Final report for the Northwest Regional Development Agency
Making NGA a reality in the North West Strategic Framework 10 March 2010 Ref: XNWDG005v04
Contents 1 1.1 1.2 1.3
Executive summary Strategy framework Activities to deliver the strategy Design of interventions in networks
1 1 2 4
2
Introduction
6
3 3.1 3.2 3.3
Summary of a do-nothing scenario Current NGA provision in the North West Geographic analysis of expected coverage Gap between a do-nothing scenario and the Vision
8 8 8 11
4 4.1 4.2 4.3 4.4 4.5 4.6 4.7
Pen portraits for the impact of NGA Engineering company in Chester using NGA to work more efficiently Older person living in Bury A farming family in Cumbria An injured worker, retraining in ICT from home A professional family using broadband for flexible working Single mother in Pennine Lancashire who has access to new employment opportunities Law firm in Manchester using NGA to increase productivity
13 13 13 14 15 15 16 16
5 5.1 5.2
A policy framework for NGA The agreed ambition can be used to define the strategic aim Addressing each of the strategic priorities for the strategic aim
18 18 19
6 6.1 6.2 6.3 6.4 6.5
Action plan to deliver the strategic aim Action should begin immediately with a focus on increasing demand Investing in supply should begin as soon as un-met demand has been identified The region should identify the ‘quick wins’ for immediate intervention A process should be set up to identify future areas for intervention The focus of activities could be split between different partners
30 30 31 32 32 34
7 Guidance on best practice for activities 7.1 Increasing demand 7.2 Lowering deployment costs 7.3 Policy and regulation 7.4 Investing in networks Annex A: NGA activity from other regions of the UK Annex B: Geographic analysis of the expected supply of NGA in the North West
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37 38 39 39 39
Making NGA a reality in the North West
Confidentiality Notice: This document and the information contained herein are strictly private and confidential, and are solely for the use of the Northwest Regional Development Agency. Copyright © 2010. The information contained herein is the property of Analysys Mason Limited and is provided on condition that it will not be reproduced, copied, lent or disclosed, directly or indirectly, nor used for any purpose other than that for which it was specifically furnished. Analysys Mason Limited Exchange Quay Manchester M5 3EF UK Tel: +44 (0)161 877 7808 Fax: +44 (0)161 877 7810 enquiries@analysysmason.com www.analysysmason.com Registered in England No. 5177472
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1 Executive summary
1.1 Strategy framework Following on from the vision for NGA that was previously agreed by the board, we believe that the single most important strategic objective should be that: the region should lead the UK in the widespread use of NGA. Achieving this goal will then lead to the numerous economic and transformational benefits that are associated with NGA. This will put the North West in the strongest position to exploit the full benefits that NGA brings. The strategic aim is supported by four strategic priorities as shown in Figure 1.1 below. “Leading the UK in the widespread use of NGA” Ubiquitous availability z
Without ubiquitous availability the usage of NGA will be limited by the proportion of citizens and businesses that can access NGA
World-class networks
z
Range of competitive suppliers
Networks need to be sufficiently advanced to support the applications that deliver the economic and transformational benefits
Figure 1.1:
z
Having a wide range of suppliers in a competitive market will help to drive innovation and lower costs to end users
z
All of which maximises the attractiveness of NGA
The highest levels of adoption are key to maximising the economic and transformational benefits that NGA can unlock
Attractive services and applications z
Without attractive services and applications for end users, the take-up of NGA will be limited
z
Services need to be attractive to both existing broadband users and those who are currently digitally excluded
Strategic aim and priorities [Source: Analysys Mason]
The four strategic priorities help to support the widespread use of NGA in the region, which in turn is the key driver for the benefits that are expected to arise from NGA. The activities that the region takes should all be aimed at delivering these strategic priorities.
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1.2 Activities to deliver the strategy We have looked in detail at the options for each of the four strategic priorities and have identified activities that could be undertaken which are deliverable, practical, and will make a difference to the region. These activities have then been grouped in to five different areas as shown below: Area of activity
Activities included
Strategic priority being addressed
Increasing demand
Lowering deployment costs
Policy and regulation
Investing in networks
Others
Figure 1.2:
Demand registration
Ubiquitous availability
Explore aggregating demand from multiple sectors
Ubiquitous availability
Identify demand for FTTP services
World class networks
Promote broadband take-up
Attractive services
Encourage broadband users to move to NGA
Attractive services
Identify the next set of ‘killer applications’
Attractive services
Efficient processes for approving civil works
Ubiquitous availability
Promote common standards for ducting
Ubiquitous availability
Leverage existing network assets
Ubiquitous availability
Ensure that NGA is in all areas of new build
Ubiquitous availability
Clarify the issue of business rates
Ubiquitous availability
If sufficient competition does not emerge, influence the regulator to increase competition
Competitive suppliers
Invest in new networks where the private sector will not invest at all
Ubiquitous availability
Invest in open-access networks to ensure a more competitive environment
Competitive suppliers
Invest in higher-quality networks than the private sector has already deployed
World class networks
Encourage the private sector to deploy higher-quality networks
World class networks
Support independent local service providers
Competitive suppliers
Classification of activities [Source: Analysys Mason]
The public sector is generally involved in increasing supply where there is an un-met market demand. It would therefore seem appropriate to address the uncertainty of demand first. The work on lowering deployment costs, and regulation should also start immediately. If both of these do not succeed in making NGA available to all parts of the region, it would then be appropriate to invest in the supply of NGA. This series of activities is illustrated below in Figure 6.1.
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Stimulate demand by promoting uses of NGA
Figure 1.3:
Remove barriers to private-sector investment in those areas
Invest in supply of NGA where appropriate
Order of activities [Source: Analysys Mason]
The activities relating to increasing demand should only occur once enough evidence has been identified. Any investment should only be targeted at areas where there are no stated private operator plans to deploy NGA. There will be areas of demand that are already apparent, where the market is not likely to supply a service. These areas could be targeted at first. Such initial deployments could also be used to help identify the types of areas that will have a demand for FTTP over FTTC. In addition to delivering the specific activities outlined there is also an important role for the NWDA to play in de-bunking myths surrounding NGA to ensure that all stakeholders can have an informed debate. There are a number of options for how the activities can be focussed and prioritised: • • • •
Businesses only, or businesses and residential premises Focus on priority sectors, or all sectors Invest only in FTTP networks, or include in a mixture of FTTP and FTTC networks Focus investment only in areas where there are no expected suppliers1 (this would mean that businesses with FTTC would not have any investment to upgrade them to FTTP)
We have conducted an analysis of the costs of addressing each of these areas with FTTP or FTTC2. Figure 1.4Error! Reference source not found. below shows how the cost breakdown for residential premises and each business sector. The analysis is also split between all areas and only white areas.
Areas with no expected suppliers (‘white
All areas
areas’) Premises
1
FTTC costs
FTTP costs
(GBP m)
(GBP m)
Premises
FTTC Costs
FTTP costs
(GBP m)
(GBP m)
In assessing state aid the European Commission has defined white areas as those where there is no expected supply of NGA from commercial networks within three years. Our analysis has been carried out at the postcode level with all figures quoted based upon premises
2
The analysis is based upon our analysis of the costs of deploying next generation fibre for the BSG
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Residential
3 010 731
497.4
2789.1
726 456
164.0
957.7
33 608
5.5
31.1
8 594
2.0
21.3
137 287
23.5
134.1
38 404
9.9
51.4
4824
1.5
9.5
3595
1.2
8.2
18 731
3.1
17.4
4922
1.2
7.2
4663
0.8
4.6
1398
0.3
2.0
15 414
2.7
15.7
4519
1.1
7.1
• Finance
3803
0.6
3.2
885
0.2
1.1
• Hospitality
15 414
2.6
14.7
4314
1.1
6.7
• Manufacturing
11 760
2.0
11.8
3116
0.8
5.1
• Media
3093
0.5
2.9
781
0.2
1.2
• Real estate
7015
1.1
6.4
1770
0.4
2.6
• Research and development
154
0.0
0.2
47
0.0
0.1
• Transport
5472
0.9
5.5
1728
0.4
2.7
• Uncategorised
1971
0.3
2.0
531
0.1
0.9
• Utilities
232
0.1
0.3
112
0.0
0.2
44 741
7.2
40.1
10 766
2.6
15.2
3 181 626
526.3
2954.3
773 534
175.9
1030.4
Public sector, community & social Businesses (breakdown below)
• Agriculture • Business services • Computer and related • Construction
• Wholesale/Retail TOTAL Figure 1.4:
Summary of NGA deployment costs by sector [Source: Analysys Mason, ONS for sectorspecific information]
If both businesses and residential premises are addressed the vast majority of the costs are associated with residential premises, with businesses only accounting for around 7% of the costs of FTTP in white areas. However, the costs above are based upon deploying to all of the region, and then allocating the total costs to premises. If only businesses were to be targeted, the costs would be higher than above due to not being able to share the common deployment costs between both residential and business premises. An indicative analysis from 5 exchange areas indicated that the costs of only deploying to businesses could be up to 10 times the amount shown above. This would mean that if only businesses in white areas were addressed the total costs could be around GBP500 million for FTTP. This is about half the cost of addressing both businesses and residential premises.
1.3 Design of interventions in networks When investing in networks it is essential that any intervention is designed to be consistent with European Commission (EC) guidelines for state aid. These guidelines lay out a number of
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conditions to ensure that interventions limit market distortion, achieve value for money, are open and competitive and do not pre-empt the market. A key feature of these guidelines to avoid pre-empting the market is that interventions should be focused on areas with no planned NGA supply (defined as ‘white’ areas). Intervention can also be targeted under specific circumstances in areas with a single supplier (defined as ‘grey’ areas), and should generally not be carried out in areas with multiple suppliers (defined as ‘black’ areas). A preliminary analysis of expected supply of NGA in the region shows that by 2012 around 25% of the North West will have no supplier of NGA, with around 40% of the region having two suppliers of NGA. A map showing the black, grey and white areas is shown below. Figure 5: Estimated NGA coverage by 1 operator
‘black’, ‘grey’ and ‘white’
NGA coverage by 2+ operators
by 2012 [Source:
No NGA coverage
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areas of the North West
Analysys Mason]
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2 Introduction The region has a number of strategic objectives that could benefit from improved access to faster broadband connectivity in the region. Improved connectivity would benefit a number of industries – especially those that are information intensive – by improving links between businesses in the North West, and from the North West to companies across the globe. These links could serve to increase productivity, stimulate activity in rural areas, and attract inward investment from UKbased and international companies. Beyond the business benefits, improved Internet access would provide the region’s citizens with a host of new services and applications that would raise the average quality of life. The Vision for next-generation access (NGA) in the region is summarised below. The North West should have ubiquitous access to NGA as soon as possible, with 90% coverage being exceeded by 2015, and 100% coverage achieved by 2020. NGA will be provided by a range of retail providers in a competitive market to ensure that low prices and service innovation continue. The technology used to deliver NGA must be capable of delivering the connectivity required to support world-class applications to which businesses and consumers need access. The region will lead the rest of the UK in the widespread use of NGA by all sectors of society. The term ‘next-generation access’ refers to super-fast broadband that is enabled by replacing copper phone lines with fibre-optic cable (fibre). There are three distinct types of NGA, as outlined below. • •
•
Fibre to the premises (FTTP) where fibre is laid all the way from the telephone exchange to the customer premises, enabling symmetrical broadband services, typically of 100Mbit/s. Fibre to the cabinet (FTTC) where fibre is laid from the telephone exchange to street cabinets, enabling faster speeds over the short distance of copper wire that remains (this option is less expensive than FTTP, but performance is slower, particularly for upload speeds). Cable broadband using DOCSIS3.0, which has the potential to provide download speeds of up to 200Mbit/s. This technology is used by Virgin Media to provide its 50Mbit/s service. However, it is worth noting that this network is not open access (i.e. no competitors have access to it) and it could be difficult to implement open access on a cable network.
Each of the technologies (as well as the current ADSL broadband technology) is illustrated below in Figure 2.1.
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Figure 2.1: Overview of different broadband
ADSL 24 / 1.4 Mbit/s
technologies [Source:
FTTC 100 / 10 Mbit/s
DOCSIS3.0 200 / 100 Mbit/s FTTP over 1000 / 1000 Mbit/s
NGA technologies
Telephone exchange
Analysys Mason]
Key Fibre Copper Active electronics Note: speeds are maximum download / upload The remainder of this document is laid out as follows: • • • • •
Section 3 sets out a summary of a do-nothing scenario, including an analysis of black, white and grey areas as defined by the European Commission Section 4 contains a series of pen portraits for the benefits of NGA Section 5 provides a policy framework for NGA in the region Section 6 sets out an action plan to deliver the strategic aim Section 7 provides guidance on best practice for the activities.
The report includes two annexes with supplementary material: • •
Annex A discusses other activities relating to NGA that are taking part in the UK Annex B provides a geographic analysis of the expected supply of NGA in the North West.
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3 Summary of a do-nothing scenario
3.1 Current NGA provision in the North West In order to define an NGA strategy for the region and move towards the region’s long-term ambition, it is essential to understand what would be delivered (and when) by the market itself, i.e. if the region employed a ‘do-nothing’ NGA strategy. There are three main sources for the deployment of NGA in the North West: existing telecoms operators upgrading their networks; new NGA networks; and Government-led intervention. There is already a large amount of NGA infrastructure in the North West, as Virgin Media uses DOCSIS3.0 to cover 54% of the region’s premises with NGA, and FTTP is available on a bespoke basis, although the costs mean that this is currently limited to large businesses rather than SMEs or consumers. There are also other fibre networks within the North West that do not provide access to end users, but could play a role in supporting NGA. Examples include the fibre backbones of Cable & Wireless, Geo, EasyNet and public-sector networks such as CLEO and JANET.3 As well as the upgrades of existing networks, there are a number of new NGA networks being planned. These include local independent networks such as the Manchester Oxford Road FTTP project, and in other parts of the UK there are networks associated with new properties, as well as networks from new telecoms operators such as H2O.
3.2 Geographic analysis of expected coverage Without any intervention from the public sector, we expect NGA availability to increase due to market forces with FTTC coverage increasing to around 70% of the North West by 2012 from private investment by companies such as Virgin Media and BT. Beyond 2012 this level of coverage is likely to increase due to additional investment from the private sector, and potentially from the Final Third project which was announced in the Digital Britain report. This could extend FTTC coverage to over 90% of the region’s premises (by 2017)4. The deployment of NGA is likely to be focused on the more densely populated urban areas first. The European Commission guidelines on state aid determine the eligibility of an area to receive public-sector support, based on the number of operators providing NGA coverage within a time horizon of three years.
3 4
Note that both CLEO and JANET use fibre connections from the private sector as well as their own dedicated fibre Digital Britain, Lord Carter, 17 June 2009
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‘The Commission has consistently made a distinction between areas where no broadband infrastructure exists or is unlikely to be developed in the near term (white areas), areas where only one broadband network operator is present (grey areas) and areas where at least two or more broadband network providers are present (black areas).’ 5 Based on these guidelines and our own analysis we have estimated where the white, grey and black areas will be in the North West by the end of 2012. These are shown in Figure 3.1.
5
Source: Communication from the Commission: Community Guidelines for the application of State aid rules in relation to rapid deployment of broadband networks, Official Journal of the European Union, 30 September 2009
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NGA coverage by 1 operator NGA coverage by 2+ operators No NGA coverage
Figure 3.1:
Estimated NGA coverage in the North West at the end of 2012 [Source: Analysys Mason]
In addition, we have also developed two additional scenarios for the future deployment of NGA to the region. The first of these is where, beyond 2012, NGA coverage reaches 65% of the UK. This is based on an analysis of the deployment costs, which suggests that if there is a business case for the first 40% of the UK (which Openreach has announced) then there should also be a business case to reach 65% of the UK. This view was also expressed in the Digital Britain report.
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The second additional scenario is where the Final Third project, proposed in the Digital Britain report, is implemented and delivers NGA to 90% of the UK by 2017. Based on the three scenarios outlined above, Figure 5.1 shows the estimated percentage of North West premises in each category of coverage area: • • •
in 2012 (assuming 40% UK coverage by Openreach) when NGA coverage other than Virgin Media reaches 65% coverage of UK premises when NGA coverage other than Virgin Media reaches 90% coverage of UK premises. 3.1%
Percentage of North West premises
100% 90%
14.1% 24.3%
26.1%
80% 30.6%
70% 60%
White
35.9%
50%
Grey Black
40%
70.7%
30% 20%
55.4% 39.8%
10% 0% 40% UK (2012)
Figure 3.2:
65% UK (after 2012)
90% UK (Final Third target by 2017)
Percentage of premises in each type of coverage area [Source: Analysys Mason]
Maps of the coverage of black, grey and white areas for each of the three scenarios are shown in Annex B.
3.3 Gap between a do-nothing scenario and the Vision Under a do-nothing scenario, the majority of NGA will be FTTC rather than FTTP, which will not meet the requirements of some businesses and could limit the development of consumer applications. There is also a risk that the NGA infrastructure that does exist will be under-utilised if demand in the region does not increase. This would result in the benefits of NGA not being fully realised, and could slow down the development of further infrastructure in the region by discouraging investors. There are therefore five areas where there is a potential gap between a do-nothing scenario and the goal of ubiquitous FTTP:
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• •
• •
•
non-universal coverage of NGA – some areas (up to 25%) will not have any NGA provision limited availability of FTTP – coverage of FTTP is likely to be limited, and NGA will be mostly FTTC and DOCSIS3.0 from Virgin Media, both of which do not provide the highest speeds and are not symmetrical slow deployment of NGA – it may be 2017 before 90% coverage of NGA is delivered regional competitiveness and inward investment – not having world-class infrastructure could affect the levels of inward investment and the implementation of sector and themespecific regional strategies and policies below-average take-up – if NGA is not adopted widely, the full benefits will be diluted; the region currently has below-average broadband adoption and it will be important to reverse this for NGA to deliver its full potential.
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4 Pen portraits for the impact of NGA To help understand the real benefits that NGA will deliver to the region we have developed a series of pen portraits. These pen portraits are of fictional people and companies, but are based on real-life examples of the impact of NGA (which are cited within the document).
4.1 Engineering company in Chester using NGA to work more efficiently An engineering company based in Chester, which specialises in the manufacture of metal components, recently received an FTTP connection to its building. The company already had a simple Web site which it used to advertise to, and attract, customers, but the new connection enabled it to significantly increase its functionality. Potential clients are now able to submit detailed computer-aided design (CAD) drawings and specifications to the Web site so that the company can provide them with accurate costings for the work rather than an indicative quote. It is also far easier to update the Web site by quickly uploading new case studies and information. The improvements to the Web site have given a new emphasis to online sales, which has improved the reach of the company to wider international markets. Supplier relationships are also now managed online, which has saved staff time, and the automated ordering of materials has reduced inventory levels and made more efficient use of storage space. The company needs to use specialist engineering software for certain jobs and it has saved on licence fees through the use of cloud computing to access the software remotely on an ad-hoc basis. It also now stores its documents and functions such as its contacts database remotely, which has saved on hardware costs and improved disaster recovery capabilities. The fast transfer of company data has enabled it to outsource its finance function and online methods are being increasingly used for paying bills and invoicing, all of which has reduced staff time required and has improved efficiency.
4.2 Older person living in Bury Mrs Smith lives alone in Bury, and at the age of 78, was finding that her deteriorating health and limited mobility made it difficult to continue living independently. Her children now live outside of the UK, and she was therefore considering moving to a care home where she could receive the assistance she needed, but was reluctant to leave the house where she had lived for 50 years. Rather than place Mrs Smith in an expensive care home, the council was able to install technology in her existing home, which used the NGA network to provide the services and facilities she required. By installing a video phone through her television, surveillance cameras, safety alarm systems and
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emergency assistance systems, Mrs Smith’s house was turned into a virtual care environment where she can now live safely and independently in the comfort of her own home. Mrs Smith was provided with training on how to use the new equipment and can now use the Internet to arrange home delivery for her weekly food shopping as well as to make video calls to keep in touch with her relatives abroad. She also benefits from the flexibility of e-healthcare whereby she can easily contact a health professional over the video phone to discuss any concerns. As Mrs Smith suffers from diabetes, equipment has also been put in place so that her doctor can monitor her blood sugar, weight and blood pressure remotely. The Viedome project6 in Neunen, the Netherlands, uses the OnsNet NGA network to provide virtual care home environments to elderly residents. The project is based on a partnership between a semi-public-care organisation and a private technology company. The Just Checking system7 in the UK allows people with dementia or memory loss, to continue to live independently. It monitors a person in their home, and provides a chart of activity via the Internet. The system provides family carers with reassurance that someone is following their usual pattern of life, without intruding on them or undermining their independence. It helps relatives to plan social (rather than ‘checking’) visits and manage their care to best effect.
4.3 A farming family in Cumbria The Brown family owns a farm in a small village in the Lake District and, until recently, was only able to receive broadband over a very slow connection that was little faster than dial-up. The village is now served by an NGA network and this has transformed the Browns’ business and personal lives. They were surprised at the impact of Internet connectivity on their farming business. They now use the Internet to purchase livestock and machinery at more competitive prices, or to check prices before buying locally. They have found a wealth of useful information on farming-related Web sites and forums, and are achieving better prices for their produce by checking market prices and by selling produce through online auction sites. They have also found the price of third-party services, such as accounting, has been reduced now that they can be performed remotely. The new connection has also dramatically improved the range of entertainment to which the family has access. There was previously interference to their television signal in bad weather but the Brown family can now receive high-definition (HD) video-on-demand services at a consistently high quality. They also enjoy being able to download films quickly as they are a long
6
http://ec.europa.eu/regional_policy/projects/practices/details.cfm?pay=NL&the=84&sto=1474&region=ALL&lan=7&obj=ALL&per=ALL &defL=EN 7
http://www.justchecking.co.uk
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drive from the nearest cinema, and enjoy the ability to easily download music tracks. The Brown’s eldest son now lives in the USA and while the previous dial-up connection would not support Skype voice services, the new connection means they can stay in touch using Webcams. He is also able to share high-resolution photo albums with them, which they can download in seconds.
4.4 An injured worker, retraining in ICT from home Mohammed is a 26-year old living in Liverpool. He is a qualified plumber, but due to a serious back injury he is unable to continue working and has been claiming incapacity benefit. Mohammed can no longer drive and initially felt isolated, but he now keeps in regular contact with friends through social networking sites. He has also become involved in his local community through the Tenantspin organisation8 and regularly contributes to online Webcast debates. Mohammed is a member of an online support group where he can chat with people in similar situations and receive advice on treatments and physiotherapy. Mohammed uses the Internet as an educational tool and feels more informed now he has access to online news and review sites. Mohammed has enrolled on a Government-funded online course in ICT. His NGA Internet connection enables him to use videoconferencing with course tutors and attend Webinars where he can watch real-time demonstrations of processes and techniques on his home computer. In addition, Mohammed is able to use cloud computing to access some specialist computer programmes and information hosted by the college, without having to pay for an individual software licence. After completing his course John hopes to set up a home business providing online IT support. The University of Highlands & Islands9 in Scotland offers a range of remote learning options to its students. 80 learning centres provide a physical presence at the heart of many rural communities and are served by high-speed Internet links. This enables students to connect with tutors and other learners across the region via the Internet, email and videoconferencing, and those with sufficient Internet speeds at home can work in a virtual learning environment.
4.5 A professional family using broadband for flexible working The Khan family lives in Stockport and recently upgraded its broadband connection to a 50Mbit/s service. Mrs Jones works for an accounting firm in Manchester and although she had the option to work from home, she previously found it impractical due to the long time it took to download necessary files and access company resources. The NGA connection now enables her to use the company network at the same speed as if she were in the office, and large spreadsheets can be
8 9
http://www.tenantspin.org http://www.uhi.ac.uk/home/uhi-campuses/learning-near-you
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downloaded in seconds rather than minutes. This means that she can work from home and does not need to put her three-year-old daughter into child care, saving the family a lot of money. The flexible working also allows her to collect her other child from school rather than leave her in after-school clubs. The Khan family do a lot of shopping online as they find it gives increased choice and is often cheaper than high-street shops. They also regularly download movies, music and recipes. Mr Jones had bought an HD television two years previously, but had been disappointed with the range of HD programming available. The high-bandwidth connection now enables him to access a wide range of on demand HD content from television networks around the world.
4.6 Single mother in Pennine Lancashire who has access to new employment opportunities Mary is a single mother living in Pennine Lancashire who works part time as a cleaner when her children are at school. The household income is not sufficient to buy a computer and Mary had never seen a great need for an Internet service. Through a Government grant, however, she was provided with a computer and an Internet connection. Mary has found the Internet connection to be useful in a number of ways. She is able to save money on her shopping as it is now easier to search for the best deal at online stores. She is also able to stay in touch with her friends and family more regularly by using Skype video calls and not having to worry about the phone bill. In addition, Mary has been able to supplement her income by working as a Web-based customer service agent in the evenings without having to leave her children at home alone. Mary’s children use the Internet regularly for their school work by logging on to their school’s virtual learning environment to access resources and retrieve homework assignments. They were also able to use the computer to watch their favourite television programmes on demand, meaning Mary could watch her choice of programmes on the television.
4.7 Law firm in Manchester using NGA to increase productivity A small 10-person law firm, which has its offices in Manchester city centre, upgraded its ADSL broadband to a 100Mbit/s FTTP connection. The improved bandwidth has improved productivity in a number of areas and enabled several cost efficiencies for the business. Travel costs, for example, have reduced significantly as it uses videoconferencing to communicate with many of its corporate clients. The firm previously dealt with a great deal of paperwork due to the many evidence documents needed for its cases. Limited office space meant that warehouse facilities were required to file the documentation and a large amount of money was also spent on photocopying and postage. The firm is now able to receive most of the files it needs by email – even large picture and video files
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which were received on DVDs before. All paper documents that are received are scanned and stored electronically, avoiding the need for paper back-ups, and archives are now securely stored remotely, which greatly reduces the warehouse space required. The fact that all of the firm’s resources are now available online has enabled the introduction of flexible home working for its employees, which has had a positive impact on employee satisfaction and retention. The business now uses Web-based applications for a number of its core functions such as salesforce.com for its customer relationship management and clearbooks.co.uk for its accounting. Both of these applications have automated what were previously time-consuming processes and have significantly reduced time spent on administration. The higher speed of the Internet connection has also reduced the time taken to perform day-to-day tasks such as file sharing and accessing online resources. Combined with the savings in time spent on administration, this has enabled the firm to increase its billable time per staff member by 5%.
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5 A policy framework for NGA In this section, we outline the agreed ambition for NGA in the North West, and how this then translates in to well defined policy objectives and the drivers that support the overall policy objective.
5.1 The agreed ambition can be used to define the strategic aim We have identified a Vision for NGA in the region which has been circulated amongst key stakeholders and agreed in principle, as set out below. The North West should have ubiquitous access to NGA as soon as possible, with 90% coverage being exceeded by 2015, and 100% coverage achieved by 2020. NGA will be provided by a range of retail providers in a competitive market to ensure that low prices and service innovation continue. The technology used to deliver NGA must be capable of delivering the connectivity required to support world-class applications to which businesses and consumers need access. The region will lead the rest of the UK in the widespread use of NGA by all sectors of society.
Of the different issues captured in this Vision, we believe that the most important one is achieving high take-up of NGA. We therefore recommend that the region’s strategic aim for NGA should be: the region should lead the UK in the widespread use of NGA. By achieving this, it will then lead to the numerous economic and transformational benefits that are associated with NGA. The strategic aim is supported by four strategic priorities (three of which are directly referenced within the previously agreed Vision): • • • •
ubiquitous availability of NGA a range of competitive suppliers networks that can support world-class applications attractive services and applications for NGA.
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“Leading the UK in the widespread use of NGA” Ubiquitous availability z
Without ubiquitous availability the usage of NGA will be limited by the proportion of citizens and businesses that can access NGA
World-class networks
z
Range of competitive suppliers
Networks need to be sufficiently advanced to support the applications that deliver the economic and transformational benefits
Figure 5.1:
z
Having a wide range of suppliers in a competitive market will help to drive innovation and lower costs to end users
z
All of which maximises the attractiveness of NGA
The highest levels of adoption are key to maximising the economic and transformational benefits that NGA can unlock
Attractive services and applications z
Without attractive services and applications for end users, the take-up of NGA will be limited
z
Services need to be attractive to both existing broadband users and those who are currently digitally excluded
Strategic aim and strategic priorities for NGA [Source: Analysys Mason]
The activities that the region takes should all be aimed at delivering these strategic priorities, which support the strategic aim that the region should lead the UK in the widespread use of NGA.
5.2 Addressing each of the strategic priorities for the strategic aim To deliver the strategic aim, supported by the strategic priorities, it is important to define the activities that could be taken within a logical framework. To assist in this process we have adopted the Theory of Change Logic that the NWDA uses to assess projects, as outlined in Figure 5.2.
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Evidenced need
What is the rationale for intervention?
Market Failure
Strategic reasoning
Theory of change logic The key question: does everything we do as part of our intervention eventually impact on the evidenced condition identified at the start of the intervention design process? What do we want to change?
Evidence based need – local driver What is the identified need to which we need to respond – what evidence have we of that need? What needs to change? Market failure review Questions why the issue exists in the first place, and why the market cannot respond – is there are reason why we, and not the market, should respond? Strategic influencing Recognises that on occasion, the public sector can make a strategic enabling intervention – eg. stimulation of a market.
The overall aims & objectives – policy driver What needs doing to act on the evidenced need? What is it most appropriate for us to do to act on that need? What is our policy? This should be specified in a SMART way (Specific, Measurable, Achievable, Realistic, and Timebound)
Aims & Objectives
Lever – resources to be invested to achieve results
Inputs
What resources are available/do we require to achieve the aims and objectives? Can we access these resources?
Lever – the things you are allowed/enabled to do
Activity
What do we need to actually do to achieve our objectives? Will it provide us with outputs that will result in outcomes and impact?
Lever – output targets required to achieve outcomes
Outputs
What outputs are required to achieve our intended outcomes and the associated impact? Will our activity deliver these outputs?
Lever – outcome targets necessary to achieve impact
Outcomes
What outcomes are required to achieve our intended impact? Do our outputs, resultant of our activity, achieve these outcomes?
Driver/Lever – impact targets required to achieve change in the evidenced need
Impact
Intervention questions: Both forward facing and retrospective questions within the logic chain…does each element connect logically with the previous element and deliver the requirements of the next element?
What is the impact we require to act on the evidenced need and achieve our aims and objectives? Do the outcomes of our intervention achieve this impact?
Feedback loop Figure 5.2:
Theory of Change Logic [Source: NWDA]
The Theory of Change Logic begins with evidence of a need in the market that must be addressed. Once this has been identified the reasons for market failure should be identified along with a strategic reasoning as to why the public sector should address the market failure.10 Once the market failure has been identified, the aims and objectives of any intervention can then be defined. This intervention should seek to leverage any inputs and resources at the disposal of the agency. These can then be captured as part of a specific activity. The definition of the activity should consider the outputs, outcomes and impact that can be delivered as part of the project. The outputs should be measurable and deliverable by the specific activity. The resulting outcome and impacts should then be used to formulate any subsequent interventions. In the following sections, each of the strategic priorities that supports the strategic aim is considered in light of the above context.
10
In the following analysis, we identify a number of market failures. These are based on our best understanding of the market and its expected evolution. As the market evolves over time the areas of market failure may change.
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5.2.1 Strategic priority 1: Ubiquitous availability of NGA If the region is to achieve its strategic aim of leading the UK in the widespread use of NGA, it is a prerequisite that there is ubiquitous availability of NGA. However, this need for ubiquitous NGA availability is not being delivered by the market. The market currently delivers NGA to over half of the region11, with a long-term availability of around 70% being expected, based on current signals from the market. The market is not expected to deliver NGA to the final 25% of the region because the higher costs of deploying NGA in rural areas are likely to prevent a commercial return on investment. This is supported by a huge number of assumptions within the market, which can be categorised under two broad areas: (i) uncertainty about the potential demand (particularly the level of revenues), and (ii) uncertainty around the costs of deploying NGA. At present, there is a market failure in both of these areas. Firstly, in terms of demand for NGA, the market does not know the long-term level of demand and the revenues that it will attract. This is parallel to the situation with the initial roll-out of ADSL-based broadband. In November 2001, BT announced that it had ‘completed’ its roll-out of ADSL when coverage was around 60% of the UK. However, as it became clear that there was more demand than expected, the private sector deployed ADSL to almost all of the UK, and much of this was not dependent on public-sector investment. Now that broadband has matured, there is competitive supply of ADSL via local-loop unbundling (LLU) to over 80% of the UK. If the private sector were to have perfect information about the future demand for NGA services, then the level of private-sector investment in NGA coverage may increase significantly. Secondly, there is also a market failure in the costs of deploying NGA due to uncertainty, particularly in rural areas. This uncertainty arises from lack of knowledge as NGA has never been rolled out on a large scale in the UK before, and the uncertainty surrounding various regulatory issues that will affect deployment costs, such as the level of business rates, access to ducts and poles from BT, and the ability to deploy new aerial fibre. However, even if these market failures – due to either lack of information or information asymmetries – were addressed, there may still not be ubiquitous access to NGA, as the commercial case for deploying NGA to very rural areas may never be attractive to the private sector. In such a scenario, the only way to deploy NGA to all of the region may be for the public sector to intervene. In delivering ubiquitous coverage of NGA to the region the strategic aim should be to encourage private-sector investment to the maximum extent possible, and for the public sector to invest only in areas where the private sector will not invest alone.
11
This is primarily via the Virgin Media network
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To maximise the levels of private-sector investment the region can work to address the two current areas of market failure: (i) uncertainty about the potential demand (particularly the level of revenues), and (ii) uncertainty around the costs of deploying NGA.
Activities to address the strategic priority The activities that the region could take to address this strategic aim have been identified below. Activity 1.1: Demand registration
Register existing demand for NGA and make this information available to all potential suppliers.
Activity 1.2: Clarify the issue of business rates
There is uncertainty amongst telecoms operators over the impact of business rates upon fibre deployments. Work by the BSG is being carried out to work with the Valuation Office to clarify the situation. However, the outputs of this are not clear to all stakeholders and the region should work to ensure that all parties interested in deploying NGA have clarity on the business rates situation.
Activity 1.3: Efficient processes for approving civil works
One barrier to the rapid and efficient deployment of NGA is the process of planning permission (e..g for new cabinets) and gaining approval for road closures to deploy fibre infrastructure., Local authorities should work with telecoms operators to ensure that there is a clear and efficient process for such activities.
Activity 1.4: Promote common standards for ducting
There is no common standard for ducting to support fibre deployment. Having common standards of ducts that could be installed in the road when other civil works occur may help to speed up the deployment of fibre and lower the total deployment costs. The common standards should also consider the business model for ongoing access to the ducts to ensure that telecoms operators know of their existence and how to purchase access to them. This activity should involve local authorities and network operators working together. It may also require input from central government.
Activity 1.5: Ensure that NGA is in all areas of new build
It is much cheaper to install the infrastructure for NGA at the same time as other building works. All planning applications should therefore ensure that the current, or future, provision of NGA services is accounted for in any new building projects. Local planning authorities may wish to implement this activity by mandating certain obligations on property developers before planning permission is approved. The model planning obligation (section
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106) agreement12. The public sector should also consider making the provision of NGA a pre-requisite for any publicly funded building projects. Activity 1.6: Invest in new networks where the private sector will not invest at all
If it becomes clear that activities 1.1 and 1.2 above will not stimulate the private sector to address a lack of supply, the region could intervene by investing in new NGA networks. Investment should seek to leverage private-sector investment as much as possible, as discussed later.
Activity 1.7 Explore aggregating demand from multiple sectors
There is likely to be demand for NGA from multiple sectors. These may include: residential, small business, larger business, education, healthcare, and other public sector bodies. When identifying the demand for NGA it is important to ensure that all of these sources of demand are considered to ensure that operators have full visibility of potential demand in an area.
Activity 1.8: Leverage existing network assets
There are existing fibre optic network assets in the region. Of particular note are networks such as JANET and CLEO in the education sector. It may be possible to leverage these existing assets to help increase the wider supply of NGA. Such assets may have a particular role to play in providing alternative sources of backhaul for new networks.
5.2.2 Strategic priority 2: Range of competitive suppliers The region needs to have a range of competitive suppliers to ensure that there is an attractive choice for consumers. It has consistently been seen that competition leads to lower prices, higher use and greater innovation – all positive outcomes for the region. It is difficult to define when a market is truly competitive, as it is not possible to quantify in a simple manner. However, in broadband, existing regulations from Ofcom have deemed areas with three infrastructure-based operators to be competitive. The European Commission has also deemed that there is not likely to be a case for intervention if two networks exist. However, competition is not only delivered via infrastructure competition – it is retail competition that consumers experience. Based on previous experience, we believe that it is essential that there is a competitive retail environment with at least three significant players. In addition, there should also be multiple smaller-scale, niche service providers (at a regional or local level) that may focus on specific segments (e.g. SMEs). The presence of local service providers will also help to generate additional economic benefits from the supply of NGA within the region.
12
http://www.communities.gov.uk/planningandbuilding/planning/planningpolicyimplementation/planningobligations/modelplanningobliga tion/
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To ensure that these retail providers are able to innovate and compete, it is also essential that they have access to an open infrastructure. This is often described using the term ‘open access’, though there is no commonly accepted definition of open access. When examining the likely NGA deployments to the region, we observe that Virgin Media does not operate an open network. The Openreach deployment of NGA will be open access, but it does not currently offer access to the fullest range of passive products (e.g. access to its duct or underlying dark fibre) for its FTTP deployments – though this may change in the future. Any public-sector investment in networks is likely to offer the deepest practical level of open access as this is specified in the European Commission guidelines for state aid. Openreach has previously demonstrated that it can successfully attract a range of competitive service providers. It would therefore suggest that, if Openreach or the public sector have deployed a network in an area, there will be a sufficient range of competitive suppliers and there will not be a market failure. Though, as noted above, this should be monitored to ensure that the strategic priority is met. In areas where there is only expected to be access to a single network which is not open access (e.g. from Virgin Media) there is not likely to be a range of competitive suppliers. It may therefore be appropriate to take activities to address this, which could include influencing the regulator for a change in regulation, or investing in a competing open-access network. However, the desire to ensure a range of competitive suppliers in one area should be weighed against a potentially more important desire to ensure ubiquitous access to NGA across the region.
Activities to address the strategic priority The activities which the region could take to address this strategic priority are outlined below. Activity 2.1: If sufficient competition does not emerge, influence the regulator to increase competition
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Ofcom has put in place a regulatory regime that we expect to deliver a competitive range of suppliers for NGA – particularly over the Openreach network. However, there are some stakeholders who believe that more could be done to ensure a range of competitive suppliers is encouraged. The region should monitor how the competitive situation evolves to ensure that a wide range of service providers emerges which have access to suitable products from network providers. If a suitably competitive market does not emerge, the region should seek to raise its concerns with the regulator, Ofcom.
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Activity 2.2: Invest in open-access networks to ensure a more competitive environment
If, following Activity 2.1, the private sector has still not delivered a competitive range of suppliers in an area, it may be appropriate to invest in new networks that are open access with a suitable range of products and services to ensure that there is a range of competitive suppliers. Investment should seek to leverage private-sector investment as much as possible, as discussed later.
Activity 2.3: Support independent local service providers
The region may wish to support the development of local service providers. However, we would not expect this to be a priority activity that involves significant levels of investment.
5.2.3 Strategic priority 3: Networks that can support world-class applications To ensure that the region leads the rest of the UK in the widespread use of NGA, it is essential to have networks that can support world-class applications. Without the ability to support such applications, users will not be as attracted to using NGA networks, or they will not exploit them to their full potential. The region will also not be able to exploit the productivity and competitiveness benefits that NGA is expected to help deliver. Ensuring that the networks are able to support world-class applications essentially comes down to ensuring the correct mix of technologies are deployed to the region. There are two main types of NGA technology that we expect to be delivered: • •
FTTC – this includes the technology used by Virgin Media13, and can typically support around 50Mbit/s downloads; upload speeds are typically significantly less than this at up to 10Mbit/s fibre to the premises – this can support downloads and uploads in excess of 100Mbit/s.
When solely considering performance, it is clear that FTTP would be preferable to FTTC as it is almost certain to be able to support world-class applications over the long term. However, the costs of deploying FTTP are much more than those for FTTC and the commercial business case for deploying FTTP is less clear. This is illustrated by the Openreach NGA deployment. This is a mixture of FTTP and FTTC. It currently plans to deploy 75% FTTC, with 25% FTTP. The FTTP deployments are expected to be in areas where the costs of deploying FTTP are reduced significantly due to either re-use of existing ducts or deployment in new-build areas where the costs are significantly reduced. It is also not yet clear that all consumers and businesses will need the additional capabilities of FTTP to exploit world-class applications. One important source of this uncertainty about the speed of connectivity that will be required is that the applications that people will want to use have not 13
Virgin Media deploys a cable technology known as DOCSIS3.0. This involves deploying fibre optic to a street cabinet and has similar capabilities to deploying VDSL from a street cabinet – the technology which Openreach is using as part of its FTTC deployment.
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all been developed yet. The region may be able to help provide clarity in this area by ensuring that trials of FTTP networks are conducted on a sufficient scale so that they can attract large service providers and application developers, and therefore explore what connectivity is really needed to exploit world-class applications. As the needs of consumers and businesses will vary, any such trials would need to capture a sufficiently wide range of participants.
Activities to address the strategic priority Below, we have outlined the most appropriate set of activities for the region to undertake in aiming to increase the supply of NGA. Activity 3.1: Identify demand for FTTP services
Seek to identify areas where there is a real demand for the higher capacities that FTTP can support. This could involve a small pilot scheme to help identify the types of user that require FTTP. If possible, any pilot should be carried out jointly with the private sector so that providers are more likely then to invest in FTTP if demand is proven.
Activity 3.2: Encourage the private sector to deploy higherquality networks
The region should share the findings of Activity 3.1 with the private sector so that providers can be encouraged to deploy more FTTP where it is needed.
Activity 3.3: Invest in higher-quality networks than the private sector has already deployed
If a sufficiently large and important gap between demand and supply emerges, the region could consider investing in FTTP where FTTC networks are not sufficient. However, it should be noted that if private networks have already deployed FTTC, the application for state aid approval from the European Commission may be significantly more complicated and lengthy (e.g. would require substantial evidence to support the case).
5.2.4 Strategic priority 4: Attractive services and applications for NGA The strategic aim of leading the UK in the widespread use of NGA cannot be achieved through ubiquitous coverage alone. Based on the latest survey of Internet usage from Ofcom around 20– 30% of adults do not engage with the Internet despite the wide availability of current-generation broadband, and the introduction of NGA infrastructure may not in itself give them reason to engage with online services.14 Furthermore, many individuals and businesses that use currentgeneration broadband, may not see the need for next-generation services and are not aware of the additional benefits. This is largely due to information asymmetry: users have no experience of
14
Source: surveys for Ofcom
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NGA, so they cannot see the benefits that it will bring to them. There is a similar information asymmetry among people who do not use the Internet at all, with research consistently showing that they do not see a reason to use it. The market is therefore failing to ensure that these people receive a clearly articulated and tailored reason why using the Internet would bring them benefits.15 The different activities to improve the attractiveness of NGA can be categorised based on their appeal to: • •
the digitally excluded who do not see the need for any Internet services existing users who do not see the need for NGA services.
The policy of the region needs to address both of these types of user to ensure that the region leads the UK in the widespread use of NGA. There is ongoing innovation in the development of services for NGA. It is likely that the market will deliver the services that are required to satisfy both the digitally excluded and current broadband users. The key role that the public sector in the region can take is to ensure that end users are aware of the full range of services that can be supported by NGA. Figure 5.3: Broadband
100% population
market segments
Digitally excluded
[Source: Analysys Mason]
Broadband users
NGA
The digitally excluded Certain segments of society, particularly older generations and low-income groups, have a higher tendency to be digitally excluded. A key driver of this exclusion is that broadband services are not perceived as relevant to their lives and there is a low understanding of the benefits the services could bring them. This perception is, in part, due to them not being exposed to computers and the Internet through formal education or employment. There is a market failure here in that end users are not aware of the benefits of NGA, partly because service providers do not know how to target the digitally excluded effectively. Demand among these segments can be stimulated through targeted campaigns designed to improve 15
For the purposes of this document we believe it is reasonable to assume that the Internet can bring genuine benefits to the lives of every person in the North West, which will also be enhanced by access to NGA.
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understanding of broadband services and their uses. These sectors have not been addressed by the private sector, as it tends to focus its marketing activities towards higher-spending market segments that are perceived to have higher revenue opportunities. There is much work being carried out in this area, such as the work of the Champion of the Digital Inclusion Task Force, Martha Lane Fox. Such activities should be supported, but they also need to be enhanced by the region’s NGA strategy. Specific activities that could be carried out in this area include free access to computers, connectivity and training courses to the digitally excluded. An example of current activity here is the GBP300million scheme promoted by Gordon Brown on 11 January 2010 to provide 270 000 free laptops to low income families with school Children. Demand can be increased among the digitally excluded through the introduction of new services and applications that increase the relevance of the Internet to their lives. For example, NGA will allow people to interact with much richer multimedia content, which may be particularly appealing to people with little experience of technology. For example, by tailoring services such as e-healthcare towards the elderly, a clear benefit of NGA to their lives could be demonstrated, which should increase take-up of NGA in general.
Existing broadband users To maximise the use of NGA, the benefits must also be conveyed to current broadband users (who make up the majority of the population) – some of whom may not see the need for higher-speed broadband. Such views may be founded in a lack of information about the potential for NGA – which has not been widely experienced by the population. When communicating the benefits of NGA it is important to communicate a wider range of new services – not just HD video and faster downloads. Many businesses can see the benefit of NGA services, but are not willing to adopt them at current pricing levels, while other businesses may have an incorrect view that current-generation broadband has exhausted the productivity increases and cost efficiencies with which NGA could potentially provide them. The development of new services and advances in fields such as cloud computing will provide a more compelling case for NGA for many businesses.
Activities to address the strategic priority As we believe that the market will deliver the services required for NGA without additional public-sector support, then the public sector within the region should focus its efforts on addressing the market failure arising from consumers not being aware of the benefits of NGA – partly due to a lack of experience in using it.
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The activities which the region could take to address this strategic priority are outlined below. Activity 4.1: Promote broadband take-up
Promote applications for current broadband and NGA to the digitally excluded so that they can see a reason to use broadband, and NGA.
Activity 4.2: Encourage broadband users to move to NGA
To make sure that as many people as possible use NGA, it is important to ensure that current broadband users are fully aware of the additional benefits and services that NGA can deliver. To achieve this, the region should work with providers of NGA to ensure that the benefits to end users (e.g. new services and applications) are communicated to businesses and consumers in a clear way that they can understand.
Activity 4.3: Identify the next set of ‘killer applications’
Develop showcase pilot projects that will explore the new services for NGA. These should aim to identify the next wave of critical applications that will attract consumers and businesses to use NGA. It should also identify how these new services and applications will deliver economic benefits and drive the take-up of NGA. Work in this area should also include identifying how the public sector can transform the way in which it delivers public services in areas such as healthcare and education.
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6 Action plan to deliver the strategic aim The region’s strategic aim is that the region should lead the UK in the widespread use of NGA. In the previous section we outlined a number of activities that will help to deliver this strategic aim. In this section we present an action plan that can be followed to deliver these different activities in an efficient and timely manner. The public sector is generally involved in increasing supply where there is an un-met market demand. It would therefore seem appropriate to address the market failure around uncertainty of demand first. This would then be followed by activities to reduce the costs of deployment. If both of these do not succeed in making NGA available to all parts of the region, it would then be appropriate to invest in the supply of NGA. This series of activities is illustrated below in Figure 6.1.
Stimulate demand by promoting uses of NGA
Figure 6.1:
Remove barriers to private-sector investment in those areas
Invest in supply of NGA where appropriate
Order of activities [Source: Analysys Mason]
In addition to delivering the specific activities outlined there is also an important role for the NWDA to play in de-bunking myths surrounding NGA to ensure that all stakeholders can have an informed debate.
6.1 Action should begin immediately with a focus on increasing demand Without a clearly identified demand for NGA, the region will not progress towards its strategic aim. It is therefore critical to begin work to increase demand for NGA immediately. Previously in this document we identified five activities in this area: • • • • •
demand registration identification of demand for FTTP services promotion of broadband take-up encouragement of broadband users to move to NGA identification of the next set of ‘killer applications’.
For some of these activities it will probably be appropriate for different public sector partners within the region to work together. For example, Business Link will probably be asked to help
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address the business sector and councils may be appropriate partners for addressing the residential sector. It may also be most efficient to work on a national scale, where possible. For example a demand registration project would attract significantly more media attention if it were national. Work to promote the take-up of broadband amongst those currently digitally excluded may be best delivered in partnership with the Digital Inclusion Champion16.. Specific activities that could be carried out in this area include free access to computers, connectivity and training courses to the digitally excluded. An example of current activity here is the GBP300million scheme promoted by Gordon Brown on 11 January 2010 to provide 270 000 free laptops to low income families with school Children. There are also two other influencing related activities that can be addressed immediately: • •
reducing barriers to deployment encouraging the private sector to deploy higher-quality networks.
Some work is already being carried out on these activities, however, this is being conducted in a relatively informal manner. These influencing activities should be formalised within the wider NGA strategy. Some of the areas where the region can work to lower the barriers to deployment include: the region should engage with issues such as the BIS consultation on aerial deployment of fibre, work by the BSG on the application of business rates to fibre, and the debate surrounding granting access to BT ducts. The region should also seek to work with national initiatives such as the Common Operating and Technical Standards (COTS) workstream from the BSG and the Network Design and Procurement Group (NDPG) which BIS are setting up to run any national interventions.
6.2 Investing in supply should begin as soon as un-met demand has been identified To ensure that public funds are used efficiently, investment should be directed to areas where there is an expected lack of supply from the private sector (e.g. EC-defined white areas), and where there is a clear demand for NGA. There is still some uncertainty around the expected supply from the private sector, and the location and levels of demand for NGA. Investment in supply should be directed at the underlying assets, with a contracted private-sector partner then used to deliver wholesale and retail services over the network. Figure 7.2 shows our suggested high-level model for a broadband intervention. This identifies a suggested mix of companies to fulfil the different roles in the operating model. 16
The current Digital Inclusion Champion is Martha Lane Fox
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Retail services
O
io pt
na
l
Independent private sector Contracted private partner
Active wholesale
Choice of models Passive wholesale
Underlying assets
Figure 6.2:
Majority of publicsector funding
High-level operating model for network investment [Source: Analysys Mason]
This model is discussed in more detail in Section 7.4.
6.3 The region should identify the ‘quick wins’ for immediate intervention However, there likely to be some ‘quick wins’ where the private sector is not realistically going to supply NGA and there is a clear current demand for NGA. These areas should be identified immediately so that they can be addressed as soon as possible. It is likely that these areas could include businesses within key sectors (e.g. digital and creative, science, healthcare, financial services, and research and development) that are in rural areas that the private sector is not expected to address.
6.4 A process should be set up to identify future areas for intervention There should be two conditions for selecting areas for public-sector intervention in the region: • •
expected lack of supply from the private sector proven demand for NGA.
A process should be set up to monitor both of these areas so that, once both conditions are met, the public sector can then consider the case for intervening. This report includes an analysis of the expected future supply of NGA to the region. This should form the basis of the process to track areas where NGA is not expected to be supplied. However, the analysis in this report should be shared with private-sector operators so that they can provide feedback to ensure the maximum possible accuracy. The analysis should also be updated regularly (e.g. quarterly) to ensure that it reflects the latest market developments.
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The outputs of the demand registration activity could be used to identify areas with proven demand for NGA. One approach could be to decide upon a standard level of interest that must be met in each area before investment could be made. When measuring the level of interest there are two key considerations, as noted below. •
•
Size of area considered: with ADSL, demand was typically measured by BT exchange, but it may be appropriate to consider smaller areas (e.g. council wards for consumers, or individual business parks). Level of demand required: within each area, a level of demand should be set to ‘trigger’ potential public investment. This could be a fixed percentage (e.g. 20% of premises registering an interest) for each area, or the percentage of interest could vary depending upon the cost per premises or mix of businesses.
Once areas have been identified for potential public sector intervention a possible mechanism for addressing them is to put out a call for tenders to deploy NGA to each area17. This could take the form of a reverse auction where the bidder requiring the lowest amount of public funding wins. This would ensure greatest value for money, and allow the private sector a final chance to address the area on a commercial basis as they could bid to supply the area with no public funding.
6.4.1 State aid approval and its implications The European Commission has stated that public-sector investment in broadband networks should seek state aid approval. This is a formal process to ensure that investment is well targeted and minimises any market distortion. The guidance on best practice in Section 7 is consistent with the European Commission guidelines for investing in broadband. The action plan should include sufficient time to gain European Commission state aid approval. From our experience the process can take in excess of 12 months to complete. This can be undertaken along side the procurement process which can itself take many months. There are two important phases to gaining state aid approval. Firstly, it is common to present informal plans to the European Commission before the formal process begins. This ensures that the formal process can proceed more rapidly. At this stage, the proposal should be clear on the project scope, objectives, and implementation model. However, final financial arrangements or contracted partners do not have to be identified. The second stage is the formal process of state aid approval. To gain approval, a detailed ‘notification’ needs to be submitted. During this stage, each set of questions and answers from the European Commission can take up to two months. It is therefore important to have dealt with as many of the issues as possible before entering the formal stage. The European Commission can give approval to a scheme ahead of final contracts being signed, and sometimes includes certain
17
This would include conditions set out in Section 7.4, such as being open access .
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Making NGA a reality in the North West | 34
thresholds that cannot be exceeded without further agreement from the Commission; one example would be ‘state aid intensity’, essentially a measure of how much public-sector money is being used to support the project. It is likely that the process of gaining state aid approval would begin once any project had had initial approval from bodies such as the NWDA board. Due to the significant timescales involved in gaining formal state aid approval it is important to indentify it clearly in any detailed action plan.
6.5 The focus of activities could be split between different partners Due to the strategic priorities of different partners, and the likely scale of potential funding, it may be appropriate for investment to be focused on particular areas groups. We have identified three targets for focusing investment in NGA, as outlined below. Business or residential premises
Some partners may only wish to invest in supplying either businesses or consumers. Targeting business premises is likely to have a more direct impact upon measures such as GVA, but may not lead to the full transformational benefits and may leave the region lagging behind others in the UK and internationally. The blurring of lines between residential and business premises as more people work from home will also limit the benefits if only traditional business premises are targeted. However, business are much less expensive to address than residential premises due to the much greater number of residential premises.
Specific business sectors
Some sectors may experience greater benefits from NGA and it may be appropriate to focus investment on specific sectors. However, the benefits of Nag are expected to reach beyond those sectors which have traditionally sued digital technologies most. Limiting any investment to a specific set of sectors may limit the potential benefits of NGA to the whole economy.
Specific technologies
Partners may wish only to invest in FTTP-based technologies, and not in FTTC-based technologies. This would ensure that the maximum benefits are realised, but the investment required would be significantly higher. It may not be possible to identify enough public funds to deploy FTTP to all business and residential premises in the timeframes set out in the Vision.
We have carried out an analysis of the costs of delivering NGA using both FTTP and FTTC to all of the region and to the ‘white’ areas only (which are not expected to get NGA from the private
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sector by 2012). Figure 6.3 below shows how the cost breakdown for residential premises and each business sector.
Areas with no expected suppliers (‘white
All areas
areas’) Premises
Residential
FTTC costs
FTTP costs
(GBP m)
(GBP m)
Premises
FTTC Costs
FTTP costs
(GBP m)
(GBP m)
3 010 731
497.4
2789.1
726 456
164.0
957.7
33 608
5.5
31.1
8 594
2.0
21.3
137 287
23.5
134.1
38 404
9.9
51.4
4824
1.5
9.5
3595
1.2
8.2
18 731
3.1
17.4
4922
1.2
7.2
4663
0.8
4.6
1398
0.3
2.0
15 414
2.7
15.7
4519
1.1
7.1
• Finance
3803
0.6
3.2
885
0.2
1.1
• Hospitality
15 414
2.6
14.7
4314
1.1
6.7
• Manufacturing
11 760
2.0
11.8
3116
0.8
5.1
• Media
3093
0.5
2.9
781
0.2
1.2
• Real estate
7015
1.1
6.4
1770
0.4
2.6
• Research and development
154
0.0
0.2
47
0.0
0.1
• Transport
5472
0.9
5.5
1728
0.4
2.7
• Uncategorised
1971
0.3
2.0
531
0.1
0.9
• Utilities
232
0.1
0.3
112
0.0
0.2
44 741
7.2
40.1
10 766
2.6
15.2
3 181 626
526.3
2954.3
773 534
175.9
1030.4
Public sector, community & social Businesses (breakdown below)
• Agriculture • Business services • Computer and related • Construction
• Wholesale/Retail TOTAL Figure 6.3:
Summary of NGA deployment costs by sector [Source: Analysys Mason, ONS for sectorspecific information]
If both businesses and residential premises are addressed the vast majority of the costs are associated with residential premises, with businesses only accounting for around 7% of the costs of FTTP in white areas. However, the costs above are based upon deploying to all of the region, and then allocating the total costs to premises. If only businesses were to be targeted, the costs would be higher than above due to not being able to share the common deployment costs between both residential and business premises.
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An indicative analysis from 5 exchange areas indicated that the costs of only deploying to businesses could be up to 10 times the amount shown above. This would mean that if only businesses in white areas were addressed the total costs could be around GBP500 million for FTTP. This is about half the cost of addressing both businesses and residential premises. As the NWDA is primarily focused on assisting businesses, it may be appropriate for the NWDA to direct any of its investment to business, with other partners providing funding to address consumers. Investment benefiting consumers in more rural areas could come from national schemes such as the Final Third project or from other sources such as local authorities. However, if certain areas were to be targeted, we would recommend that the NWDA should try to ensure that all investment in NGA in the region would be delivered as part of the framework outlined in this document. This would help to ensure that activities were co-ordinated and as efficient as possible.
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7 Guidance on best practice for activities In Section 5.2, a number of activities that could address the strategic priorities were outlined. In this section, we discuss how these can be best implemented, drawing on best practice.. The activities already outlined can be classified in to five groups, as shown in Figure 7.1. Note that the activities are numbered as per Section 5.2. Area of activity
Activities included
Strategic priority being addressed
Increasing demand
Lowering deployment costs
Policy and regulation
Investing in networks
Others
Figure 7.1:
Demand registration
Ubiquitous availability
Explore aggregating demand from multiple sectors
Ubiquitous availability
Identify demand for FTTP services
World class networks
Promote broadband take-up
Attractive services
Encourage broadband users to move to NGA
Attractive services
Identify the next set of ‘killer applications’
Attractive services
Efficient processes for approving civil works
Ubiquitous availability
Promote common standards for ducting
Ubiquitous availability
Leverage existing network assets
Ubiquitous availability
Ensure that NGA is in all areas of new build
Ubiquitous availability
Clarify the issue of business rates
Ubiquitous availability
If sufficient competition does not emerge, influence the regulator to increase competition
Competitive suppliers
Invest in new networks where the private sector will not invest at all
Ubiquitous availability
Invest in open-access networks to ensure a more competitive environment
Competitive suppliers
Invest in higher-quality networks than the private sector has already deployed
World class networks
Encourage the private sector to deploy higher-quality networks
World class networks
Support independent local service providers
Competitive suppliers
Classification of activities [Source: Analysys Mason]
In the following sections, we present some guidance for best practice in these areas. This is largely based on the report that we developed for the Broadband Stakeholder Group (BSG) on Models for efficient and effective public-sector interventions in next-generation broadband access networks.18 This report examined 16 public-sector broadband projects from Europe through a series of case studies. These were then used, along with European Commission guidance for state aid and UK
18
http://www.broadbanduk.org/content/view/292/7/
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stakeholder interviews, to draw up a list of critical success factors and recommendations for broadband interventions in the UK. The report included seven recommendations: •
• • • • • •
critical success factors should be followed as far as possible – not pre-empting the market unless there are good grounds to do so – using the open-access network model – designing to minimise barriers to adoption – stimulating and aggregating demand – anticipating risks via detailed planning – compliance with state aid rules, and support via other legal frameworks next-generation broadband deployment should be encouraged in areas of new build, regeneration and redevelopment pilot projects should be co-ordinated with a clear goal interventions should seek to offer a standard set of wholesale products interventions should consider using the same commercial partners additional work should be carried out to help provide clarity on the commercial business case appropriate metrics should be defined for measuring ‘success’ and measuring performance through the lifetime of the intervention.
Each of these recommendations has been considered when devising this strategy and how best to implement the activities.
7.1 Increasing demand When working to increase demand, it should be recognised that the activities are primarily about marketing broadband and NGA to consumers and businesses. Activities therefore need to be designed to have clear and simple messages, which are delivered through the correct channels. For businesses, the appropriate channel to use may be Business Link, which was successful in promoting first-generation broadband. For consumers, it is likely that any activity would be most successful if it had a national profile. It is therefore important for the region to try and work with other partners to develop a national strategy for increasing and registering demand for NGA. If possible, this should also include the private sector, which will supply many of the networks and applications that people will use. Demand activities need to try and have a message that is relevant to all of the population – not just the most digitally literate. Engaging with the digitally excluded should have as high a priority as promoting NGA and registering demand from existing broadband users. Pilot projects may have a role to play in increasing demand by helping to showcase and test new applications and services. If this approach is taken, any pilot projects should be designed so that they concentrate on this priority, and do not lose focus once the infrastructure has been deployed.
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We would recommend that the region considers grouping as many of the activities in this areas as possible under a single project to maximise the impact and ensure a clear and consistent message.
7.2 Lowering deployment costs The three activities in this area (efficient processes for approving civil works; promoting common standards for ducting; and ensuring that NGA is in all areas of new build) are essentially about changing existing policy and guidance within the public sector. The main area for change is likely to be within local authorities. To efficiently deliver these activities it is therefore important for all local authorities to develop clear policies in these areas. To do this efficiently is may be appropriate for them to work together, aided by the NWDA and with input form telecoms operators.
7.3 Policy and regulation Activities which involve regulation will not require significant amounts of investment. However, they do require people to dedicate time to the subject. These people should be experts in the area, who are able to have informed discussions on the issues with the full range of stakeholders, which include: central government, operators, community groups, regulators, local authorities and other RDAs. In this area it is also important to have a clear external communications strategy. The region should ensure that both private companies and public-sector stakeholders are kept informed of the region’s actions and desired outcomes.
7.4 Investing in networks Any public sector funded intervention should be compliant with European Commission state aid guidelines as described in the September 2009 document, Community Guidelines for the application of State aid rules in relation to rapid deployment of broadband networks.19 Our guidance below is built on the conditions for state aid, but also draws on our work for the BSG in this area. In particular, we have added comments on the impacts of small-scale interventions, which are not covered by the European Commission guidelines. Our guidance on best practice when investing in networks is split in to the following areas: • • •
19
wholesale access technology neutrality use of existing infrastructure
See paragraph 51 of http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2009:235:0007:0025:EN:PDF
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• • • • •
open tender process claw-back mechanism to avoid over-compensation detailed mapping and coverage analysis benchmark pricing exercise a wide range of competitive retail suppliers.
Each of these is discussed below. Wholesale access
Technological neutrality
Use of existing infrastructure
Open tender process
Claw-back
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•
New networks should be operated on a transparent and non-discriminatory basis to allow for fair competition between ISPs.
•
Where possible, open access should be provided at both the passive infrastructure and active levels to encourage a wide range of ISPs (see Section 7.4.1 for more detail on ‘passive’ and ‘active’ elements).
•
Bidders should propose the most appropriate technological solution, rather than this being specified beforehand by the public sector. The public sector should only seek to specify the desired levels of connectivity that it requires.
•
Particular technologies or network platforms should not be favoured unless there is demonstrable and objective justification.
•
However, it should be ensured that technical experts are involved early in the design process.
•
New NGA networks should aim to make use of existing infrastructure wherever possible to avoid wasteful duplication.
•
Investment should not be made in backhaul networks, for example, if it is possible to rent the backhaul from an existing operator. However, in some cases it may be necessary to invest in additional backhaul, particularly more rural locations where is limited supply of backhaul.
•
However, this condition should not end up favouring existing operators, especially in cases where third parties may not have access to this infrastructure or inputs that are necessary to compete with existing operators.
•
Bidders should be selected through the usual public-sector procurement routes to minimise the advantages to the direct beneficiary of the aid and to ensure transparency.
•
The preferred bidder should be selected based on the most economically advantageous offer.
•
A reverse payment mechanism, where public funding is expected to reduce
Making NGA a reality in the North West | 41
as end-user demand increases, ensures that the minimum level of public funds is used.
mechanism to avoid over-compensation Detailed mapping and coverage analysis
Benchmark pricing exercise
A wide range of competitive retail suppliers
•
The region should focus its investment in ‘white’ areas (as defined by European Commission guidelines) where no NGA network is planned within three years, although investment in ‘grey’ areas may be justified in some cases.
•
A consultation exercise should be carried out prior to investment to ensure transparency and accurate knowledge of private-sector plans.
•
Benchmarking of prices offered by service providers in areas that do not benefit from public funding is desirable so that price distortion in the market can be minimised (e.g. to ensure that prices in an area with an intervention are not lower than those in areas supplied by the private sector, as this would leave businesses in areas served by the private sector at a competitive disadvantage). This is particularly important if networks are funded outside of EC-defined white areas .
•
Price benchmarking is also necessary to guard against excessive wholesale pricing.
•
Interventions should seek to use a standard set of wholesale products. It is likely that these will be defined as part of the work on Commercial Operation and Technical Standards (COTS) by the BSG.
•
Wholesale partners that have a proven track record of providing wholesale services to a range of customers should be encouraged.
•
Larger-scale networks are likely to attract a greater number of service providers due to their ability to share fixed costs over a large user base.
We recommend that there should be a limited number of publicly-funded wholesale network operators in the North West. We acknowledge that smaller and community-led projects may play a role in NGA development, but it is recommended that they are aggregated under the same market-facing wholesale operator. Having one market-facing entity to service providers will make it easier for them to offer services over all of the networks and benefit from the combined scale.
7.4.1 Operating and ownership models An important part of any intervention design is the model for operating the network and its ownership. There are many levels to an operating model for a telecoms network. At the lowest
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level are the underlying assets that make up the network. These passive assets are then maintained so that they can support the installation of active electronics which can be used to support services to end users. The active electronics can be operated at two levels (i) wholesale services to other network operators and (ii) retail services to end users. Figure 7.2 shows our suggested high-level model for a broadband intervention. This identifies a suggested mix of companies to fulfil the different roles in the operating model.
Retail services
Active wholesale
O
io pt
na
l
Independent private sector Contracted private partner Choice of models
Passive wholesale
Underlying assets
Figure 7.2:
Majority of publicsector funding
High-level operating model for network investment [Source: Analysys Mason]
The model involves two different types of private-sector partner. Firstly, a ‘contracted’ privatesector partner – this company would have a contract with the public sector to perform specific functions within the intervention. Secondly, there is also a role for ‘independent’ private-sector companies as well. It is suggested that the contracted private-sector company would maintain and operate the passive assets. It would then be the sole provider of passive wholesale products to other operators (e.g. dark fibre). It would also provide active wholesale products to service providers (e.g. Ethernetbased wholesale products). It would not have a monopoly at the wholesale level, however, as other operators could purchase passive products to then provide active wholesale products (or their own retail products).20 The wholesale operator will also be subject to regulation from Ofcom to ensure that there is a competitive market. Retail services should be provided by as wide a range of independent private-sector companies as possible so that end users can benefit from effective competition. These service providers would ideally be able to purchase products from a range of wholesale providers.
20
Even if operators have access to passive products another wholesale operator may not emerge, particularly if the market is too small.
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The contracted private-sector partner could also be allowed to offer retail services to end users in competition with other service providers. However, some interventions have chosen only to allow this if no other service providers emerge over time. As indicated in the diagram, public-sector investment is usually focused towards the capital costs of the underlying assets, however it should be noted that in some cases public money is also spent on supporting the ongoing costs of the contracted private-sector partner if the network does not generate enough revenue. The contract between the public sector and the private-sector partner can also include provisions for payments back to the public sector if certain financial targets are met.
Ownership of underlying assets The ownership model for the underlying infrastructure has three options, as outlined below. •
Public-sector-owned – public money funds the entire network and asset ownership is retained. A private-sector operator should be engaged to operate the network as with FibreSpeed in Wales.
•
Private-sector-owned – public money is used to gap fund private-sector investment as with the NGA project in Cornwall. This model was also used for Project ACCESS in Cumbria, and many other ADSL interventions in the UK. The private sector then has full ownership of the network although certain obligations or claw-back mechanisms may be imposed in return for the funding.
•
Mixed ownership – public-sector bodies can retain a share of asset ownership in return for state-aid funding, as happened with Citynet in Amsterdam.
We do not believe that any one of these models is more efficient or effective than the others, and the appropriate ownership model will vary depending on the conditions of a particular project.
Models to leverage private-sector investment It is worth noting that a model that includes private-sector investment will lead to lower initial investment by the public sector. As the amount of investment available from the public sector is not likely to be enough to deliver FTTP to all of the region it is likely that the level of outputs that can be delivered will be maximised if private-sector investment can also be leveraged. To achieve this we have identified a number of models that could be used to leverage privatesector investment. Private-sector loan
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Investment could be part funded via a private-sector loan. Such a loan would be over a long period (e.g. 10 years or more) and would be repaid via revenues from the network. The loan would be repaid before shareholders received any dividends. The loan could be provided by either a bank, or a
Making NGA a reality in the North West | 44
from a private partner involved in deploying or running the network. From previous discussions with major banks we believe that it is possible that they would require the public sector to underwrite the repayments to any loan. Private-sector loans (sometimes from shareholders) have been used in other interventions in Europe. Private shareholding in the new assets
A private-sector investor could have a shareholding in the company that deploys and owns new assets. However, to ensure that it receives a commercial return it is likely that the investor would need to receive preferential treatment to the public sector in the allocation of profits from operations. Thales is a shareholder in the Digital Region project (see Annex A), but we do not know if it has any preferential status.
Fully private-sector ownership
The public sector would provide initial gap funding so that the new network could be deployed. The private sector would then take full ownership of the assets and operate them on a commercial basis. This model was widely used in the deployment of ADSL in the UK.
Payment of an upfront fee for a longterm concession
If a private-sector partner were awarded an exclusive concession to operate and sell the passive assets it could also be willing to pay an up-front fee for the concession. In return, the private investor would keep the majority of revenues for a fixed period (e.g. 10 years). This model should try to include a claw-back mechanism to ensure that if there are higher than expected revenues, more of them are diverted back to the private sector. This model is similar to that used for the most profitable rail franchises in the UK where the private sector pays the Government for the exclusive right to operate trains on specific routes, where the underlying tracks are publicly owned.
These models will allow significant private-sector investment in the passive assets of any new network and should be considered when designing any intervention. Private-sector investment can also be leveraged for the active electronics. However, these active assets are a relatively small proportion of the total costs, and to maximise the private-sector investment it is important to attempt to leverage private investment in the underlying passive assets as well.
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The choice of ownership model is one which needs to consider the different options, but in the end, it is a matter of wider public policy regarding the preference for long-term public-sector ownership of assets.
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Annex A: NGA activity from other regions of the UK In this section we present a summary of the public-sector-led projects relating to NGA of which we are aware in the UK. The content is based on secondary research, so may not include all of the latest plans from the public sector that are not currently in the public domain.
North East •
Live project: Gateshead Council formed a joint venture with Alcatel-Lucent to provide FTTP to the Baltic Business quarter, a key employment site. The network is live and is operated on an open-access basis.
•
Live project: DurhamNet is a major backbone network that provides interconnectivity and services to a range of organisations across County Durham. Capital costs to finance the building of the infrastructure were secured from SRB6 and ‘single pot’ sources, which, together with sub-regional partnership backing, formed the basis for developments into public, education and private sectors. Durham County Council is hoping to extend the NGA infrastructure to homes and businesses across the county.
Yorkshire and Humber •
Live project: the Digital Region project in South Yorkshire is set up to bring IP-based services to the region. The network aims to provide near ubiquitous coverage of FTTC/VDSL and will offer open access to service providers. Moreover, Digital Region plans to provide several interconnection points for alternative network operators. The network will cover 97% of all premises and SMEs within the first three years. Thales is the technology partner that has been selected to construct, maintain and operate the network. The project will benefit from UK and European Regional Development Fund (ERDF) support, but will include a claw-back mechanism allowing the public sector to extract excess profits from the technology partner. The network is now being deployed, but is yet to have any live customers.
•
Live project: NYnet in North Yorkshire is intended to provide an FTTP communications network that is capable of delivering multiple high-quality services to citizens, businesses and public-sector bodies. It is a public and private-sector venture, led by North Yorkshire County Council with support from Yorkshire Forward and Government Office Yorkshire and Humber. The private-sector technology partner is BT, which will work with NYnet to deliver, monitor and maintain the network.
Making NGA a reality in the North West | A–2
West Midlands •
Walsall Regeneration Company is investigating the feasibility of a community-owned FTTP network following the example of the OnsNet network in the Netherlands.
•
Digital Birmingham has been working to develop its NGA plans for the city. It is likely to apply for ERDF funding to ensure widespread NGA availability, and is currently considering a number of delivery model options.
•
Advantage West Midlands has supported a project to include FTTP infrastructure in the regeneration of the Longbridge car factory site.
•
An NGA network is planned to serve the Rotherwas Industrial estate in Herefordshire. The local authority will potentially be facilitating this by providing the backhaul for the network using spare capacity on the council network.
East Midlands •
Accelerate Nottingham is leading a group of its partners, which has a clear desire to implement municipal wireless (MW) and NGA networks in the conurbation of Greater Nottingham. The partners in Accelerate Nottingham (particularly Nottingham City and Nottinghamshire County Councils, the PCT, Nottinghamshire Police and Nottingham Trent University), already understood some of the benefits that NGA and MW networks offered, and they asked for the help of the Community Broadband Network (CBN) to take this forward, finding the best route to promote broader engagement. The priority areas will be the Lace Market and Nottingham’s Eastside development area, due to the high number of creative, IT and information-driven businesses located there.
•
LightSpeed Derby is a project with two ambitious targets. By 2012, it would like to have a locally-managed core fibre network linking up the premises of all public-sector agencies, all major businesses, business parks, and all major new developments with FTTP. By 2016, it would like to have next-generation broadband access available to 100% of households. Derby Cityscape has been awarded a Single Programme funding allocation by the East Midlands Development Agency (EMDA) to progress the project.
•
The University of Northampton, along with public-sector partners, is investigating options to serve the Northamptonshire county with a NGA network.
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Making NGA a reality in the North West | A–3
East of England •
The East of England Development Agency (EEDA) has created an NGA strategy aiming to develop infrastructure using EEDA funding and Rural Development Programme for England (RDPE) where available. The strategy is based on three initiatives: the creation of a collaborative regional partnership to share information and collaborate on projects; the development of ‘broadband-out-of-the-box’ solutions for access networks based on community co-operatives; and the provision of backhaul for localised networks.
South West •
Late stages of procurement: a next-generation broadband project is currently underway in Cornwall as part of the Cornwall Convergence Programme. Indicative ERDF funding of EUR47–79 million is available to support a private-sector investor in the development of NGA infrastructure, which will be primarily FTTC. The project is out for competitive tender – private companies bid for the funding in return for meeting a pre-defined requirement for network infrastructure and service provision. The bidder requesting the lowest level of ERDF funding should, in principle, be awarded the contract to build, own and operate the network on an open-access basis.
•
Analysys Mason is currently working for the South West Regional Development Agency with regards to its NGA strategy. No firm regional plans are yet in place.
•
Plymouth City Council is in talks with H2O Networks about the possible installation of an open-access FTTP network through the sewer system. H2O will make the estimated GBP40 million investment, but first needs assurance that demand levels are sufficient.
•
Bristol City Council has plans for an NGA project for areas of new homes. More details can be found at http://www.connectingbristol.org.
South East •
Analysys Mason advised Ashford’s Future (a partnership of local councils and government agencies in the UK) on the best approach to stimulate investment in new fibre networks. We engaged with stakeholders to identify barriers to investment and prioritise the areas that were most at risk. We produced a new, staged plan for intervention, comprising activities to facilitate investment in the local area by improving communications between operators, property developers and other stakeholders; this was supported by a series of more ‘radical’ intervention plans suitable for areas where the market continues to under-deliver. Ashford’s Future is currently implementing our recommendations
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Making NGA a reality in the North West | A–4
•
Analysys Mason is currently assisting Milton Keynes Council in the process of developing a telecoms strategy with a focus on maximising the level of NGA infrastructure.
London •
There are a number of private-sector initiatives underway such as the BT’s FTTx trials and the regeneration of the Wembley area, however no large-scale public-sector initiatives are underway.
Scotland •
Live project: West Whitlawburn Housing Co-operative (WWHC) is a progressive housing charity on the outskirts of Glasgow. It is embarking on a project to build a further 100 new homes and has appointed CBN to design and deliver an FTTP solution for its new homes with the aim of fitting it to the existing homes soon after the building work is complete.
•
Cadarden in Fife will be served by an open-access FTTP network which is to be installed by the social landlord at the same time as a new combined heat and power system.
Wales •
Live project: the FibreSpeed project was launched to enhance the competitiveness of Wales relative to other regions and to stimulate broadband deployment. The project intended to develop and support competitively priced FTTP network solutions in 14 business parks in north Wales, with plans to reach a potential 50 locations by 2010. The network was jointly funded by the ERDF, the Welsh Assembly Government and Geo, and provides a high-speed link between North Wales and the Manchester Gateway. Capacity on the network is provided on a wholesale basis to ISPs which provide symmetrical connectivity services of at least 10Mbit/s to strategic business parks. One aim of FibreSpeed was to reduce the prices of highspeed connectivity in north Wales, which before FibreSpeed was deployed were up to seven times higher than in London. We do not know how much the prices have since fallen, but we expect that the intervention will have had a significant impact on pricing in the area.
Northern Ireland Contract signed: the Department for Enterprise, Trade and Investment (DETI) has announced plans for a large NGA project following the completion of Analysys Mason’s design and operation of the intervention award scheme. The project’s aim is delivery of high-speed broadband services to 85% of NI businesses by 2011, focusing on both rural and urban areas in Northern Ireland where these services are not available, or are unlikely to be available in the foreseeable future. To achieve this, DETI’s contract with BT will involve the deployment of more fibre-optic cable
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Making NGA a reality in the North West | A–5
deeper into Northern Ireland’s urban districts, towns, villages and countryside using a mixture of FTTC and FTTP. There will also be upgrades to equipment across 166 exchanges and the introduction of new technology to increase broadband speeds to businesses. Project funding of GBP18 million, coming from the DETI, the Department of Agriculture and Rural Development and the EU under the ERDF Competitiveness Programme and the ERADF Rural Development Programme, is supporting an investment of GBP29.8 million by BT.
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Annex B: Geographic analysis of the expected supply of NGA in the North West The European Commission guidelines on state aid determine the eligibility of an area to receive public-sector support, based on the number of operators providing NGA coverage within a time horizon of three years. ‘The Commission has consistently made a distinction between areas where no broadband infrastructure exists or is unlikely to be developed in the near term (white areas), areas where only one broadband network operator is present (grey areas) and areas where at least two or more broadband network providers are present (black areas).’ 21 Based on these guidelines and our own analysis we have estimated where the white, grey and black areas will be in the North West by the end of 2012. These are shown in Figure B.1.
21
Source: Communication from the Commission: Community Guidelines for the application of State aid rules in relation to rapid deployment of broadband networks, Official Journal of the European Union, 30 September 2009
Making NGA a reality in the North West | B–2
NGA coverage by 1 operator NGA coverage by 2+ operators No NGA coverage
Figure B.1:
Estimated NGA coverage in the North West at the end of 2012 [Source: Analysys Mason]
We do not expect Virgin Media coverage to increase beyond its current level of 54% of North West premises, but by 2012 we expect the NGA deployment from Openreach to have reached 40% of the UK. Openreach has announced a number of exchanges for upgrade in 2010, and 20% of the premises to be covered are in the Greater Manchester area. By 2012 we expect Openreach’s NGA coverage to extend to all major urban centres in the North West.
Ref: XNWDG005v04
Making NGA a reality in the North West | B–3
Of the 3.2 million premises in the North West, we predict that the following percentages will fall into in each European Commission category of coverage area by 2012: • • •
black – grey – white –
30.3% 40.4% 29.3%.
Beyond 2012, we believe that there is likely to be a business case for NGA coverage to reach 65% of the UK. Figure B.2 below shows our estimate of the white, black and grey areas of the North West that would result from this further roll-out.
Ref: XNWDG005v04
Making NGA a reality in the North West | B–4
Figure B.2:
NGA coverage in the North West with operators other than Virgin Media at 65% UK coverage [Source: Analysys Mason]
We predict that if new NGA networks, in addition to Virgin Media, reach 65% NGA coverage of the UK, the percentage of North West premises in each category of coverage area will be: • • •
black – grey – white –
Ref: XNWDG005v04
43.1% 40.6% 16.3%.
Making NGA a reality in the North West | B–5
If in the long term NGA coverage excluding Virgin Media were to reach 90% of UK premises, we would expect the following black, white and grey areas as shown in Figure B.3 below. This could be achieved if the proposed Final Third project (as suggested in the Digital Britain report) were to be delivered with funds from central government.
Figure B.3:
NGA coverage in the North West with operators other than Virgin Media at 90% UK coverage [Source: Analysys Mason]
Ref: XNWDG005v04
Making NGA a reality in the North West | B–6
We predict that if NGA coverage, excluding Virgin Media, reaches 90% of the UK, the percentage of North West premises in each category of coverage area will be: • • •
black – grey – white –
56.2% 40.6% 3.1%.
It should be noted that the above maps are based on our best estimate of the likely coverage from Openreach using the ‘geotype approach’ adopted in our work for the Broadband Stakeholder Group. The analysis enables us to predict the likely prioritisation of areas for NGA roll-out but there is uncertainty around the exact locations. Based on the analysis described above, Figure B.4 shows the estimated percentage of North West premises in each category of coverage area: in 2012 (assuming 40% UK coverage from Openreach); when NGA coverage, other than Virgin Media, reaches 65% coverage of UK premises; and when NGA coverage other than Virgin Media reaches 90% coverage of UK premises. 3.1%
Percentage of North West premises
100% 16.3%
90% 29.3% 80%
40.6%
70% 40.6%
60% 50%
White
40.4%
Grey Black
40% 30%
56.2% 43.1%
20% 30.3% 10% 0% 40% UK (2012)
Figure B.4:
Ref: XNWDG005v04
65% UK (after 2012)
90% UK (Final Third target by 2017)
Percentage of premises in each type of coverage area [Source: Analysys Mason]