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Is public investment in broadband premature?
Thursday 25 March 2010 18:30:15 by John Hunt

Large-scale investment in next-generation broadband could be premature according to an economist specialising in the impact of IT investment. Simon Hooton, of Regeneris Consulting claims that previous experience shows that there will be a rise in demand for high-speed broadband services which could stimulate the private sector to invest.

"It seems premature to rush into large-scale public investment when the scale of problems remains unclear and returns to the tax-payer are so uncertain. The current evidence on the economic impact of broadband is sketchy and requires further attention before we can be sure it will deliver the volumes of jobs and economic benefits that some are suggesting.

The government is keen to exploit efficiency savings through greater online provision of services. For many of these services, the current network would be sufficient, but they would help stimulate internet use among residential and businesses users which in turn would fuel demand for the faster connections.

Although there are some unique aspects of the UK's situation, the case that we are about to start rapidly losing economic ground if we do not commit ourselves to achieving 100 per cent coverage has not yet been convincingly made."

Simon Hooton, (Economist) Regeneris Consulting

While investing in terms of billions of public money now may be premature, the announced plans from Labour amount to only around £175 million being spent per year until 2017. The figures for the Conservatives spending are unknown, but public money would not be spent until 2012 at the earliest. The Conservative plans do intend to give the private sector some time to evolve their plans, and this may well help pin point where public sector investment is required.

The USC is an example of why we should NOT wait until the economic benefits are proved beyond doubt, since it has taken almost a year for the team tasked with implementing the USC to be formed. Waiting could mean significant economic harm to the UK economy, is that a gamble worth taking?

To date, none of the next-generation broadband solutions have solidly committed to 100% coverage. A recent Gordon Brown speech suggested 100% coverage by 2020, but it's worth remembering that we have seen Stephen Timms stand up and promise a USO (universal service obligation) only to be corrected later to be a USC (universal service commitment). Predicting what the Internet will be like in ten years is impossible, and helping to push forward plans to give everyone high-speed access is a sensible plan to ensure we are ready for what lies ahead.

Comments

Posted by Locky over 7 years ago
that economist is clearly a tard

i think everybody will agree with me when i say that it is too late not too early..
Posted by cyberdoyle over 7 years ago
Agree with your article and totally disagree with Mr Hallam who obviously doesn't understand the physics. The telcos are desperate to protect their investment and pay back the £9billion pension deficit. They are not going to invest in Next Gen when they can keep patching up the copper. The mere fact that BT are cold calling trying to sign people up for crap BET is proof that their only interest is competing with virgin in a few areas of high population density for the same market.
Posted by cyberdoyle over 7 years ago
You can decide for yourselves if you want a digital britain of up to 40 meg in cities and 'up to 2meg' for people in less densely populated areas, or one like korea with 1000 meg for a tenner a month, and you won't get that with market forces. Get fibre to the final third first and the market will soon shape up. Then we will have a truly digitalbritain and we will lead the world again. Economists and politicians don't get IT.
Posted by nmg196 over 7 years ago
@cyberdoyle Yeah but nobody is willing to pay the estimated £2000 install cost for FTTH to be installed when they can have FTTC for free (or 50p extra per month if you like).
Posted by nmg196 over 7 years ago
Besides, there are no applications which require connectivity speed of 1000Mb and there never will be. Nobody will EVER need to stream 200 full HD channels similtanously to their house, so the investment in fibre to the home is a waste of money. I'd rather have FTTC in 2012 than wait for FTTH by 2020+ (or however long it would take).
Posted by Somerset over 7 years ago
Fibre first to those more than eg. 2km from the exchange scattered around the country?

1000M just means no restriction on the fibre bandwidth, just like my 100M CAT5 cable.

CD - you really need help understanding networks.
Posted by Somerset over 7 years ago
Strange how CD wants 1000M and people developing applications want to reduce bandwidth to save costs.
Posted by CARPETBURN over 7 years ago
Im frankly confused why public money is needed at all when firms like virgin have already announced faster speeds and expansion well before taking our money was finally decided. Whos getting this money, Virgin dont seem to need it to give us "high-speed broadband"
Posted by cyberdoyle over 7 years ago
typo in my first post, it should have read Mr Hooton.
nmb196. true. not in digitalbritain. But you just watch what all the other countries do with it.
somerset, I run a network. I have laid and lit fibre. do you run networks too? I am not saying we need fibre so folk can use 1000mbps now, I am saying that laying fibre makes the pipes futureproof for our kids, whereas patching up the copper is a waste of time and money.
Posted by cyberdoyle over 7 years ago
I partitioned a 1 gig hard disc in 1992 because I couldn't imagine filling it. I now use 2 terabit drives. And people in rural areas can't get FttC. Virgin or BT don't do rural. Or ADSL2+, they can't even get adsl in some areas. The final third.
I have a mate on virgin cable. (FTTC) - he is quite a way from the cabinet. he gets under 2meg. Urban areas are also in the final third, it isn't all rural folk you know.
Posted by GMAN99 over 7 years ago
CD don't be taken in by these myths about 1Gb in the East etc, do you research. Download speed in Korea according to speedtest.net 22.52 Mb/s just a bit shy of your 1Gb connection speeds. Why do your farms need high speed fibre what exactly do you need to do? And why would putting it their first stimulate the market?
Posted by Somerset over 7 years ago
CD - what is this patching up copper you keep on about? Maintaining an existing service is very different to completely replacing.

New build should be and is becoming fibre but replacing eg. 3km of copper to fix one fault is not sensible.

It's not all rural areas, there are 5000 exchanges, most in rural areas, but a problem for those on long lines.

This thing about 1000M is simply because there are 1G ethernet cards. More relevant for large businesses than anyone at home.
Posted by timmay over 7 years ago
Well anything with Government involvement will go the same way as everything else. Cost the TAX payer loads and provide a shoddy service, just look at the NHS.
Posted by dch3dwj over 7 years ago
" is that a gamble worth taking?"

Yes it probably is. The cost of delivering the USC is so low because:

1. There is existing demand
2. The technology costs have dropped
3. It is well established where the market will and will not deliver 2Mbps so you Gov is not required to pay for delivery to areas the market would have gone anyway.

I accept the economics is rather different to first gen broadband but you drew the comparision with USC.
Posted by dch3dwj over 7 years ago
"Agree with your article and totally disagree with Mr Hallam who obviously doesn't understand the physics."

What does that even mean? When you talk about the telecos plugging their pensions you mean BT. BT is liable to be salivating at the prosepect of 1.5bn in public money for just that.
Posted by cyberdoyle over 7 years ago
dch3dwj I think mr Hooton shouldn't make statements like 'For many of these services, the current network would be sufficient' because as a consultant the gov hear that and think O well fine, we don't need to do anything then. A third of the country has such bad connections that they will not access egov with them. And people don't pay for broadband to do egov, they pay to run businesses, educate the kids and such and it needs far more ubiquity than is currently available. Speed is not the issue. Building for the future needs is the issue.
Posted by GMAN99 over 7 years ago
"A third of the country has such bad connections that they will not access egov with them" - Source?
Posted by andrew (Favicon staff member) over 7 years ago
The USC is designed to address the basic eGov type needs, i.e. the understood issues as they are.

The levy is looking at building for future needs, i.e. start now rather than have a total panic in seven years time, when half the country spends half its time downloading software updates.

Why build a computer, when a room of accountants can get the job done? That was the question in the 50's and 60's - look where are now.
Posted by GMAN99 over 7 years ago
As someone else said in other comments, what about computers to access these services, who foots for the bills for them, us again? Broadband is just one part, access. You can't make people buy broadband even if/when available or computers to use eGov
Posted by Dixinormous over 7 years ago
Cyberdoyle - 'I have a mate on virgin cable. (FTTC) - he is quite a way from the cabinet. he gets under 2meg. '

What?

1) Cable is FTTN.
2) Cable is an amplified network so distance from cabinet doesn't affect speeds.
3) Cable is not rate adaptive, if signal is poor it either just doesn't work or severely degrades and needs fixing.
Posted by Somerset over 7 years ago
CD has a limited understanding despite installing a network in her village. eGov, and other sites, do not require huge bandwidth.

It would be interesting to know where Chris got the 33% figure from.

She says speed is not the issue, why then is she saying we need 1G?
Posted by GMAN99 over 7 years ago
Exactly... I use Gov gateway and others and there is no requirement for speed at all, its all very basic stuff. I can understand why they would want to expand BB into areas that don't have it but to say people can't use eGov now because of poor speeds just isn't right unless of course there is a reliable source for this comment.
Posted by andrew (Favicon staff member) over 7 years ago
It would be difficult to find anyone who disputes the USC target of 2Meg is more than adequate for basic egov operations, e.g. car tax, vat returns.

The real issue is this. If you want to wait until the case is proven for higher speeds, does this carry the risk that the economy may miss out on opportunities
Posted by cyberdoyle over 7 years ago
eGov, well the sites I use, car tax, CTS online, Vat, RPA, and also online banking need a reliable connection. Anyone more than a few km from an exchange hasn't got a good connection. pages time out. lose your online banking 3 times in a session and it locks you out. If the page won't load you lose your bargain on ebay. I know hundreds of people with such connections, and that is what puts people off. The government's own figures state a third of the country is in this sorry state.
Posted by cyberdoyle over 7 years ago
I don't say everyone in the country needs a gig. I say everyone in the country should have fibre. With fibre you can subscribe to a reliable 2meg service or 50 meg or 100 meg or a gig. whatever you need and can afford. With copper you get throttling, capping and timeouts. Also with virgin it isn't fibre to the home, and fttc still relies on something else to reach the property, in my friend's case he is on the 'up to 40meg' service, and this is his speed test wired into computer http://www.speedtest.net/result/727421072.png hmm. 2meg?
Posted by cyberdoyle over 7 years ago
another mate is trying to do a computer club in rural area with limited broadband. BT want £300 for the survey (non returnable) and £3.4k to run a new copper wire to them from a pole to deliver nearly a meg.
Another mate wants broadband, bt have quoted him £9k to run a new copper wire.
Why not just run fibre and be done with it for ever? Do the final third with a futureproof solution. If you are gonna run anything then fibre is cheaper than copper. Let the urbans have their adsl2+ if that is all they aspire to. ;) but deliver the 2meg USC to the final third through fibre.
Posted by Dixinormous over 7 years ago
There is no 'up to 40M' service on Virgin. If your friend were to call Virgin they'll upgrade him from the current 2M service he subscribes to to 10M free of charge, if he calls they'll offer 50. If he were to may more they'd supply more. He could have fibre optic to his bumhole and would get 2M because that's what his CPE is restricted to.

Nice try but stick to the facts, ma'am.
Posted by ElBobbo over 7 years ago
You can nitpick all you like, but running new copper wire is stupid.
Posted by Dixinormous over 7 years ago
So who pays for all the fibre termination equipment to be put into the exchange to avoid running these odd couple of copper connections?

Not the greatest business case for fibre. Regulation needs changing so that a complete copper -> fibre replacement is workable.
Posted by GMAN99 over 7 years ago
"The government's own figures state a third of the country is in this sorry state. " again... source URL? Can't believe 1/3rd not a chance
Posted by wirelesspacman over 7 years ago
Why does regulation need changing before a complete copper-fibre replacement is workable?
Posted by chrysalis over 7 years ago
of course he would say that he is an economist, the fact is we behind on public investment not ahead. the other fact is that with anything IT related demand comes AFTER availability.
Posted by chrysalis over 7 years ago
regarding countryside desolate areas. My questions is this. Why not used the leased lines that goto schools and other public buildings as a FTTC feed? BT or other isp pay the government rental to use the line so then everyone is happy.
Posted by Somerset over 7 years ago
CD - 'With copper you get throttling'. Please explain exactly what you mean by this? Surely any management is in the exchange and beyond.
Posted by Somerset over 7 years ago
chrysalis - because these links go back into the council network. FTTC needs a connection in exchanges for ISPs.
Posted by Raspyyeti over 7 years ago
If BT was forced to use £10pm from the line rental that 33.21 million users pay.(2008 estimate - wolfram alpha)
That's a £332.1 million pm found for a full UK direct fiber roll-out to all residential premises & non-residential premises in the UK.
Amsterdam (Citynet Amsterdam) has invested in building a FTTH broadband access network connecting 37,000 households in Amsterdam. The total equity investment in the project is €18 million and will provide open, non-discriminatory access to retail operators which offer TV, broadband and telephony services.
Posted by Dixinormous over 7 years ago
Great idea but who exactly is paying for the running of the copper network, salaries, materials, etc, if all the line rental is going to NGA?

Very aware of Citynet but that's a local municipal project, sadly most here are waiting for central government money rather than trying things for themselves :(
Posted by Dixinormous over 7 years ago
Regulation - AIUI BT cannot remove copper and replace with fibre, they have to leave the copper in place running alongside the fibre significantly reducing the maintenance savings they could make by retiring it.
Posted by otester over 7 years ago
All the problems lead back to the government, like with 99.999% of issues this country has.
Posted by Somerset over 7 years ago
Dixi - not just the copper network but all the exchanges and links between them.
Posted by Dixinormous over 7 years ago
otester - If people were prepared to pay more for their services perhaps there would be a better business case for investment. As it is most who pay above the bare minimum for services only do so either because they've no choice or because they want to download a few TB a month which makes them loss making to ISPs anyway. That doesn't lead back to the government just a dive for the bottom of the market caused by the market itself. Less than 2% of Virgin subscribers take 50Mbit and it's cheaper than the original 512k services were at launch.
Posted by wirelesspacman over 7 years ago
Dixi - there is no obligation as such on BT to leave the copper in place.
Posted by Dixinormous over 7 years ago
I'm aware there's no obligation 'as such' but accumulating the obligations together makes life rather difficult for BT should they try a total removal of a copper loop and replacement with fibre. BT need some certainty that once a copper loop is replaced they can remove it with no fear of being compelled to retrofit it.
Posted by themanstan over 7 years ago
@Raspyyeti
CitynetAmsterdam is a mainly publicly funded venture by the Municipality of Amsterdam. Additionally, Europe is a poor comparison in some respects to the UK. As a percentage European housing is mainly blocks of flats and our penchant for our own house makes things rather more expensive!
Posted by otester over 7 years ago
@Dixi

The entertainment industry hasn't adapted their business model, so delivery of goods is still mostly physical.

Most people simply don't know how to utilise the higher speeds available using non-mainstream methods (torrent+usenet etc.).
Posted by dch3dwj over 7 years ago
"Why build a computer, when a room of accountants can get the job done? That was the question in the 50's and 60's - look where are now."

That argument doesn't make sense. The computers of the 50s and 60s where not invested in by people looking for a replacment to accountants. Rather accountants were replaced by computers once the cost of computers depreciated sufficiently to make it economic to replace them. For that argument to hold true you need to identify a rural application for NGA which justifys the investment.
Posted by dch3dwj over 7 years ago
"I don't say everyone in the country needs a gig. I say everyone in the country should have fibre. With fibre you can subscribe to a reliable 2meg service or 50 meg or 100 meg or a gig. whatever you need and can afford."

Yeah I agree, but how much would you be willing to pay for that 2Mbps fibre connection? The cost of installing fibre is huge and if everyone just crowds the cheap packages (because most people don't yet need NGA) its difficult to justify rolling it out.
Posted by cyberdoyle over 7 years ago
Why build a motorway? If we hadn't built them we would still be taking goods to market on an orse an cart.
Government has to make a choice, are we to lead the digital revolution or not? If we are we need ubiquitous futureproof access for all. And copper and the obsolete stuff in exchanges can't deliver it. Despite the spin. And people should be able to have what they are prepared to pay for. If they only need 2meg then fine. If they want to download lots they should pay more. Like the other utilities. I don't expect water and electric for nowt.
Posted by Somerset over 7 years ago
CD - what's obsolete in the exchanges?
Posted by herdwick over 7 years ago
"I have a mate on virgin cable. (FTTC) - he is quite a way from the cabinet. he gets under 2meg. " -
LOL at the misinformation / ignorance of the fibre coven !

I think the economist is spot on, if government starts throwing money around everyone will sit back and wait for it to land in their account to fund progress. Without that they would get on and do it at a rate proportionate to the demand.
Posted by chrysalis over 7 years ago
herdwick and there you have the problem.
we need rollout before demand, accountants want demand first. stand off. hence the government intervention.
Posted by otester over 7 years ago
Opening the ducts made during BT being nationalised would help a lot.
Posted by andrew (Favicon staff member) over 7 years ago
"I don't expect water and electric for nowt.", but many millions of people want to pay £5 to £10 a month for broadband and no more.

Services like OnLive just launching in the US, could be big money spinners.
Posted by Somerset over 7 years ago
otester - please explain. That was a long long time ago before fibre to link exchanges and broadband was invented.
Posted by cyberdoyle over 6 years ago
Herdwick, if you wait for demand this country will never be able to catch up with the leaders, and the digitalrevolution will never happen.

FttC is fibre to the cabinet, then copper or whatever. I don't know what the mate has, just that the cable goes right into his house, and it isn't fibre, and it isn't a bt line. It is with virgin. It is supposed to be 40 meg. It isn't. Its 2meg. He hasn't got a phone line. that's all.
Posted by veryslowlyslowly over 6 years ago
Bt sets up B/band up to 40 meg !--- give me anything dependable above dial up speed- and I would crow from the rooftops. Looking at Bt's past performance in the DH2 area, any advance above Morse Code will be a boon.
I wont hold my breath :(
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