There aren’t a lot of jokes about regulators. Here’s one. A regulator marches into a compliance manager’s office and slams down a stack of 3,331 complaints. He yells that the (banking/pharma/telecoms) company has until next Friday to respond. “And if we don’t?” “You’ll have 3,332 complaints” the regulator responds sheepishly and slinks out.
Last week, yet another UK regulator followed the script of that joke. Following an extensive investigation, Ofcom, the communications regulator, has decided to leave BT’s quasi monopoly over the UK’s broadband infrastructure essentially unchanged. This is not just bad news for the country. It is really bad news for UK cities.
The UK has a broadband infrastructure that can at best be described as mediocre. According to Akamai’s latest State of the Internet, in Q1 2016, average Mbps in the UK were 14.9, making us 19th in the global broadband speed leagues; it is quicker to download a video clip of a clapping panda onto your hard-drive in Romania than it is in the UK. And these slow speeds are often down to Openreach’s architecture which relies on two stages: the first stage is ‘fibre to cabinet’, otherwise known as the “fibre broadband” element. The second stage is ‘old fashioned copper from cabinet to front-door’ and funnily enough does not have a fancy name. These two stages are the technology equivalent of travelling by bullet train from station A to station B and then riding an exhausted donkey from the station to your house. You may get from Station A to B quickly and reliably, but does that really help you when there is a high likelihood that the donkey will collapse on the way to your house? The Ofcom ruling does little to tackle this, other than file a few more complaints (in this case requests for additional investment) that if not followed, will simply incur additional complaints. See joke above.
But that’s not my real gripe. My real gripe is the fact Ofcom’s investigation did not raise substantive questions about the structure of the broadband market. Under the current market structure, fibre providers like BT build and run large fibre networks which they then sell customers access to. If you are using BT Openreach, your zeros and ones are running up and down BT installed lines. If you are using Sky broadband, you are using Sky-installed and owned fibre lines. Cityfibre? Ditto. They are a series of mini-fibre empires, just like the early days of the American railway. Individual railway companies paid for and lay railway tracks and then ran their rolling stock along them exclusively, charging whatever they could. Instead of owning connections between cities, today’s Fibre Barons, fight to own the infrastructure within individual places.
If the fibre market was functioning healthily, businesses and households would have an array of different fibre providers to choose from. But they don’t. Across much of the country, there is only one provider, BT Openreach, subsidised by the Government to the tune of £1.6bn to lay the ducts and fibres. Even though there is a bit more competition in our major cities (most have at least two competing providers) broadband speeds remain pretty patchy.
Fibre is important and will only become more important. Today young people make decisions on where to live on the basis of broadband speed and mobile coverage. Many of the emerging high growth industries are broadband voracious. Companies that process huge datasets need fibre to access and simultaneous process data on the cloud. Yet, today, if you head up a city and wish to introduce a game-changing increase in broadband speeds to capture all of these high value residents and businesses, the options are limited. At most, you can try and persuade a fibre company to take the challenge and invest in your city. But fibre companies are wary of making new significant capital investments in places that already have two or more providers. The risk vs return maths just don’t stack up.
But there is another way.
We could instead encourage cities to co-fund the creation of their own dark fibre networks. These new networks could be built as ‘fibre to the premises’, as opposed to ‘fibre to the cabinet’. In other words, all bullet-train and no donkey. And most excitingly, cities could then lease space on the dark fibre networks to any retail broadband provider, whether Vodafone, BT or even Pokemon Go. Because the cities would own (or co-own) the infrastructure, they would have direct control over network speed and future investment and would create valuable revenue-earning assets. In other words, cities would have direct control over one of the most important competitive levers they have. And even better, city streets would not be ripped up multiple times by different fibre providers. The intertwined mess of cables, ducts and sewers growing under parts of cities would be halted.
To date this has been an impossibility thanks to onerous European state aid rules. In one instance, a UK city invested in dark fibre under a small spatial area of the city and even that was shut down as a breach of state aid. However, with the UK’s vote to leave the EU, direct investment by cities in fibre infrastructure is now a possibility. And with the wealth of funds sitting in infrastructure investment funds itching to be vested, now is the time to break the mould. Or even snap the copper. Let’s help UK’s cities become known not just for having some of the fastest and most consistent broadband speeds in the world, but also for having some of the most progressive infrastructure investment models.