Broadband: The state we're in

Back in 2001, the prime minister, Tony Blair, pledged that the UK would have the most extensive and competitive broadband market of all the G7 nations by 2005. A reassuring statement, given the well-proven link between technology infrastructure provisions, whether that be telephones, PCs or the Internet, and socio-economic development.

The idea is that for UK plc to remain competitive it is imperative that it has universal access to key technologies. So three years on, is the UK on track as far as broadband coverage and adoption goes or was the prime minister's promise merely rhetoric?

"It depends on who you ask. Against the government's targets, I believe we are [on track]. For BT's targets, we're well ahead. But for the UK as a whole, we're about two years behind where we should be," says Clive Longbottom, service director at analyst Quocirca.

Some 3.2 million homes and businesses had broadband connections in place at the end of last year, with 1.82 percent of these being digital subscriber line (DSL) and 1.36 million being cable modem-based, according to telecoms regulator Ofcom. An additional 40,000 new connections are being added each week.

Canada is number one
In real terms, this means that 12 percent of the country's total 25 million households use the technology, while telecom research firm Ovum indicates a figure of around 18 percent for businesses. But the market is growing rapidly and by 2008, Ovum expects these figures to hit 51 percent and 77 percent respectively.

But despite these aggressive predictions for the future, the UK's current broadband penetration isn't much to shout about. Ofcom figures from the end of September last year put Canada firmly ahead of the pack with 14.5 percent of its citizens using fast connections, followed by Denmark with 11.1 percent and Japan with 9.1 percent. The UK, meanwhile, trails behind in 10th place with a mere 4.4 percent.

The UK's rather disappointing placing is unlikely to inspire any street parties but the Department of Trade and Industry (DTI) professes to be quite happy with progress to date. At the end of last year, it published its bi-annual indices showing that based on 'extensiveness', which combines coverage and the addressable market, the UK ranks alongside the US in third place.

Based on competitiveness, which measures choice, price and regulation, the UK also comes in third. However, in terms of take-up, even the UK government has to admit to a mere a shared sixth place with Italy in the G7 ranking -- effectively joint bottom of the class.

The disappointing take-up ranking is down to several factors, says Michael Philpott, broadband analyst at Ovum. Firstly, BT was late to introduce the technology compared with incumbents in other countries. A second factor is that, although pricing has come down between 10 and 15 per cent over the last year, broadband is still relatively expensive, especially when compared with other nations. The situation also hasn't been helped by a general lack of service-level-agreement provisioning, although this is now starting to change as more business-oriented SDSL services become available.

Small companies confused
A third issue is that, although replacing ISDN with DSL, for example, can pay for itself in a couple of months, the providers have not got their messaging right and many small to medium-sized enterprises (SMEs) in particular, are simply confused and do not see the benefits, says Quocirca's Longbottom.

"There is still a strong need for education on what broadband can and can't do and the vendors don't help with things like contention. Many businesses don't understand this and so get confused when offered a 1Mbps ADSL line at 10:1 contention for, say, £90 per month, or a 1Mbps ADSL line at 5:1 contention for, say, £130 per month," he warns.

Not all bad
Contention refers to the number of customers that share a line. This means a business opting for a connection with a 10:1 contention rate will have to share it with nine other customers. Obviously this can slow the line down considerably if everyone uses it at the same time.

Still, it's not all bad news. According to BT, DSL technology is now available to 85 percent of homes and businesses across the country, a figure that will jump to 90 percent by this summer and 100 percent by the end of next year. And Ofcom claims that cable modem access is now provided to 11 million or 45 percent of residences if they require it.

The problem at the moment, however, is that, while organisations in both small and large urban areas have no problems with obtaining fast connections, many small to medium-sized enterprises (SMEs) in rural areas are losing out. Small country businesses may still have to rely on slow dial-up modems, pay for expensive ISDN or even opt for the leased lines usually only economically viable for large corporates. This affects their competitiveness which in turn impacts the UK economy as a whole given the huge percentage of business in the UK that fall into the SME category.

"It's about being able to function properly and compete with business in urban areas, but it's also about making certain parts of the country attractive to companies to maintain or improve employment and, therefore, local GDP [gross domestic product]," says Michael Philpott, broadband analyst at Ovum.

Impact on GDP
Colin Campbell, broadband campaign manager at the Broadband Industry Group, agrees. He cites a recent survey undertaken by the Centre for Economic and Business Research, which indicates that if all UK companies had broadband, productivity would rise by 2.5 percent by 2015, which would equate to faster economic growth. As a result, UK GDP would be £22bn higher in 11 years' time and government borrowing would be £13bn less due to lower spending and extra tax revenues. Moreover, net exports would be £11bn more as the economy became more productive and fixed investment would grow by £8bn as expenditure on telecoms equipment was stimulated and more services made available online.

But despite the alleged bounty that broadband could bestow, DTI has indicated that SMEs aren't snapping up high-speed connections in the numbers expected with most citing a lack of any real business advantage beyond obtaining a faster Internet connection. "The operators have to start making more business applications and services available, for example setting up teleworkers as part of a package or providing remote backup so they can save x amount a month. Organisations need to be able to create a business case around it and if they can't, it simply turns them off," says Ovum's Philpott.