment away from necessary network upgrades, expansions and new technologies. g. Government has to consider whether it wishes to be more interventionist. On the one hand, if it sets a target, it must be prepared to step in and plug any gaps between the target and what the private sector is able to deliver. If it is not prepared to step in, it could be argued that it is an empty target. In the latter case, it should step back and let the market take its own course and accept the outcome. Constant tinkering, albeit with good intentions, can delay real progress. h. Therefore, if the objective is to have universally available, reliable, secure and high capacity communications infrastructure(s), government would appear to have little option but to produce a clear long-term infrastructure provision strategy and have a programme of actions to deliver it. i. In terms of a particular target, although we do need high capacity services for internet-centric homes and businesses, we believe that, rather than focus only on a best superfast position, it is as important, if not more so, to set a minimum level of speed or service, i.e., a universal connectivity and service level floor, with target dates for both achieving and continuously improving on that objective. D. Conclusions It is concluded that: There is an undeniable economic and social need for universal access to reliable, secure and high capacity communications infrastructures (both wired and wireless) which current government priorities do not fully recognise. Government policy is short term: there does not appear to be an effective plan for the next decade that will meet the demand for new services and new markets. A consequence of leaving policy implementation in the hands of the private sector has led to a form of market failure in areas outside the major conurbations. Policy and regulation to date has been focused more on encouraging market entry rather than encouraging commercial sustainability (whether privately or publicly funded). Current mobile policy has been too focussed on trying to sustain five (or four) competitive mobile networks in the market. We still need mobile network 5

6 competition but need even more the stepping up investment in mobile network density of any/all of the UK mobile networks. The country faces the twin challenges of coverage and capacity. The Ofcom coverage obligation for one of the new 800 MHz networks is certainly a step in the right direction for nominal coverage. But coverage without enough capacity is still a poor mobile network. The bigger economic challenge by far is sustaining the levels of investment needed to continuously add new layers of capacity (by cell splitting) to address a rising tide of data that a successful digital economy will generate over mobile networks. E. Recommendations It is recommended that: Government policy should move away from high speed targets towards ensuring universal access to reliable, secure and high capacity communications infrastructures. This policy should encompass both fixed and mobile broadband objectives. The policy should recognise that there will always be demand from high tech islands and dense urban areas that will be served by the market. Therefore, the focus should move to ensuring a universal connectivity and service level floor for all and aspire to on-going improvement. The key components that we believe should be part of such a policy are listed in Annex A. Any government subsidy could be directed towards providing passive infrastructure if this continues to be one of the primary barriers to faster delivery of high capacity communications infrastructures to the less dense population areas. If such subsidies were to be provided, greater service obligations should be imposed upon those benefitting. The regulatory model should be reviewed to ensure that it is ready to address the challenges of the digital economy for the next years. Government should re-balance priorities for mobile network regulation so that the top priority is given to creating the conditions for mobile network operators to be able to sustain investment in higher density mobile networks (cell splitting) in order to meet the relentless mobile data capacity challenge. New spectrum and technology alone will not do the job. Consideration should be given to how national roaming could be built-in to a modernised regulatory framework for the mobile Internet. Annex A A communications infrastructure policy should provide a vision for ten years ahead at least and, preferably, longer. The policy could involve rolling five-year targets. The primary objective should be to achieve universal connectivity; i.e., to provide every individual, in any geographic area, whether at home, at work or on the move, with access to high quality broadband capacity from a choice of communications service providers. In the first five years, what is provided by universal connectivity may continue to vary by geographic area but a service level floor should be set; i.e., a service level that will be universally available to all within a defined geographic area. We believe that a universal minimum capability of 10Mbs (which meets affordability criteria) should be the target for 2015, increasing to 30Mbs by 2018 (i.e., the end of the first five years). Beyond 2018, there should be rolling five yearly targets to improve the service level floor in response to services evolution. Local communities, i.e., local citizen and business interests, as well as the service providers, could define these service level floors. Network operators should be required to advise government and the regulator of their coverage plans including, for example, service speed, quality of service levels (e.g., % availability of headline service) and security. There should be no compromise on quality of service for the service level floor ; this should be guaranteed. 6

7 If sharing of network elements, particularly passive infrastructure (e.g., ducts and poles), would increase the pace of reaching coverage targets, the regulator should mandate this. The regulator should be responsible for monitoring targets for network build and performance and there could be penalties for non-achievement of network coverage and service performance targets. The policy should define the role and responsibilities of Government to set communications infrastructure policy targets, preferably in conjunction with other national infrastructure policy. The policy should also be clear on how continuity of service would be provided in the event of cyber attacks. Public funding should be seen as a last resort and applied only where the market is unable to meet the service level floor agreed within each five-year period. Note: The Foundation for Information Society Policy (FISP) is a newly formed think tank entirely independent of political parties, communications & network providers and any significant commercial interests in technologies, products and services. FISP has been established, with the support of experienced independent voices, to formulate inputs for policy and regulatory development with the over-riding objective of encouraging maturity in the digital economy our Information Society. The Directors of FISP are Malcolm Taylor, David Harrington, Michael Rowbory, Bob Franklin and Anna Coast. Advisors that have agreed to be recognised as contributors to this report are Stephen Temple, Colin Long and Richard Cadman. Contacts: mtaylor@mtacomms.com; dharrington@fisp.org.uk 7