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Friday, 9 July 2010

Why Iwade is not the answer

I have been sent the following article to publish on this blog by someone I met at the FTTH Council conference in Lisbon. Meanwhile, Ian Livingstone, CEO of BT, wrote to me this morning saying:

Whilst we expect to provide FTTP to a number of areas, FTTC will provide a really good service and enable a new range of applications. Our customers would not recognise your description of this as ‘a waste of time’.

Well, it's not just me who would beg to differ, Ian.....

This blog post can be read at

Back in those dark, distant days of the adsl rollout in 2003/4 BT learnt four very powerful lessons it is putting to good use today.

Lesson number one: Governments have money!

When Governments feel that they are being pressurised by the pesky electorate to sort out important problems, they have a habit of throwing money at the problem (not, you note, at the solution!). Not being commercial entities themselves (some might say, a million light years away from being such entities!), they tend to have no idea as to (a) how much things really should cost, (b) how long things really should take to sort out, (c) what the "real" answer really should be.

Gaining access to this "free" money can be very difficult (and indeed expensive) for the novice. However, once you have learnt the rules, the money can then start to flow in.

Three important rules that BT learnt back in those early days:

* never do for free what you can get someone to pay for
* be prepared (happy even!) to step in and "rescue" the day where other providers have gone bust having spent all of the "free" money
* undermine other recipients wherever practical by deciding to now do it anyway!

Lesson number two: Governments distrust small companies to deliver!

Ok, so the Government has decided that the market needs a helping hand if those "hard to service" areas are to enjoy the benefits of decent broadband. Given that the money is now available, the Government must now ensure that it is spent wisely. They thus tend to follow the "nobody got fired for buying IBM" rule. However, courtesy of Brussels, they can cleverly hide this fact! By adopting "obligatory" EU procurement rules they can insist on "open tenders" with defined "scoring mechanisms". These help ensure that even where a local provider has been the driving force behind the money being made available, once the decision is made EU rules dictate that "everyone" is free to bid on a "level playing field". Level playing fields tend to be expensive, and sometimes impossible, for small companies to measure up against - for example, if one of the scoring criteria is the financial "soundness" of the company ("can you demonstrate a turnover and profitability of £x million over the last five years?").

Lesson number three: As a monopolist, only BT can supply a competitive service!

This one sounds insane, I know, but bear with me!

Small companies want to provide innovative, local solutions to problems. Trouble is that in the broadband sphere, if they succeed then they are the only effective provider in that locality.

Medium to large companies tend to go hunting for "vertically integrated" solutions. Thus, if they have put in the investment then they want to own the customer relationship. "Why should other, competitive companies benefit from our significant investment and hard work?"

BT has what Ofcom refers to as "Significant Market Power". This means that BT must "play by the rules" and allow competing operators "equal access" to the infrastructure. The result of this is that it is (to date) only with BT that the end consumer ends up with some sort of choice as to who they pay for their service!

As Nicola McKenzie was quoted as saying in the article about Iwade in The Telegraph on 8th July 2010: " became possible to push for a network where there’d be competition for customers, because any broadband provider can use BT infrastructure, which they would maintain for the future.”

Lesson number four: Bitstream is more profitable than unbundling!

Those who have studied business will know about the concepts of the "Value Chain" and "Vertical Integration". Basically, these concepts state that the greater the proportion of the overall solution that you are responsible for providing, the greater the proportion of the available revenue (and hopefully return on investment) that you will enjoy. However, there is an additonal benefit to be gained - the tighter the control you will enjoy on the development of the marketplace (in terms of future product and service innovation).

"Everyone knows" the real end game is fibre to the home. BT in particular is very well aware that if their existing copper local loop infrastructure was replaced by a true fibre equivalent then they would be forced to "unbundle" it and would lose all control over the products and services provided over it. They have witnessed the enormous success of local loop unbundling in the UK and have absolutely no desire for this to be replicated over a fibre network. Why else do you think that BT is adopting its two pronged approach to access network evolution?

What are the two prongs?

1) deploy fibre into the access network in an incremental manner - hence "fibre to the cabinet", or FTTC. With this approach, BT can achieve two things. Firstly, they push the active electronics out to the street cabinet, which has the effect of destroying the business case for competitive operators in most situations (there are just not enough available customers per street cabinet to warrant competitive provision of equipment at the street cabinet). Secondly, they can ensure that (oops!) there is not enough fibre deployed between the exchange and the street cabinets to cope with "true" point-to-point fibre to the home at a later date.

2) where BT must show some sort of enthusiasm for at least trialling fibre-to-the-home, ensure that the fibre infrastructure cannot be unbundled. Enter Passive Optical Networking (PON for short) as the solution of choice for incumbents!

So, whilst Iwade is excellent, short term, news for the residents who will now "enjoy" much faster broadband speeds, it is in effect locking them in to having BT as the only supplier of active (not passive) "first mile" infrastructure, and thus total control over the scope and scale of the products and service delivered over it. Even worse, BT is being paid public money to allow it to reinforce its dominant market position.

There has to be a better way! AND THERE IS!!

We should stop attaching sticking plasters to a gaping wound and instead begin to implement the real cure. There is only one, true technical solution out there and that is a real fibre equivalent to the existing copper local loop infrastructure. Quite simply, whereas today we have hundreds, if not thousands, of homes with direct, dedicated copper connections back to the central exchange, in the future we should have hundreds, if not thousands, of homes enjoying direct dedicated fibre connections back to equivalent central exchanges. Furthermore, this point-to-point fibre architecture should be available to all competing service providers in the same way as the copper local loop is today. Finally, stop this insane belief system that BT is the only possible company out there that can deliver!

Free the mind, free the market - that way, true 21st century product and service innovation will flow!


Cyberdoyle said...

will they listen? doubt it. BT is on a winner here, the councils will fall over themselves to get fttc, true dinosaurs committing their patches to what is virtually obsolete tech before it is even installed, but the hard sell will get to them. I despair some days... what we need is a few politicians who get IT to stop this fiasco before it starts.

GuyJ said...

Well said Cyberdoyle.

Here is a really effective way to deal with this ridiculous situation whereby the Taxpayer is being used to subsidise end of life BT copper "assets" a la Iwade.


I feel a blog post coming on!

Somerset said...

What's the cost of a FTTP install per property for an area with roads and pavements? I'll dig a trench in my garden but doubt if many others will.

Internet business at home automated system said...
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Cybersavvy UK said...

Info I was given today was that FTTH is coming in at way under £1k per property in very rural areas. Am hoping for my info shortly that I can post.

Ignition said...

In some of them yes it does, this is not new information it was on the BSG report.

I would imagine the Vtesse trial FTTP would be one of these cheaper areas. The costs in some cases where there are a nice cluster of premises are nearly as low as London costs.

Of course this does just cover passing them with fibre, getting the appropriate infrastructure out to them is a slightly different matter.

Then there's all the homes in the final third that are 4 times this cost.

Cybersavvy UK said...

@ignition where have you got your 4 times the cost from for final third out of interest? That is not what is showing in the various trials which are ongoing. And it certainly is untrue if you do a large enough swathe of the final third in one hit. Economies of scale and all that.