if connected

Today’s government report into the development of the digital economy in Britain is wide ranging. But I’m going to focus on one area, broadband.

There are two key initiatives, plus lots and lots of talk:

A universal service obligation of 2Mbps for all by 2012. An USO for broadband is long overdue. But for those living in rural areas unserved or poorly served today, this speed will prove unsatisfactory. Already, average broadband speeds are over 3Mbps in the UK. By 2012, speeds will have risen again. The best that 2Mbps will do is reduce the height from which people fall when they live outside the peaks of urban broadband excellence. Nothing more. 2Mbps by 2012 is yesterday’s speed tomorrow.

A tax of 50p a month on all fixed line telephones to support rural broadband development. This is controversial and in my view will prove ineffective. The argument in the report is that fibre roll-outs to one third of the UK are uneconomic and this tax will deliver a subsidy that will hasten fibre infrastructure builds nationally. I see several flaws:

1. BT aims to spend £1.5bn to reach 40 percent ish of the population that live in relatively cheap and easy to reach urban areas. By comparison, the total return on £6 per annum for each of the 34m or so fixed telephone lines will not go far given the scale of costs for fibre indicated by BT’s plans.

2. Fibre deployment has barely started in the UK’s cities. BT’s network kicks off early 2010. It’s far too early for anyone to make significant deployments in rural areas where the number of people that would benefit are far less. I suspect either the £6s in tax will stockpile somewhere in the interim, or the monies will be used to support the more modest target of 2Mbps rural broadband (ie the universal service obligation).

3. Given the best will in the world, it will take much time to install fibre networks. Roads must be dug. New equipment must be given to consumers for their homes. New network links must connect exchanges and central offices to central national backhaul infrastructure. It’s inevitable that the initial deployments will be in the cities, even with this additional economic sweetener. And, fibre will take years and years to do.

For the forseeable future, cities will enjoy markedly faster broadband than rural areas. The advent of fibre, regardless of this government initiative, will increase that speed difference. Two tier broadband is coming whether or not this government likes it.

KPN launches its new fibre to the home (FTTH) service. The Netherlands is Europe’s most sophisticated broadband market with extremely high broadband adoption and PC ownership. On some measures, it is the global broadband leader. What happens here, has tremendous implications for everyone.
KPN’s download speeds are good (30-60Mbps). Prices are not that high given that this is an initial launch aimed at testing the market, early adopters, and teasing a response from the savvy Dutch cable companies. The top package tier looks be have little differentiation to justify the higher price. Pricing is significantly above the benchmark set by France’s Free (Euro30) which is a very good thing for the business models of all Dutch operators.
Upload speeds are low (3-6Mbps) and look to have been chosen to be just one tenth of the marketed download speed. They are especially poor if compared with other fibre broadband services around Europe.
As KPN’s main competitors are cable co’s, KPN are under less pressure on upload due to the weakness of cable’s HFC (hybrid fibre coax) technology to deliver high upload speeds. Ideally, KPN should use the much higher upload speeds of which FTTH is capable to create clear differentiation from cable broadband packages, even those based on DOCSIS3.

BT’s announcement today of UK fibre investment will completely transform the broadband market in the UK.
The major competitor operators that have their own existing DSL networks — Sky, O2, Carphone Warehouse, Tiscali — will have to make decisions soon about whether to invest in fibre themselves.
A key part of that business case is the degree to which consumers are interested in next gen fibre broadband speeds. Today, JupiterResearch has published a new report with data on this precise subject:
Demand for Fiber Speeds
- Segmenting Targets for Next-Gen Internet
Other related reports on fibre:
The Fiber Future
- How FTTx Speeds Compare with WiMAX, 3G, DSL, and Cable
The Fiber Alphabet
- FTTx Broadband Technology and Its Effect on Net Neutrality
Clients – please ask us for more insight, we have other reports in preparation on this topic and have significant amounts of unpublished data which we are delighted to discuss on an enquiry call.

This is massive news: BT has finally announced its fibre plans.
Key points:
- Availability to 10 million homes by 2012. This is fast.
- Mix of fibre to the home (FTTH) for new builds with peak 100Mbps speeds, and FTTC/VDSL2 for existing homes (peak speed of 40Mbps). Exact split between the technologies has not been announced.
- Dependent on regulatory response from Ofcom.
- BT will offer its fibre on a wholesale basis to other operators and ISPs.
- High definition TV cited as one of the key drivers.
- “Demand led” rollout indicates BT plans to revive the success of the community-led broadband campaigns of the DSL roll out to prioritise locations that receive fibre first.
Initial thoughts, ahead of the analyst briefing in five minutes time:
This is a game changer for the UK broadband market. The larger ISPs that have unbundled local loop networks (O2, Sky, Carphone Warehouse, Be, Tiscali) suddenly face the prospect of their copper DSL services becoming obsolete in just a few years. The small niche ISPs that have struggled to remain in business in the face of higher speeds and thin margins offered by the LLU players, now have a lifeline with BT’s proposal to wholesale fibre.
However, there will be devils in the detail. 1.5 billion pounds is a suspiciously small sum to reach 10 million homes if BT were to achieve a high proportion of consumer uptake in the areas passed by fibre. I suspect the higher wholesale prices that BT plans for fibre, compared with DSL, will slow the uptake of fibre and so help BT save capex. Also, this announcement appears to be led by BT Wholesale, its uncertain how Ofcom will react given the division of the copper telephone line network into semi-independent Openreach. Ofcom may also choose to intervene to protect the copper/LLU investments of other operators, which could raise BT’s costs and slow their roll out (for example by continuing to insist that new build developments receive copper as well as fibre). It’s going to be extremely interesting to see if the LLU players choose to invest in fibre themselves.
More to follow.

A couple of weeks ago I was quoted on the BBC describing the BT/Openreach Ebbsfleet fibre as slow. What the BBC missed was my emphasis on upload speeds, see the speeds listed here and compare them with other European countries in this report.
So, this UK trial is offering just 2Mbps upload speed, compared with 10-100Mbps fibre-inspired upload speeds elsewhere in Europe.
What I find most frustrating about this is that a trial should be aiming to understand how a service will perform and how user behaviour will change. This paltry 2Mbps upload speed is little different from DSL speeds: Telefonica-owned Be already offer commercially a 2Mbps upload speed in the UK.
The BBC is not completely wrong though: the Ebbsfleet download speeds are not especially wonderful either.
Related reports:
The Fiber Alphabet,
FTTx Broadband Technology and Its Effect on Net Neutrality
The Fiber Future
How FTTx Speeds Compare with WiMAX, 3G, DSL, and Cable

Free plans to buy Telecom Italia’s French ISP business, Alice.
ISP markets across Europe continue to consolidate. In the past, Free has focused on organic growth rather than m&a, the main exception was the purchase of niche operator Citéfibre.
Fibre is a scale business. In areas covered by fibre, Free intends to migrate all its existing DSL customers onto the new network. This saves operational costs and maximises the ability of Free to sell value adds to its customer base.
Free’s fibre profitabiliy depends on the percentage penetration of households, and businesses, in those areas reached by fibre. Alice is valuable to Free as it will help it gain the critical mass of customers in city areas that Free needs to achieve sufficient penetration.
This purchase is about Free’s fibre roll-out. It isn’t, as some have written, a vanity project to regain the position as France’s number two ISP. I’m sure Free will enjoy being number two, but the financial bottom line is more important.

This is something I’ve been saying for years.

One example here:

“There is going to have to be an acceptance that broadband will be faster in the cities. The model of equal access will have to be adapted,” said Ian Fogg, an analyst with Jupiter Research.

The next thing that will make this divide even worse is fibre broadband. I’ve written a series of reports on fibre which will be published over the next few weeks.