HS2 vs FTTH

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Spent an interesting couple of hours yesterday watching witnesses present evidence to the Select Committee regarding HS2 (the High Speed Rail link from London to Birmingham). Trains move people, broadband moves data – the social, economic and environmental parallels between the two types of infrastructure have long been known (and blogged about) so of course I was interested, especially with my family ties to railways. FTTH to every home in the UK and the HS2 link have capex costs in the same ball park – somewhere in the region of £14-17Bn (more on this later). So, let's debate which is the more worthy project for our ever-diminished pot of tax payer's money; although in an ideal world, you would build both. Now.

This blog post can be read at 5tth.blogspot.com



Much of the evidence presented for HS2 is of direct interest to anyone considering an infrastructure project of the size and scale and impact of Fibre To Every Home or Next Generation infastructure – a mega project - and it would be foolish to ignore it. It is also interesting to note the similarities of terms – high speed, connectivity, communication and capacity apply to both rail and telecomms, and meld these megaprojects ever closer.

My knee jerk reaction is that FTTH is a one off spend which requires little additional lifetime spend from the central or private pots to reach every home in the UK and change the lives of everyone; whereas the HS2 link will affect initially only a corridor and requires more and more spending once in place eg improving the classic rail and road networks to cope with the increased capacity. If there were to be only one megaproject this decade, spending under £20Bn, it would have to be FTTH.

However, the reality is that we need transport of freight and people as much as of data, although passenger journeys could obviously be reduced with the provision of FTTH.

A reduction in passenger journeys could affect the business plan for HS2, meaning it would require further subsidies far into the future to become profitable. Or, it could mean premium pricing on HS2 would could make it a “rich man's railway”, which would inevitably mean a failure to bring the benefits to all. The economic evidence given by the French witnesses clearly showed that pricing management is key to success, and the market share owned by both Eurostar and SNCF over the airlines, including budget airlines shows, once again, the sense in making the product affordable.

Not only does Eurostar now have 80% of the London to Paris market share, but both Eurostar and SNCF have found that the purchase decision of whether to travel by air or train has extended to 4 hour train journeys where it used to be 3hrs ten years ago. This can only mean more customers using the service.

The possibility of increased productive time for business travellers on the train was cited more than once by different witnesses, and personal time savings were a recurrent theme throughout the sessions. Time savings and productivity for individuals and businesses apply equally to FTTH economics, but are often missed out in cost benefit analysis for FTTH and next gen, yet this time saving of even a few minutes between London and Birmingham seem key to pro-HS2 arguments.

The weight this time saving is given on High Speed Networks cannot be ignored. A single stop on a HSN adds 7 mins to journey time so many of the high speed links in France, and beyond to Germany, Austria, UK, Belgium etc, have very limited stops. Why? Because it is the speed of the journey which wins passengers. Now, apply that to FTTH and next gen. Incremental increases of speed (or a few more stops on a journey) can make all the difference in people seeing the benefits and becoming customers, or not. Time savings = increased demand. The bigger the time saving, the higher the demand. So, it does not take a genius to see that 1Gbps will see more demand than a tiny leap to 24Mbps. I expect to see this aspect of time savings added more and more to telcos' marketing material over the coming months and years.

However, there are other factors with HSN (and FTTH) that can be factored in to show why the time saving purchase decision has increased 25% from 3 to 4 hours. Increased airport security, congestion on roads, price of fuel, relocation of business interests (customers and suppliers), regional regeneration, productivity on train vs airline or car etc all act to assist in deciding to travel by train. Or to use FTTH. So, no doubt we will shortly see bizarre viral videos of babies being frisked at airports to justify why you should pay for a premium broadband product.....

Value For Money has been key in Network Rail and other organisation's surveys of passengers, and it is hard not put an additional weighting on this when considering the pricing policy for broadband too. Although the Eurostar market is mature and has almost reached saturation, marketing activities and offers always see a rise in seat sales. In other words, the successful rail companies do everything they can to fill their little fat pipes (trains) to capacity, whereas we know that telcos do everything they can to limit usage with FUPs, data transfer limits etc. And I would say that people complain far more vocally when the fat pipe they are travelling on is full and they need to stand than when data bits are crushed together to reach their destination....

There was a claim that economic growth inputs such as job creation and tax generation have not been considered properly in the HS2 assessment. The same could be said for FTTH. A claim that HS2 will bring £44Bn economic benefit appears to be a finger in the air exercise, and it would be very interesting to see government give serious consideration to FTTH and HS2 economic growth inputs. It seems that KPMG have done an HS2 assessment in Liverpool but I for one would like to see a similar FTTH assessment done in a rural area, particularly one that is on the HS2 path, to show a comparison of the economic benefits of each megaproject, as well as scenario planning to show how FTTH could impact HS2.

In fact, the type of scenario planning that a private investor would carry out if HS2 were a privately funded project are noticeably absent to date. The key threats to HS2 being a success vs a disaster given appear to include FTTH. The worst case scenarios according to witnesses would include:

• a slowdown or meltdown of the economy

• a PR disaster such as with pricing policies (rich man's railway)

• rise in interest rates or capital costs

• improved communications reducing the requirement to travel.

• a major increase in road capacity which is free at the point of use ie not toll roads

• a depression in oil prices which would reduce the cost of motoring

The final two of the above six are unlikely. Of the remaining four, the most likely 'threat' is improved communications becoming widely available eg FTTH, with the rise in interest rates and a PR disaster due to pricing being the next most likely. The pricing problem can be easily avoided, whereas the interest rates and capital costs should have already been taken into account through scenario planning. (Hmm!) And the risks would be substantially reduced by a Build Quickly model, yet it will be 2026 before HS2 is finished. (2 years after the demand for the additional capacity is reached). One wonders how quickly A.N.Other country could deploy either high speed network......because timescales such as this feel like another example of a great British failing with infrastructure projects – timely completion and hence sticking within the budget.

The consideration of the economic impact FTTH would have on HS2 appears to be missing entirely from any business case, and hence the predicted need for future public subsidy for HS2 when it impacts passenger journeys. Railways are heavily subsidised by the UK taxpayer whilst the same cannot be said for FTTH and next gen.

In fact, this raised a very interesting point for me. Whilst broadband is often cited as the 4th utility, there is a utility already in existence which we are funding with taxpayer's money – the public transport system. Without that subsidy for that utility, this country quite clearly would grind to a halt, especially if the freight group and passenger representative's comments are anything to go by. So, actually, broadband/telecoms is probably the 5th utility. (Which I rather like considering the name of this blog!!)

It did make me wonder though why, if broadband is SO important, we are not looking far more closely at it being publicly funded and built as a national network. The witnesses were quite clear – HS2 could not be built by a private investor or company. So, why on earth are we expecting our 5th utility to be built in such a way?

The chairwoman of the Select Committee asked if the HSN in France was considered as part of the overall rail network. “It is a leg of the rail network”. We need to look at both HS2 and FTTH in the big picture and in both cases, the impact of high speed networks goes far beyond the (railway or telecom) lines.

“High speed networks are not a gimmick” The high speed network brings people closer to the big decision centres, airports, customers, suppliers and to address new markets.

SNCF were clear in their point that it falls to local authorities to reap the benefits of the high speed network by making strategic investments into business parks, employee training opportunities, better road links, car parks, regional development etc ie everything indirectly related to the provision of a high speed network in the locality. Ensuring there are sufficient business parks for companies to relocate to is vital, as is offering training in non-railway skills, and improving road links so there is no congestion.

This ripple effect that leads to the big picture applies equally if not more so for FTTH and it often seems frustratingly impossible to point out to local authorities just how many sectors broadband will touch and what the needs and opportunities will be. LAs often seem to get stuck in thinking it will bring new IT companies to an area, whilst totally ignoring the fact that every single aspect of our lives will be touched by better comms infrastructure. Health, Wealth and Learning, and all that those three categories encompass. Just as railways will impact the carbons emissions policy, so will FTTH, and so local authorities need to consider economic, social and environmental impact in their strategic thinking about FTTH and railways.

One thing that became clear as being wrong with both HS2 and FTTH is that Britain, as with many other governments, are bloody useless at the “Predict and Provide” approach. The West Coast Mainline upgrade is a single example. It took 8 very painful years to upgrade, cost £6billion of public money and untold billions of private/business money with all the problems caused, and premium prices for a sub-standard service were the norm during the upgrade (sound familiar?!). Now, within a mere 6-10 years it will be at capacity.

However, the Victorians it seems had a far better approach and many of the tunnels, sewers etc built during that time are still doing the job required. The lessons I learnt about sewer building appear to be increasingly important. We need to over-predict and over-provide for infrastructure, whilst being realistic about possible under-demand when building the business case. Just because a business case for infrastructure may seem to have a longer lifetime payback than would seem ideal ie 15-25 years rather than 3-5, the reason for using the higher spec will become obvious over the lifetime of such a project. Which may, in all reality, be after our lifetimes, just as the Ribblehead Viaduct and London sewers have proven.

This extension of lifetime value beyond our own lifetimes is a concept we currently seem to have a problem with, especially when private money is involved and those spending it want to enjoy the returns. However, when building a next generation network, whether railways or telecoms, that lifetime return is of key importance and shows why cost-cutting exercises or allowing private concerns to hold sway must be eliminated.

The parallels between railway and FTTH kept coming thick and fast. The complexity of pricing mechanisms, the creation of bottlenecks, the need for consumer choice, effect on house prices (but FTTH has a more positive impact when there is proximity to the network than HS2), failure to appreciate the big picture, lack of comprehensive business and scenario plans, need for good local connectivity, inevitability of data/passenger/freight increases, environmental benefits, complexity of pricing mechanisms, tax payer subsidies required, importance of reduced journey times for people, freight and data, need for representatives from all stakeholder groups, interventions must have business case AND funding, quality and reliability of service is essential, must use existing infrastructure, long term view of use of released capacity, need for a big step change, creation of new business markets, make sure the regulator is the right regulator etc.

Hearing that some solutions could be applied now to relieve the problems on the transport network – adding additional carriages, lengthening platforms and loops, improving traffic management to add extra paths, derestricting first class carriages etc – struck an unhappy chord. Sticking plaster solutions that will at best buy a few extra years before massive over-capacity on the network has to be accepted and dealt with. All too bloody familiar for those campaigning for better broadband.

Possibly the most important lessons were those given by Lord Berkeley.

• Confidence in capital costs and interest rates could give a 20 year investor view

• Build it quickly – speed is the essence

• Look at the competition

• Don't change your mind halfway through [as has happened with the definition of broadband. And 21CN]

• Having built it, make sure a proper regulator is in place

The current estimate for HS2 is around £17bn, although this figure fails to take into account the need to spend on upgrades to everything else affected – link roads, parking provision, etc etc etc. The lifetime economic return has been variously estimated from £6bn to 44bn, although both these figures seem to be 'finger in the air' and omit many costs which will be borne by private individuals and business during the build and beyond. HS2 will also not affect many millions eg those in the North of England will not travel to Birmingham to cut a few minutes off an overall journey time to London, the South or the continent.

The cost of FTTH using the most recent figures is £14bn to EVERY HOME in the UK, half that which was given almost 10 years ago by Analysys Mason. The additional spend required eg local training opportunities and business parks will be to capitalise on the value of the network, not to resolve problems caused by it.

The lifetime costs (as compared to HS2) and the resultant value from the high speed broadband network in itself would seem to me to be justification for giving very serious consideration to FTTH as a publicly funded, national infrastructure project, just as we are doing with HS2. FTTH will bring untold billions into UK Plc and the national economy during its lifetime. It should not be left to private investors, as the expert witnesses are clear about with HS2 after the lessons of HS1. Figures which other countries have produced for GDP increases from FTTH should be added here, and no doubt will be by my good readers!

The similarities and need for both high speed networks cannot be disputed and long term planning and spend on both is essential. What we need to do now is apply the lessons learnt during evidence given for HS2 to FTTH, and JFDI the right way.