Search This Blog

Friday, 22 January 2010

Is there really next gen market failure?

This bothers not just me, but others too, judging by recent conversations. Before we dish out large lumps of money to telcos/ISPs/corporates etc to deliver into the places precisely those people are saying they will not go, what proof is there of market failure? Only their word. But are they lying?

We have been here before. BT claimed in the first wave of broadband that large swathes of the country were not deemed to be viable for exchange enablement. That was proven, in no uncertain terms, to be untrue. Firstly, the claim was that most of those exchanges were rural and therefore insufficient demand was cited, yet the truth is that demand is now proven to be higher in rural areas. Secondly, when BT's bluff was called in Yorkshire and public money was provided to enable the final 20+ exchanges (and upgrade the middle mile to fibre for future-proofing) on the proviso that it was repaid if the unviable argument was disproven, BT ended up repaying a substantial proportion of the monies (I was told a six zero figure). Thirdly, the profits from ADSL broadband are undeniable. If it wasn't making money, we wouldn't have broadband on offer for £6.99/month etc. It isn't a loss leader, it's profitable.

I was made privy to many FTTH financing figures in the U.S. (actual not hypothetical). The non-viable nature of FTTH was nowhere in sight based on an ARPU lower than that which consumers are currently paying for inferior services.

So, is there market failure for FTTH? Or next gen? (whatever that currently means as the UK govt is ignorantly calling a USO of 2Mbps 'superfast').

I think there is no proof WHATSOEVER that there is or will be market failure for FTTH. However, before someone decides to spend the broadband fund on some other needy cause (of which this country has many), let's just ponder one thing.

Define market failure. If market failure means that the telcos deem that they will make insufficient profit in an area, does that mean that a community project, run as a sustainable commercial concern, can also not make money? Surely, the whole point is that whilst there are slimmer margins available in certain areas, a community project can tread that finer line and still deliver a sustainable (read: profitable) network where a telco cannot or will not because of shareholder interest, higher costs etc.

What we require in the UK are networks which offer best value, especially bearing in mind that a true 'community' network will connect ever single sector in that community, including those who use public funds to pay for their communications eg hospitals, schools, councils, etc etc, thereby passing the savings to the taxpayer (and Treasury).

In order to give best value and foster competition and innovation, these networks need to be:
a) open access - allowing competition to offer a wide variety of CHOICE to the end users, whoever they are, public, private, consumer, health, councils etc
b) community-owned and run - creating local jobs and optimising the blue pound principle not paying out to increasingly foreign-owned businesses or those whoa re investing more outside the UK than within
c) run on a sustainable commercial level to ensure that these networks, which will have a lifespan of at least 50 years, are still sustainable when our next generation takes over running them

However, a community project will struggle to self-fund something which needs to pay back over, for instance, 20 years. Many people do not stay resident in a community now for anywhere near that long in this transitory, socially mobile age. Businesses struggle to see long-term futures now we have lost manufacturing, farming is battling to stay afloat, and so on. Finding internal investment will be difficult.

Yet, it is precisely those projects which will deliver the aims and objectives of Digital Britain and which need to be funded. The so-called Final Third should be the first third to be funded, and the funding should go into recreating what we have managed before so efficiently and effectively - local and regional infrastructure projects, owned and run by those whose direct interest is affected - the community. We did it with water, power, railways - successfully, until we decided in a moment or three of glory to nationalise them.

Market failure? Think again.


Cyberdoyle said...

In normal business terms rural areas are areas of market failure, as BT are now replicating the footprint in cities and towns of Virgin. If rural areas could make big wadges of dosh they would be building infrastructure out to them. So yes, most rural areas are areas of telco market failure, but again not if the rurals DIY. There is no reason why a community run network couldn't be sustainable and show a profit eventually. It would be a harder job to build a community network because it would have to be done from scratch. Telcos already own the ducts and poles and the equipment to deploy more. A community would have to add all this to the initial cost, but it could be done.
It could be done a bloody sight quicker if government, councils, RDAs and highways, environment and rural agencies actually cooperated and we had a bit of joined up thinking.
If we worked together and did a real next gen network or ten you could guarantee the telcos would do the same in the cities instead of fobbing off the urbanites with BETadsl2+ or fttc and calling it 'high speed'.
Its a shame the government can't see the wood for the trees.
Its also a shame there are so many bloody trees we can't wifi the country, but facts remain, and fibre is the real way to go for futureproof digitalbritain.

Cybersavvy UK said...

Hmmm, "in normal business terms" ?? There are thousands of successful community businesses who would hate to hear you call them 'abnormal'! You mean in telco business terms, and therein lies my point.

Rural areas can make plenty of money from FTTH - I have seen the numbers. The point is that the money is less at present than the telcos want to see as return in investment. Also, they are playing the "we can't afford it" game and waiting for the government handouts, which undoubtedly will be handed to them on a silver platter. Again.

So, they are cherry picking in the meantime and holding on to the capital they should be investing.

'Nero fiddled whilst Rome burned' springs to mind.

The chance of getting joined up thinking is minimal on a national or even (sub)-regional scale. When was the last time that you met even a Parish Council, let alone a District, County or RDA who 'gets it'?

The way to do this is to proive the business case (working on it) and find those who aren't so dim as to be stuck in Telco 1.0 world to make it happen. And my research indicates that there's more interest there than the telcos, government etc would have us believe.

The real challenge will be making sure that those who get involved in what is required understand that this is not a get rich quick scheme, but a very serious investment in the future of this country. It is in no way to be philanthropic as the returns are there, but philosophical alignment with the community ownership angle is vital. FTTH creates natural monopolies. These must not belong to the telcos or we are back at square one for yet further generations. This approach seems to worry the telcos - can't imagine why!! ;o)

Cyberdoyle said...

I really do agree.
I know there is a fantastic ROI for the community immediately, and for the country, but I fear investors would rather see a much bigger fatter bang for their buck and that is why rurals are ignored. The bigger picture and one of the main reasons I want to be involved is that if we JFDI in the rural areas 'market forces' ie the fatcat telcos will immediately up their game and deliver FTTH in the cities instead of the watered down copper version of 'fast' broadband they are currently offering. There is so much potential in this country, we have the content, the innovators and the services, we just have this crap mindset that a victorian phone network will deliver, and as we know, it Won't.
You are right, the RDAs, Councils and government simply don't get IT.

GuyJ said...

One of the lessons of e.g. Tiscali offering sub-£10 per month broadband is that such a price is barely sustainable.

This is increasingly the case as people use of broadband matures (read increases exponentially BBC iPlayer et al)

The basic problem is the cost of artificially scarce IP backhaul and until that is solved by competition in the First and Middle Miles then broadband will continue to exhibit the worst characteristics of time-share