Pole Tax, anyone?

The Digital Britain final report emerged yesterday to muted fanfares. We summarise our initial take on the key points here as they relate to telecoms.

The overall tenor of the report might be described as modestly interventionist, with "industrial activism" and "modernisation" as recurring catch-phrases. However, there are few signs of grand projects and those we were expecting - universal broadband now (or soonish), next generation broadband later, re-jigging the funding of broadcasting - are all quite modest in scale and funded from bits and pieces here and there. Of course there is a sprinkling of Czars, including Martha Lane Fox of former Lastminute.com fame as Champion of Digital Inclusion, though the report stops short of crowning them as such. There are no Dragons or other professionally grumpy reality TV stars that we could find.

In relation to telecoms, we see the following main objectives spelled out in the report:

1. Preventing exclusion - skills, affordability, motivation;
   
2. Promoting access to current generation broadband (the broadband Universal Service Commitment);
   
3. Ensuring that next generation broadband reaches otherwise uneconomic areas (Next Generation Final Third project).

1. Preventing exclusion

Key proposals:

• Home Access scheme - content and skills development for children, young people and their families - currently in pilot in Suffolk and Oldham - £300m budget - plus industry initiatives from Microsoft, UK online (DfES), second-hand computer schemes etc.
• Digital Inclusion Programme - under the auspices of the Digital Inclusion Champion, backed by an Expert Task Force and in cahoots with the (already proposed) Digital Inclusion Consortium. It is not yet clear what they will do, other than "move toward" a National Plan for Digital Inclusion and, maybe, merge with various other bodies into a Digital Inclusion Agency at some later date.
  

Budget: not specified.

Winners:

• The quangocracy, would-be Champions
• The "corporate responsibility" industry
  
• Digitally naive young people (if any)
  
• The poor (maybe)

Losers:

• The digitally reluctant.

2. Promoting access to current generation broadband (the broadband Universal Service Commitment)

Key proposals:

• Revise universal service obligation (USO) legislation and license authorisations to extend them from narrowband to broadband
• Establish a "delivery body" (Network Design and Procurement Group) with powers and technical expertise to procure not-spot solutions on a technology-neutral basis - CEO to be appointed by the end of October 2009
  
• Twist the arms of the BBC Trust and BBC Executive to cough-up the money left over from under-spending on supporting elderly people and others as the switchover of TV broadcasting to digital proceeds
• Pass the hat around interested corporations, local authorities, regional development agencies and the like to get additional funding and contributions in kind

Budget: £200m from the Digital Switchover Help Scheme underspend and Strategic Investment Fund combined. The rest not specified.

Winners:

• Not-spotters
• BT - will probably get most of what's going
• Mobile operators - might get some at the margins
• Virgin Media - might get some at the margins
• Local self-help initiatives (e.g. rural/village wi-fi/Wi-Max ventures) and similar

Losers:

• The elderly and confused
• The TV-switchover-support industry
• The BBC - but they have known since at least the first PSB Review that the money would probably be ring-fenced

3. Ensuring that next generation broadband reaches otherwise uneconomic areas (Next Generation Final Third project)

Key proposals:

• Impose a 50p/month tax (the Next Generation Fund) on every copper line (including coax) to fund extension of high-speed broadband (FTTx, or equivalent) to the "final third" of the country that would otherwise be uneconomic to serve. Operators will be responsible for collecting it and remiting it to Ofcom
• Allow operators to bid on a technology-neutral, reverse auction basis for tenders, which will be managed by the Network Design and Procurement Group (see above)
• Amend the Communications Act 2003 to make the promotion of investment in communications infrastructure one of Ofcom’s principal duties alongside the promotion of competition

Winners:

• Crofters, farmers, second homers, rural retreaters, owners of moats and anyone else in the final third
  
• BT - will probably get most of what's going
• Mobile operators - might get some subsidy at the margins and may benefit from some increased defections from fixed lines
  
• Local self-help initiatives (e.g. rural/village wi-fi/Wi-Max ventures) and similar
• Probably not Virgin Media, as relatively few of the final third areas seem likely to be sufficiently adjacent to their existing footprint
  

Losers:

• Anyone with a copper line (including, it would appear, a hybrid fibre/coax or fibre/twisted pair FTTC one)

What about mobile?
Key proposals:

• Existing 3G licences will be made indefinite
• The Administrative Incentive Payments (AIP) structure (annual fees paid by spectum owners) will be adjusted to achieve greater fairness, though how is still to be determined
  
• The 800Mhz "digital dividend" from shutting down analogue TV, together with the 3G expansion band will be auctioned off in 10Mhz blocks
• Appointment of the Independent Spectrum Broker to manage the above (ISB - already in place - his report was published on 13th May 2009). It is proposed to implement his proposals.
  

It is envisaged that this will lead to mobile broadband download speeds of up to 100 Mbps being available in urban areas and 5-6Mbps elsewhere.


In conclusion

On the face of it the report might be accused of a lack of ambition, particularly in setting the universal service criterion as low as 2 Mbps and with a relatively leisurely progress towards high-speed broadband. Perhaps understandably in current economic circumstances, it avoids extravagant spending commitments, or almost any spending commitments, to the extent that we wonder whether even its modest ambitions are realistic given the amounts proposed, for example the 50p/week/line tax in relation to the billions said to be required for next generation broadband. However, we'll return to that topic in a forthcoming post!

Regulatory Holidays

Well it's a timely discussion, despite the rain here in the UK, with the "Digital Britain" report due to be published today.

As I see it, there are two things to bear in mind here - the problem and the proposed solution.

First, the problem. FTTx networks are being installed in many places around the world by incumbent telcos, cable operators and newer challengers alike without any special regulatory inducement. The trouble is that it seems that the economics of FTTx make it unlikely to be profitable to cover the whole population. This cuts across political objectives such as regional policy and plays to a fear that sections of the population will be excluded from some as-yet-undefined, but essential, social and economic activities.

So the politicians and regulators must either appeal to a patriotic consensus, as seems to have happened in some Asian countries, such as South Korea, or they must provide incentives to the market to produce what they want.

As Andrew Sharpe suggests in his blog, "not interfering" looks unlikely to work, given the economic issues described above. For incumbent telcos, though, the holiday bargain they seek is freedom from downstream competition. In other words, in exchange for making an unprofitable, or marginally profitable, investment in their (upstream) network business, they get to avoid downstream competition for retail customers, enabling them, or so they hope, to extract monopoly profits for at least long enough to repay their investment.

But regulatory holidays, like real ones, are seldom as free from the normal constraints of life as we hope and may cost more than we plan. For those who would not otherwise get high-speed broadband, it might seem like a reasonable deal - monopoly service, probably at a regulated price, is better than no service. But to the rest of us, there is a clear risk that what is, at least here in the UK, a highly competitive and fast-moving industry might turn into a sluggish monopoly.

Of course one might try to draw a distinction between profitable and unprofitable areas and set the rules accordingly. But it seems inevitable that this would lead not only to lots of arguments about what and where is profitable, but also to the perverse result that monopoly high-speed broadband would be imposed in just those areas where there is least competition for the current generation of broadband.

There are, of course, alternative solutions, such as allowing the incumbent to pass on more of the costs where they are higher, setting up a universal service fund and allowing operators to bid for subsidies, or even taking on the whole project, as is happening in Australia with the National Broadband Network.

Note: this post was published earlier in substantially the same form as a comment on a LinkedIn article. It is re-posted here for the benefit of anyone who is not a member of LinkedIn, and of its Telecom and Media Regulation and Public Affairs group.

Mobile Skype Update 2: Walking Slowly Backwards

According to a report in Total Telecom, T-Mobile Deutschland is now offering to charge its customers EUR9.55 per month to use Skype on their iPhone or other mobile device. This is instead of banning such a transgression outright. According to Total Telecom:

'A Deutsche Telekom spokesman said the company has to make "significant investment" in its networks and the number of available Internet protocol, or IP, addressees to offer its customers the option to use VoIP within its mobile network in Germany. However, the spokesman declined to elaborate further on the details of this necessary investment.'

Ironically, it would seem, one of the reasons that operators are moving towards all-IP networks and new generations of technology such as LTE is that this will reduce the costs of carrying voice calls. In this instance it appears that either the costs of carrying VoIP are higher, or that T-mo is looking to recoup revenues it might have received had the calls been made over its GSM network.