Who will pay for broadband revolution?

Gideon Spanier
3 Jun 2009

The Government may be close to meltdown but the communications industry is still keen to hear from one minister. Stephen Carter, the former advertising chief and media regulator, is compiling the Digital Britain Report into the future of broadband, internet, TV and mobile - which the communications minister is due to publish on or around 16 June.

Lord Carter got a surprisingly warm reception from industry when he first announced plans for Digital Britain in the midst of last October's banking crisis. The idea that the UK needs some state intervention - or at least direction - to take advantage of the digital revolution made sense.

More than six months later, with telecom and media companies suffering in the recession, Carter's decisions could prove pivotal. Among the radical proposals is the idea to link Channel 4 and the BBC's commercial arm Worldwide to create a second public-service broadcaster - a final decision on that issue could well come before 16 June. No wonder he is currently the man whose ear every media chief executive wants to bend.

But if Digital Britain means anything, it is, in the words of Carter's colleague Business Secretary Peter Mandelson at the Google Zeitgeist in Hertfordshire this week, "committing to upgrade the UK's digital infrastructure". Now the communications industry wants to know if the Digital Britain Report will live up to the hype.

In an interim report published in January, Carter set a target for every household to have 2Mbps (megabits per second) of broadband by 2012. Since a third of Britons still don't have broadband access at home, it is a worthy aim to "enfranchise" those that are currently underserved - particularly in rural areas. Indeed, there are signs that without some Government stimulus, broadband adoption has been slowing. According to the pan-industry Broadband Stakeholder Group, there were only 1.5 million new broadband customers in 2008, down from 2.3 million in 2007.

Jon Watts, director of consultancy MTM London, says: "It is clear, the market will - up to a point - provide high-quality access in dense urban areas of the UK. But from an economics point of view, fixed-line won't deliver that in rural areas." In other words, it may be too expensive to lay the broadband fixed-line "pipes" over long distances - an argument that Media, among others, has made.

The expectation is that the final Digital Britain Report will have to signal some Government investment for wireless broadband in rural areas.

But Carter has come in for criticism because in major urban areas virtually all of us have 2Mb already - more than enough capacity, for example, to watch BBC iPlayer. A basic broadband service in most parts of London already has a capacity of 6-8Mb, based on current copper wiring. The Internet Service Providers Association has lobbied Carter to raise the bar in his final report with a "higher minimum speed" than 2Mb.

Digital Britain is addressing the issue of superfast fibre broadband, of course. New high-definition TV services tend to use 6-8Mb, so theoretically existing broadband might suffice. However, in a household where perhaps three or four people are using broadband for different things at the same time - to watch high-definition TV, download films, play online gaming - one would need around 30-40Mb.

BT has said it will invest £1.5 billion in fibre broadband - chiefly in urban areas. A trial is already under way in Ebbsfleet, Kent, while a second is starting in Muswell Hill in north London.

It is not cheap to lay fibre "pipes" around a city but the real cost would be in the countryside. Estimates put the cost at £20-£30 billion. It is difficult to believe hard-pressed BT or the cash-strapped Government are going to come up with the cash. The Treasury signalled at Budget time that surplus money from the BBC digital switchover fund could be used but that is likely to amount only to around £300 million a year.

Consumers also cannot be relied upon to want to pay more. While many currently pay around £15 a month for regular broadband, plenty of others pay nothing as they get the service bundled up with, say, a Sky TV subscription. So industry experts wonder how many punters might want to pay an extra £5-£10 - perhaps £20-£25 in total a month - for fibre broadband.

Virgin Media, in its submission to Digital Britain, pointed out that while it had seen the number of new subscribers paying for 10Mb and above jump by half during 2008, 70% of its customers have stuck with 2Mb. Virgin added: "Despite growing demand for faster speeds, across the market as a whole the average revenue from a broadband subscription has fallen."

Watts of MTM London says: "The case for fibre will be challenging in many areas."

Indeed, one act that could instantly boost bandwidth is for some homeowners just to update old electric wiring, as organisations such as the Broadband Stakeholder Group like to point out. BT sells a simple £10 device, called an iPlate, which can dramatically cut electric interference which can help a lot.

Plainly, there are big benefits from superfast broadband of 50 Mb - Virgin is already pushing its new trial at that speed enthusiastically. As well as high-definition video and TV, other growth areas are interactive gaming (already a big earner online) and public services such as education and healthcare.

But the question remains: Who is going to pay for it? The message from industry is that it won't fork out huge sums. Over to you, Lord Carter.

* The Digital Britain initiative launched by Lord Carter has proved to be a minor watershed in the way Whitehall communicates. The Departments of Business and Culture, which are jointly overseeing it, received hundreds of online responses to January's interim report from not only business and lobby groups but also members of the public. Carter has hosted conferences and meetings with leading media organisations but, as befitting this era of "citizen" activism, internet enthusiasts have taken it upon themselves to hold a dozen "unconferences" - alternative talking shops around the country to discuss what should be done. Whitehall insiders, who confess to being surprised by the level of interest, have been doing their bit too, by posting progress reports on Twitter, the text-messaging social networking site. Some wags have even created a Fake Digital Britain Report website - "the way we'd have like to have seen it written".