Commissioned by Plymouth City Development Company
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- Leslie Giles Hutchinson
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1 Report on Digital Plymouth NGA Strategy Commissioned by Plymouth City Development Company Executive Summary Prepared by: Adroit Economics, ekosgen and InterConnect Communications Project Managed by: Plymouth Chamber of Commerce & Industry 24 March Introduction 1.1 Through its Local Economic Strategy (LES) Plymouth has set itself challenging economics targets including the creation of 42,500 net new jobs by 2026 and moving its Gross-Value Added (GVA) from 90% to 100% of the UK average by This research report, commissioned by Plymouth City Development Company (PCDC) and project managed by the Plymouth Chamber of Commerce (PCCI), with assistance and contributions from a number of private and public sector partners has determined that improving Plymouth s digital connectivity will help, possibly significantly, achieve these objectives. 2. Economic Impact of ICT 2.1 This conclusion is supported by research undertaken on behalf of e-skills UK (the Information and Communication Technology (ICT) sectors Skills Council) on the impact of ICT on the UK economy. This shows that use of ICT has enabled businesses to increase productivity, innovation and competitiveness. Over the last 5 to 7 years, ICT-enabled productivity increases alone have resulted in 3-4% uplift in Gross Value Added (GVA) in each UK region. For Plymouth this amounts to an additional GVA of at least 144m. 2.2 Broadband has played an important role in such productivity improvements. It has stimulated business start-ups, home working, enterprise and innovation. It has also enabled the more efficient and remote delivery of public services such as health and education. These impacts are set to continue, generating similar or greater benefits over the next 5 to 7 years, but only in economies that optimise broadband. 3. The Broadband Market 3.1 The broadband market can be divided into two: Consumer broadband which provides the majority of homes and businesses with basic broadband at prices typically between pcm. It is widely available over the BT telephone network using Asynchronous Digital Subscriber Line (ADSL) technology and over some cable TV networks Through continued enhancements to ADSL, download speeds of up to 20 megabits per second (Mbps) or more, are now possible but not universal. Lease line services these provide bespoke connections between sites and to the internet. They are high quality, secure, dedicated connections operating at a variety of different bandwidths, for example 2 Mbps, 10 Mbps,
2 100 Mbps, I Gbps, I Tbps or more. Lease lines are inherently more expensive than consumer broadband with prices costing tens or hundreds of thousands and typically are the preserve of large organisations, or specialist organisations. 3.2 Both markets are important to the competitiveness of economies. Internationally competitive broadband is especially important to more remote cities like Plymouth, as it helps to compensate for distance and other peripherality disadvantages. 4. Current Status 4.1 Our research revealed that: Plymouth lease line customers often pay more for their services than companies in the South East and London. This is principally because of a combination of distance-related charging elements in many lease line services and because of the absence of strong competition. Plymouth risks falling behind in the speeds that ordinary businesses and households in some countries, some cities, can access via consumer broadband. 4.2 Many countries and regions are now deploying what is known as Next Generation Access (NGA). This offers much higher speeds than can be delivered ubiquitously by the majority of current broadband services that are delivered using DSL services over the telephone network. 4.3 Two principal NGA technologies exist: Fibre to the Cabinet (FttC) This technology connects fibre-optic cable from the exchange to connection points in the street which are in turn connected to to individual premises by conventional (copper) telephone lines. It delivers up to 50 Mbps download and 10 Mbps upload; Fibre to the Premises (FttP) This technology connects fibre-optic cable directly from the exchange to individual premises. It provides 100 to 1000 Mbps upload and download, or more. 4.4 FttP is considered to be the preferred long term solution as it is virtually unlimited in terms of capacity. FttC is seen, by some, as an intermediate technology that may need to be upgraded to FttP over time as it relies on the existing BT telephone cables (which have limited capacity) for the final connection from the cabinet located in the street to the premises. 5. Objectives 5.1 The objectives for Plymouth must be to ensure that: consumer broadband customers can access, through NGA, higher-speed and higher capacity bandwidths at competitive prices; lease line customers pay no more than their competitors elsewhere and preferably to ensure that they pay less, giving them a competitive edge. 5.2 The UK is some two to three years behind some other countries in the deployment of NGA. Plymouth has a rare opportunity to take a lead in the deployment of FttP NGA in the UK if the appropriate action is taken now. 5.3 We have investigated and analysed various options to achieve the objectives stated above. After due consideration of these options we recommend a solution consisting of three main components: a) deploying FttP throughout Plymouth as proposed by a private sector organisation;
3 b) creating an internet exchange (IX) which would deliver cheaper and improved connectivity to the city; c) building a major data centre facility which would strengthen the city s data centre facilities offer. 6. Assessment of the proposed solution 6.1 FttC (or its equivalent) is now being rolled out across the UK. Research undertaken for the Government estimates that FttC will be deployed to approximately two-thirds of businesses and households, over the next 3 to 7 years. The Government s research suggests FttC will be deployed initially to the largest, most profitable cities and conurbations. Discussions suggest that Plymouth will benefit from these deployments, but is unlikely to be first in line as other cities and conurbations will offer more profitable opportunities. The third of businesses and households that the Government estimates will not benefit from these deployments will require Government subsidy if they are to be included. The Government is planning to provide such a subsidy by raising 50p tax on all telephone landlines. 6.2 However, Plymouth has the additional and unique opportunity to benefit from deployment of FttP to all 116,000 premises. This is being proposed by a small new independent company that utilises novel technology and approaches to reduce the cost of deployment. This company has advised that the proposed FttP network would be open to all service providers. This approach is cost-effective, minimises disruption and could be delivered within 3 to 4 years. The company does not seek subsidy but only requires assistance with highways, planning and marketing (no direct financial payment needs to be made by the city). The approach is currently being rolled out in two other UK cities on the same scale as is proposed for Plymouth and may be offered to other cities in addition to Plymouth. 6.3 The comparison between these deployments is clear: the FttP proposals will provide NGA to all businesses and households in Plymouth, within 3-4 years moreover it will deliver NGA via FttP technology which has more capacity and is more sustainable other organisations plan to deploy NGA via FttC technology to two thirds of the city. Although it is difficult to estimate the timing of this, because Plymouth is unlikely to be first in line, deployment is likely to be slower than the FttP proposals. 6.4 If the City supports the full-scale FttP deployment, this does not mean that it should also not seek to support other deployments. This will result in greater competition and choice. But if the city is able to secure city-wide FttP deployment, it will be one of the first few cities in the UK to do so and this will give Plymouth a unique advantage and competitive edge. 6.5 We have also reviewed a third and very different option, in which the city would need to take a lead role both managerially and financially. This is known as the Amsterdam model, and is based on a public-private sector partnership to deploy FttP. This would involve substantially greater cost and risk, at least the equivalent levels of disruption and a longer timescale than the currently proposed FttP deployment. We cannot recommend the Amsterdam model (or variants of this) when the market is on the verge of deploying both FttC and FttP in the city. The Amsterdam model would only disrupt these competitive investments and should be an instrument of last resort.
4 6.6 There are risks associated with the currently proposed FttP deployment however, primarily to do with levels of disruption and speed of delivery. We consider that there is an opportunity to seek to effectively manage these risks through good contract and project management. The biggest risk, however, is the possibility of the provider s business model being changed after deployment: it is most important that Plymouth addresses this issue in any negotiations that are undertaken. 7. The Lease line Market 7.1 Regarding the lease line market, other provincial cities such as Manchester and Newcastle have improved the competitiveness of their lease line markets by : creating an internet exchange (IX); ensuring provision of competitive data centre services. 7.2 Plymouth can adopt similar initiatives to improve its competitiveness: 8. Conclusions Establishing an IX this requires bringing together a number of customers needing lease line services to form a special purpose vehicle that aggregates their collective lease line needs and purchases the connection in bulk. This will achieve very significant cost savings. The IX will need to be located in suitably secure premises, ideally one of the city s data centres. Surplus bandwidth can then be sold on to other lease line users in the city. Establishing competitive data centre services - data centres provide a range of data storage services from a secure environment. Tier 4 data centres provide the highest quality and most secure service and Tier 1 the least. Plymouth s current data centres fall into the Tier 1 category. It would benefit Plymouth s economy if the city were able to strengthen its data centre offer by including a suitable Tier 2 or 3 data centre facility to meet local businesses data storage needs and help to reduce the cost of data access. Plans to build such a facility have been developed by a private sector firm which requires the early placing of some key orders in order to proceed. 8.1 The results of our study indicate that the market will deliver the key components of the Digital Plymouth strategy without direct financial support from the public sector. However there is an opportunity for the market to deliver more quickly and thereby potentially secure greater economic benefit if the city supports the strategy proactively. This would involve: Regarding NGA = FttP deployment - negotiate an agreement for deployment, assist with resolution of planning and highways issues and clear the way for the service to be marketed extensively = FttC also seek to encourage and support other firms to deploy NGA as soon as and as extensively as possible Regarding the IX bring together lease line users to aggregate their requirements and collectively purchase connectivity in bulk; Regarding a Tier 2/3 data centre facilitate discussions to help secure the advance orders required to proceed with the development; Regarding take-up run an effective marketing programme to ensure that businesses and consumers take full advantage of the benefits offered by Digital Plymouth; Regarding back-up options - prepare an alternative NGA strategy based on the Amsterdam model, identify sources of financial assistance to support
5 development of the IX and a Tier 2/3 data centre and consider the possibility of a new/renewable energy scheme in conjunction with a data centre. 8.2 Although it is difficult to calculate precisely the economic impact of these improvements, drawing on the e-skills UK ICT impact model and making assumptions about the role of broadband, we have estimated that these improvements could generate an additional 24m to 70m GVA over a 5-7 year period. This estimate disregards potential benefits arising from the improved attraction of Plymouth to inward investors. The table below summarises the impact of different aspects of the solution. Jobs - low Jobs - high GVA low GVA high FTTP + data centre and IX 1,521 4, m 70.7m...just NGA (FTTP) 1,391 4, m 66.5m...just NGA (FTTC) 362 1, m 17.3m 8.3 Our research indicates that Digital Plymouth is important to the successful delivery of the LES. Our study has also found that Digital Plymouth is very largely deliverable without direct funding from the public sector (although the IX and data centre initiatives may require some early-stage seed-corn financial assistance). 8.4 Finally, given the current status of NGA deployment in the UK, the implementation of Digital Plymouth represents a unique opportunity for Plymouth to take the lead as one of the UK s foremost digital cities. 8.5 We have prepared a formal action plan comprising five themes: 9. Action plan NGA Theme 1 NGA = FttP - provide planning, highways and marketing assistance; seek to reach an agreement via aggregation, procurement and contractual arrangements, regarding the key aspects of the deployment (coverage, timetable, pricing and operation) = FttC provide encouragement and assistance with planning, highways and marketing to other potential deployers Theme 2 - Fall back if the full FttP deployment is not delivered = Option 2 (the Amsterdam model) as identified above Supporting infrastructure Theme 3 the Internet Exchange (IX) = facilitate collaborative procurement of bulk backhaul, noting this project may become part of the aggregation process described above then if not sufficient, help the project secure some form of financial assistance
6 Theme 4 Tier 2/3 data centre = Help secure the advanced orders needed to unlock bank finance = Then if not sufficient, help the project to secure some form of financial assistance = As an alternative, discuss expanding the proposals to include a new and renewable energy pilot and a translational research park focussed on prototyping and testing applications for new technologies. Wider ICT/Innovation policy to encourage adoption and use Theme 5 Essential supporting strategy = ICT awareness, business adoption, ICT supply chain, ICT skills strengthen and extend where required = and wider economic policy focussing on innovation strengthen and extend where required
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