[Title will be auto-generated] by Northwest Regional Development Agency

Consultation paper for the Northwest Regional Development Agency

Making NGA a reality in the Northwest

26 March 2010 17187-136

Contents 1 1.1 1.2 1.3 1.4

Consultation instructions Introduction Consultation process and timetable Responding to the consultation Confidentiality and data protection

1 1 1 2 2

2 2.1 2.2 2.3 2.4 2.5 2.6

Proposed NGA strategy Vision What is NGA? Strategic priorities Activities to deliver the strategic priorities Options for focus and priority of activities Design of interventions in networks

4 4 5 6 7 8 10

Summary of consultation questions

Annex A : Pen portraits of the impact of NGA Annex B : Extracts from the NGA Evidence Paper and NGA Strategic Framework

17187-136

Making NGA a reality in the Northwest

Confidentiality Notice: This document and the information contained herein are strictly private and confidential, and are solely for the use of 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

17187-136

Making NGA a reality in the Northwest | 1

1 Consultation instructions

1.1

Introduction The Northwest Regional Development Agency (NWDA) is undertaking a consultation seeking feedback to specific questions regarding a proposed strategy for making next generation access (NGA) broadband 1 a reality in the Northwest. This consultation is relevant to all stakeholders in the Northwest with an interest in NGA broadband, in particular consumers of broadband services (public sector and private sector), communications providers and network investors, as well as public sector partners. To date, the NWDA, with the support of the Northwest Regional Advisory Group for NGA 2 , has confirmed that NGA is of vital importance to the future economic growth and sustainability of the Northwest region. The NWDA is now seeking the views of its stakeholders to test the components of a series of strategic priorities regarding NGA. Additional information taken from an NGA Evidence Paper and NGA Strategic Framework are contained in the annexes of this Consultation Paper, which should provide sufficient information for Consultees to respond to the consultation. However, should Consultees wish, the original NGA Evidence Paper and NGA Strategic Framework are available for download from the Consultations section of the NWDA website 3 . We note that certain content and references in the NGA Evidence Paper and NGA Strategic Framework have been superseded since the original release date of the documents, but these do not alter this consultation.

1.2 Consultation process and timetable The consultation process is being administered in accordance with the NWDA Consultation Policy, supported by Analysys Mason Limited (Analysys Mason). A summary of the consultation process and timetable is set out in Figure 1.1.

NGA broadband is defined in Section 2.2. The Regional Advisory Group is made up of public and private sector stakeholders, chaired by Mike Emmerich of Commission for the New Economy.

17187-136

NGA Evidence Paper and Strategic Framework for reference only, not open for consultation.

Making NGA a reality in the Northwest | 2

Figure 1.1:

Consultation process and timetable [Source: Analysys Mason]

Consultation activity

Timetable

Week no.

Issue consultation paper

25 March 2010

Set up consultation workshops and meetings

26 March to 9 April 2010

1–4

Consultation workshops and meetings

12 April to 11 June 2010

5–12

Consultation response deadline

17 June 2010

Analysis and clarifications

14 to 25 June 2010

13–14

Strategy refinement

28 June to 9 July 2010

15–16

Strategy completed

9 July 2010

In addition to providing written responses to this Consultation Paper, there will be an opportunity for Consultees to participate in a number of meetings to be held in each of the sub-regions, which could include events, one-to-one meetings or telephone surveys. These meetings will be announced via the Consultations section of the NWDA website. At the end of the consultation process, the NWDA will analyse consultation responses, asking clarification questions where appropriate, and use the consultation findings to refine the strategy before publication.

1.3 Responding to the consultation Consultees may provide responses to the consultation through a written response to the questions set out in Section 2, and summarised in Section 3, or by contributing during interactive meetings. Andrew Halliwell is the principal contact for any enquiries about the consultation and can be contacted by email at andrew.halliwell@nwda.co.uk. Written responses should be sent by email to ngaconsultation@nwda.co.uk or to the following postal address: Renaissance House Centre Park Warrington Cheshire WA1 1QN Any comments or complaints about the consultation process should be sent to Sharon Doran, the NWDA Consultation Coordinator, via email (sharon.doran@nwda.co.uk) or to the postal address above.

1.4

Confidentiality and data protection Information provided in response to this consultation, including personal information, may be subject to publication or release to other parties or to disclosure in accordance with the access to

17187-136

Making NGA a reality in the Northwest | 3

information regimes. These are primarily the Freedom of Information Act 2000 (FOIA), the Data Protection Act 1998 (DPA) and the Environmental Information Regulations 2004. Should Consultees wish for information, including any personal data that may be provided, to be treated as confidential, we note that under the FOIA, there is a statutory Code of Practice with which public authorities must comply and which deals, among other things, with obligations of confidence. It is therefore recommended that Consultees provide an explanation as to why the information provided should be regarded as confidential, which will be taken into account should we receive a request for disclosure of the information. However, we cannot give assurance that confidentiality can be maintained in all circumstances. An automatic confidentiality disclaimer generated by an IT system will not, of itself, be regarded as binding on the NWDA.

17187-136

Making NGA a reality in the Northwest | 4

2 Proposed NGA strategy

2.1 Vision The Northwest has a number of strategic objectives that would benefit from improved access to faster broadband connectivity. Improved connectivity would benefit a number of sectors, especially those that are data intensive, by improving links between Northwest businesses, and from the Northwest to places across the world. These links could serve to increase productivity, stimulate activity in rural areas, and attract inward investment. 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. A series of pen portraits illustrating the potential impact of NGA is provided in Annex A. A potential vision for next-generation access (NGA) in the region is summarised below. The Northwest 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 be globally competitive in the widespread use of NGA by all sectors of society.

This vision is an initial iteration and should be debated and evolved so that it is ambitious and achievable. Q1. Do you agree with the vision? If not, what alternatives or changes would you make, and why?

17187-136

Making NGA a reality in the Northwest | 5

2.2 What is NGA? For the purpose of the regional NGA strategy, the term ‘next-generation access’ refers to super-fast broadband that is enabled by replacing copper phone lines with fibre-optic cable (fibre) 4 . 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. Figure 2.1: Overview of ADSL 2 4 / 1 .4 M b it/s

different broadband

Analysys Mason]

1 0 0 / 1 0 M b it/s NGA technologies

Telephone exchange

technologies [Source: FTTC

D O C S IS 3 .0 2 0 0 / 1 0 0 M b it/s FTTP o v e r 1 0 0 0 / 1 0 0 0 M b it/s Key F ib re C opper A c tiv e e le c tro n ic s

N o te : s p e e d s a re m a x im u m d o w n lo a d / u p lo a d

Q2. Do you agree with the definition of NGA? If not, what alternatives or changes would you make, and why?

Other technologies may deliver NGA services, most notably the range of wireless technologies. This consultation paper focuses on fibre-based NGA solutions.

17187-136

Making NGA a reality in the Northwest | 6

2.3 Strategic priorities Following on from the vision for NGA, we believe that the single most important strategic objective should be: The effective use of NGA by all, to participate and compete in the global economy. Achieving this goal will then lead to the numerous economic and transformational benefits that are associated with NGA. This will put the Northwest 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 2.2. Figure 2.2:

Strategic aim and priorities [Source: Analysys Mason] “The effective use of NGA by all, to participate and compete in the global economy” Ubiquitous availability

Range of competitive suppliers

z Without ubiquitous availability the usage of NGA will be limited by the proportion of citizens and businesses that can access NGA

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 World-class networks Attractive servies benefits that NGA can and applications z Networks need to be sufficiently unlock z Without attractive services and advanced to support the applications for end users, the takeapplications that deliver the up of NGA will be limited economic and transformational benefits z Services need to be attractive to both existing broadband users and those who are currently digitally excluded

Q3. Do you agree that ‘the effective use of NGA by all, to participate and compete in the global economy’ is the single most important strategic objective? If not, what alternatives or changes would you make, and why?

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. Q4. Do you agree with the four strategic priorities? If not, what alternatives or changes would you make, and why?

17187-136

Making NGA a reality in the Northwest | 7

2.4 Activities to deliver the strategic priorities 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 into five different areas as shown below. Figure 2.3:

Classification of activities [Source: Analysys Mason]

Area of activity

Activities included

Strategic priority being addressed

Increasing demand

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

Policy and regulation

Clarify the issue of business rates

Ubiquitous availability

If sufficient competition does not emerge, influence the regulator to increase competition

Competitive suppliers

Investing in networks

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

Lowering deployment costs

Others

Q5. Do you agree with the suggested activities? Are there other activities the region should consider, and why?

17187-136

Making NGA a reality in the Northwest | 8

2.5 Options for focus and priority of activities 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 or a lack of competition is preventing the effective use of 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. There are a number of options for how the activities can be focused 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 ‘white areas’ where there are no expected suppliers 5 (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 FTTC. 6 Figure 2.4 below shows the cost breakdown for residential premises and each business sector. The analysis is also split between all areas and only white areas. 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 on deployment 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 five telephone exchange areas indicated that the costs of only deploying to businesses could be up to ten 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.

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. See Section 2.6 for an overview of State Aid in relation to NGA.

17187-136

The analysis is based upon our analysis of the costs of deploying next-generation fibre for the BSG.

Making NGA a reality in the Northwest | 9

Figure 2.4:

Summary of NGA deployment costs by sector [Source: Analysys Mason, ONS for sectorspecific information] Areas with no expected suppliers

All areas

(white areas) Premises FTTC costs FTTP costs

Premises FTTC costs

FTTP costs

(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

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

Residential Public sector, community and social Businesses (breakdown below)

Agriculture Business services Computer and related Construction

Wholesale/retail TOTAL

Q6. What sectors should be the focus and priorities of the strategy activities? What is the rationale for your selection?

17187-136

Making NGA a reality in the Northwest | 10

2.6 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 7 . These guidelines lay out a number of 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 Northwest 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. NGA coverage by 1 operator NGA coverage by 2+ operators

Figure 2.5: Estimated ‘black’, ‘grey’ and ‘white’ areas of the Northwest by 2012 [Source:

No NGA coverage

Analysys Mason]

Q7. Where should intervention activities be prioritised (white, grey, or combinations thereof)? What is the rationale for your selection? 7

Communication from the Commission: Community Guidelines for the application of State aid rules in relation to rapid deployment of broadband networks, dated 30/9/2009

17187-136

Making NGA a reality in the Northwest | 11

3 Summary of consultation questions We welcome all responses to this consultation. Please also respond if you support the strategy and have no further comments to make. A summary of the consultation questions in Section 2 is set out below. We welcome additional comments if you wish to provide them. Q1. Do you agree with the vision? If not, what alternatives or changes would you make, and why?

Q2. Do you agree with the definition of NGA? If not, what alternatives or changes would you make, and why?

Q4. Do you agree with the four strategic priorities? If not, what alternatives or changes would you make, and why?

Q5. Do you agree with the suggested activities? Are there other activities the region should consider, and why?

Q6. What sectors should be the focus and priorities of the strategy activities? What is the rationale for your selection?

Q7. Where should intervention activities be prioritised (white, grey, or combinations thereof)? What is the rationale for your selection?

17187-136

Contents of annexes Annex A : Pen portraits of the impact of NGA Engineering company in Chester using NGA to work more efficiently 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 Older person living in Bury

1 1 1 2 3 3 3 4

Annex B : Extracts from the NGA Evidence Paper and NGA Strategic Framework Background to the vision Summary of a do-nothing scenario Introduction to the next generation of broadband A policy framework for NGA Guidance on best practice for activities Action plan to deliver the strategic aim

1 1 2 6 9 20 28

17187-136

Annex A: Pen portraits of 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.

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 website by quickly uploading new case studies and information. The improvements to the website 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.

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 websites and forums, and are achieving better prices for their produce by checking market prices and by

17187-136

Making NGA a reality in the Northwest | A–2

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 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.

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 organisation 8 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 Mohammed hopes to set up a home business providing online IT support. The University of Highlands & Islands 9 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.

17187-136

http://www.tenantspin.org http://www.uhi.ac.uk/home/uhi-campuses/learning-near-you

Making NGA a reality in the Northwest | A–3

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 Khan 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 downloaded in seconds rather than minutes. This means that she can work from home. The flexible working also allows her to collect one of her children from school rather than leave her in afterschool 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 Khan 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.

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.

Law firm in Manchester using NGA to increase productivity A small ten-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.

17187-136

Making NGA a reality in the Northwest | A–4

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 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%.

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 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.

17187-136

Making NGA a reality in the Northwest | A–5

The Viedome project 10 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 system11 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.

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 11

17187-136

http://www.justchecking.co.uk

Annex B: Extracts from the NGA Evidence Paper and NGA Strategic Framework This annex contains extracts from the NGA Evidence Paper and NGA Strategic Framework as a means of providing supporting information for Consultees. The relevant document sections and consultation questions are clearly referenced throughout the annex using square brackets [ ].

Background to the vision [Supporting information for Q1.] 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 Northwest, and from the Northwest 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 Northwest 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 be globally competitive 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. • •

17187-136

Making NGA a reality in the Northwest | B–2

•

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 B.1. Figure B.1: Overview of different broadband

ADSL 24 / 1.4 Mbit/s

technologies [Source:

FTTC 100 / 10 Mbit/s NGA technologies

Telephone exchange

Analysys Mason]

DOCSIS3.0 200 / 100 Mbit/s FTTP over 1000 / 1000 Mbit/s Key Fibre Copper Active electronics

Note: speeds are maximum download / upload

Summary of a do-nothing scenario [Supporting information for Q1.]

Current NGA provision in the Northwest 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 Northwest: existing telecoms operators upgrading their networks; new NGA networks; and government-led intervention.

17187-136

Making NGA a reality in the Northwest | B–3

There is already a large amount of NGA infrastructure in the Northwest, 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 Northwest 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. 12 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.

Geographical 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 Northwest 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) 13 . 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. ‘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).’ 14 Based on these guidelines and our own analysis we have estimated where the white, grey and black areas will be in the Northwest by the end of 2012. These are shown in Figure B.2 on the next page. 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 12

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. 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.

17187-136

Making NGA a reality in the Northwest | B–4

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. 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. Figure B.2:

Estimated NGA coverage in the Northwest at the end of 2012 [Source: Analysys Mason]

NGA coverage by 1 operator NGA coverage by 2+ operators No NGA coverage

Based on the three scenarios outlined above, Figure B.3 shows the estimated percentage of Northwest premises in each category of coverage area:

17187-136

Making NGA a reality in the Northwest | B–5

• • •

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.

Figure B.3:

Percentage of premises in each type of coverage area [Source: Analysys Mason] 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)

65% UK (after 2012)

90% UK (Final Third target by 2017)

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: • •

• •

17187-136

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

Making NGA a reality in the Northwest | B–6

•

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.

Introduction to the next generation of broadband [Supporting information for Q2.] The next generation of broadband is commonly referred to as next generation access (NGA). NGA provides homes and businesses with faster telecoms connectivity by replacing some or all of the legacy network of copper wiring with fibre-optic cable (fibre), which can carry greater bandwidths over longer distances. There are three main options for NGA deployment categorised by the depth to which fibre is extended. Fibre to the premises (FTTP)

FTTP involves laying fibre-optic cables directly to the customer premises, replacing all external copper wiring. FTTP can be deployed using so-called ‘point-to-point’ connections whereby each customer has a dedicated fibre. With current technology this connection is capable of supporting symmetrical speeds of up to 1Gbit/s (i.e. 1000Mbit/s). Alternatively, FTTP can be deployed using a so-called gigabit passive optical network (GPON) where fibre along the street is shared among a number of users (each still has their own fibre from the street to the home). In this configuration, customers can typically expect speeds on average to be around 100Mbit/s.

Fibre to the cabinet (FTTC)

Due to the high cost of laying fibre directly to each premises, an alternative is to lay fibre to street cabinets (FTTC). Electronic equipment is deployed in the street cabinet that connects to the customer premises using the existing copper cables. The proximity of these cabinets to premises (typically within a few hundred metres) means that download speeds of 30–100Mbit/s can be expected, depending on the length of the final copper line. Upload speeds are likely to be significantly less than download speeds, at up to 10Mbit/s.

DOCSIS3.0

Cable networks can be upgraded to use DOCSIS3.0 which is able to offer NGA services. The resulting network is similar to a FTTC network in that fibre is deployed directly to a street cabinet within a few hundred metres of the customer premises. The final connection to the customer is then provided over a shared co-axial cable. DOCSIS3.0 is able to provide end user connection of 200Mbit/s download and 100Mbit/s upload. However, commercially available services from Virgin Media

17187-136

Making NGA a reality in the Northwest | B–7

today are limited to 50Mbit/s download and 1.5Mbit/s upload (though it is trialling 10Mbit/s upload speeds). Virgin Media already uses DOCSSI3.0 across all of its network. Figure B.4: Overview of different broadband

ADSL 24 / 1.4 Mbit/s

technologies [Source:

FTTC 100 / 10 Mbit/s NGA technologies

Telephone exchange

Analysys Mason]

DOCSIS3.0 200 / 100 Mbit/s FTTH over 1000 / 1000 Mbit/s Key Fibre Copper Active electronics

Note: speeds are maximum download / upload One important difference between FTTP and other technologies (i.e. FTTC and ADSL) is that it offers symmetrical connections. This allows users to both send and receive data at a high speed. Increased upload speeds are particularly important for applications such as: sharing videos, streaming video from home (e.g. high-quality video conferencing), remote backup and file transfer. FTTP is able to offer the highest-bandwidth services, for both downloads and uploads and is the only mainstream technology that is capable of offering symmetrical 100Mbit/s services 15 . One example of an application to use NGA could be cloud computing, where end users access computing resources and applications over the Internet instead of applications on their own PC. Cloud computing has particular potential in fields where large amounts of data processing can be carried out in the cloud, rather than on the desktop. However, to use such services it is necessary to have significantly faster upload speeds so that data can be sent to (and received from) the cloud in near real time. Cloud computing may allow small businesses to have access to more advanced business

We note that some point-to-point wireless technologies can offer symmetrical 100Mbit/s services but these are unlikely to scale beyond niche applications, due to the limited amount of spectrum.

17187-136

Making NGA a reality in the Northwest | B–8

applications that are currently only viable for larger organisations such to the costs of developing and hosting specialised applications. It will therefore increase productivity and help to reduce ICT costs. Northwest businesses requiring very high-speed symmetrical broadband connections can currently purchase Ethernet services from BT and alternative operators such as Virgin Media and Cable & Wireless. BT claims that it currently provides FTTP to 120 000 business in the UK 16 . The prices of such services vary significantly based on functionality and location of business premises. However, business-oriented fibre services with dedicated capacity would typically cost in excess of GBP1000 per month. In comparison, in areas with widespread FTTP such as Amsterdam, these services can be purchased for between EUR75 and EUR750 per month depending on the level of priority assigned to the traffic 17 . In the UK, the availability of such high-speed business services is generally concentrated in urban areas. The Northwest is not at a relative disadvantage to the rest of the UK as it has a large urban population and many of the national backbone networks pass through the region. FTTP is the best NGA solution currently available, as it does not share copper wire’s physical limitations in terms of the bandwidth it can carry. There have already been a number of FTTP deployments across the world and it is becoming available in the UK in some large property developments such as Ebbsfleet and Wembley City. However, laying fibre is expensive, costing in the region of GBP100 per metre, and this will limit the extent of commercial roll-out of FTTP. However, if fibre is deployed at the same time as other civil works this cost is significantly reduced and can be under GBP10 per metre. This is particularly marked in rural areas where cost per premises increases due to the longer distances over which fibre must be laid, and the lower customer density over which costs can be shared. FTTC is a far less expensive option, with the investment needed to connect all UK premises estimated to be around GBP5.1 billion compared to GBP28.8 billion for full point-to-point FTTP. 18 FTTC can be seen as an interim step towards achieving full FTTP as the investment in laying fibre to the street cabinets would be needed for both solutions, provided the FTTC network is designed with future FTTP in mind. Upgrading a network to FTTP would, however, make the active equipment installed in street cabinets redundant, meaning that installing FTTP at first instance would require less investment overall. At present there are many providers of fibre-based connectivity that could be used to support NGA. This existing fibre is owned and operated by companies such as BT, Virgin Media, Cable & Wireless, EasyNet and Geo. The main users of this fibre are either other telecoms operators or large businesses. The exact routes of this fibre are commercially confidential. However, based on our experience fibre is currently in places that connect large centres of employment such as business parks with town and city centres. Within the centres of cities such as Manchester and Liverpool we 16

Hhttp://www.btplc.com/news/articles/showarticle.cfm?articleid={efd7b1fa-52ed-45bb-b530-734fac577e94} Note that the products from BT are most comparable to the most expensive products in Amsterdam. The costs of deploying fibre-based next-generation broadband infrastructure, report by Analysys Mason for the Broadband Stakeholder Group in September 2008, http://www.broadbanduk.org/fibrecosts

17187-136

Making NGA a reality in the Northwest | B–9

would expect there to be significant amounts of fibre from multiple providers. We believe that the vast majority of BT telephone exchanges in the region have fibre laid directly to them. However, this fibre is only a very small proportion of the total fibre required to deliver FTTP. Using information from our report on the costs of deploying fibre for the BSG 19 we can calculate the proportion of all fibre that is required for different parts of the network. To deliver a FTTP network to all of the UK would require 727 000km of fibre between the exchange and the premises. Over 85% of this fibre would be located between the street cabinet and the home. On average the street cabinet is within 500m of the premises, and the telephone exchange is within 2.3km of the premises. As a comparison Geo operate a fibre backbone network that provides connectivity for service providers such as Carphone Warehouse and the mobile network 3. Geo describe their network as “connecting all the major commercial centres” via its deployment in the sewers in London and on the national gas pipeline. This network comprises 2500km of fibre – less than 0.5% of the total distance of fibre required for a nationwide FTTP network. This illustrates that the vast majority of fibre that is required in a FTTP deployment is very close to the end premises and that reusing the existing fibre assets that primarily provide links to population centres and major business sites will not make a significant impact upon the costs of deploying FTTP. It should be noted that fibre-based NGA is not the only solution for the provision of high-speed data services. Wireless mobile services play an important part in society and the way we communicate, and future developments will see 3G coverage increase and data speeds increase significantly. However, despite the advances in mobile technology there are no current technologies available, or planned, that would be able to offer a widely available service that has similar characteristics to either FTTC or FTTP.

A policy framework for NGA [Supporting information for Q3, Q4 and Q5.] In this section, we outline the ambition for NGA in the Northwest, and how this then translates into well defined policy objectives and the drivers that support the overall policy objective.

The ambition can be used to define the strategic aim We have identified a Vision for NGA in the region which has been circulated among key stakeholders and agreed in principle, as set out below.

17187-136

http://www.broadbanduk.org/fibrecosts

Making NGA a reality in the Northwest | B–10

The Northwest 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 be globally competitive 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 effective use of NGA by all, to participate and compete in the global economy. 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.

Figure B.5:

Strategic aim and strategic priorities for NGA [Source: Analysys Mason] “The effective use of NGA by all, to participate and compete in the global economy” Ubiquitous availability

Range of competitive suppliers

z Without ubiquitous availability the usage of NGA will be limited by the proportion of citizens and businesses that can access NGA

z Having a wide range of suppliers in a competitive market will help to drive innovation and lower costs to end users

17187-136

Making NGA a reality in the Northwest | B–11

The activities that the region takes should all be aimed at delivering these strategic priorities, which support the strategic aim of the effective use of NGA by all, to participate and compete in the global economy.

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 B.6. Figure B.6:

Theory of Change Logic [Source: NWDA] 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

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. 20 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.

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.

17187-136

Making NGA a reality in the Northwest | B–12

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.

Strategic priority 1: Ubiquitous availability of NGA If the region is to achieve its strategic aim of the effective use of NGA by all, to participate and compete in the global economy, 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 region 21 , 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

17187-136

This is primarily via the Virgin Media network.

Making NGA a reality in the Northwest | B–13

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. 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

Activity 1.2: Clarify the issue of business rates

There is uncertainty among telecoms operators over the impact of business rates on fibre deployments. Work by the BSG is being carried out 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 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

17187-136

Making NGA a reality in the Northwest | B–14

planning permission is approved. The model planning obligation (section 106) agreement 22 . 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.

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.

See http://www.communities.gov.uk/planningandbuilding/planning/planningpolicyimplementation/planningobligations/ modelplanningobligation/

17187-136

Making NGA a reality in the Northwest | B–15

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

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.

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.

17187-136

Making NGA a reality in the Northwest | B–16

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.

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 Media23 , 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 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.

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.

17187-136

Making NGA a reality in the Northwest | B–17

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).

Strategic priority 4: Attractive services and applications for NGA The strategic aim 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. 24 Furthermore, many individuals and businesses that use current-generation 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 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. 25

Source: surveys for Ofcom. 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.

17187-136

Making NGA a reality in the Northwest | B–18

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 B.7: 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 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.

17187-136

Making NGA a reality in the Northwest | B–19

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 GBP300 million 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. The activities which the region could take to address this strategic priority are outlined below. Activity 4.1: Promote broadband take-up

17187-136

Promote applications for current broadband and NGA to the digitally excluded so that they can see a reason to use broadband, and NGA.

Making NGA a reality in the Northwest | B–20

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.

Guidance on best practice for activities [Supporting information for Q5.] In this section, we discuss how the activities to address the strategic priorities can be implemented, drawing on best practice. The activities already outlined can be classified into five groups, as shown in Figure B.8 below. Figure B.8:

Classification of activities [Source: Analysys Mason]

Area of activity

Activities included

Strategic priority being addressed

Increasing demand

Lowering deployment costs

Policy and regulation

Investing in networks

17187-136

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

Making NGA a reality in the Northwest | B–21

Area of activity

Strategic priority being

Activities included

addressed

Others

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

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. 26 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 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.

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.

17187-136

Hhttp://www.broadbanduk.org/content/view/292/7/

Making NGA a reality in the Northwest | B–22

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. 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.

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.

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.

17187-136

Making NGA a reality in the Northwest | B–23

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. 27 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 into the following areas: • • • • • • • •

wholesale access technology neutrality use of existing infrastructure 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

17187-136

•

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 the section on Operating and ownership models (page 25 below) 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

See paragraph 51 of http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2009:235:0007:0025:EN:PDF

Making NGA a reality in the Northwest | B–24

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.

Claw-back mechanism to avoid over-compensation

•

A reverse payment mechanism, where public funding is expected to reduce as end-user demand increases, ensures that the minimum level of public funds is used.

Detailed mapping and coverage analysis

•

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.

Open tender process

Benchmark pricing exercise

A wide range of competitive retail suppliers

17187-136

Making NGA a reality in the Northwest | B–25

We recommend that there should be a limited number of publicly-funded wholesale network operators in the Northwest. 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.

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 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 B.9 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. Figure B.9:

High-level operating model for network investment [Source: Analysys Mason]

Retail services

io pt

Independent private sector Contracted private partner

Active wholesale

Choice of models Passive wholesale

Majority of publicsector funding

Underlying assets

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. Ethernet-

17187-136

Making NGA a reality in the Northwest | B–26

based 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). 28 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. 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.

Even if operators have access to passive products another wholesale operator may not emerge, particularly if the market is too small.

17187-136

Making NGA a reality in the Northwest | B–27

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

Investment could be part funded via a private-sector loan. Such a loan would be over a long period (e.g. ten 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 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, 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. ten 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.

17187-136

Making NGA a reality in the Northwest | B–28

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. 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.

Action plan to deliver the strategic aim [Supporting information for Q6 and Q7.] The region’s strategic aim is that there should be effective use of NGA by all, to participate and compete in the global economy. In this section we present an action plan that can be followed to deliver different activities in an efficient and timely manner. 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.

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 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.

17187-136

Making NGA a reality in the Northwest | B–29

Work to promote the take-up of broadband among those currently digitally excluded may be best delivered in partnership with the Digital Inclusion Champion 29 . 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 GBP300 million 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 Broadband Delivery UK (BDUK) which BIS has set up to deliver the Universal Service Commitment and Next Generation Fund objectives from Digital Britain.

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 B.10 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.

17187-136

The current Digital Inclusion Champion is Martha Lane Fox.

Making NGA a reality in the Northwest | B–30

Figure B.10:

High-level operating model for network investment [Source: Analysys Mason]

Retail services

t Op

io n

Independent private sector Contracted private partner

Active wholesale

Choice of models Passive wholesale

Majority of publicsector funding

Underlying assets

This model is discussed in more detail in the section on Operating and ownership models (page 25 above).

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.

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. 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

17187-136

Making NGA a reality in the Northwest | B–31

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 area30 . 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.

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 the section on Investing in networks (page 23 above) 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 alongside 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 thresholds that cannot be exceeded without further agreement from the Commission; one example 30

17187-136

This would include conditions set out in the section on Investing in networks (page 23 above), such as being open access.

Making NGA a reality in the Northwest | B–32

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 identify it clearly in any detailed action plan.

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 NGA 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

17187-136

Making NGA a reality in the Northwest | B–33

sector by 2012). Figure B.11 below shows how the cost breakdown for residential premises and each business sector. Figure B.11:

Summary of NGA deployment costs by sector [Source: Analysys Mason, ONS for sectorspecific information] Areas with no expected suppliers

All areas

(‘white areas’) FTTC costs

FTTP costs

(GBP m)

726 456

164.0

957.7

31.1

8 594

2.0

21.3

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

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

Residential Public sector, community & social Businesses (breakdown below)

• Agriculture • Business services • Computer and related • Construction

• Wholesale/Retail TOTAL

Premises FTTC costs

FTTP costs

(GBP m)

3 010 731

497.4

2789.1

33 608

5.5

137 287

Premises

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 on deployment 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 five exchange areas indicated that the costs of only deploying to businesses could be up to ten times the amount shown above. This would mean that if only

17187-136

Making NGA a reality in the Northwest | B–34

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.

17187-136