Getting from Narrowband Nation to Broadband Britain

These days, narrowband Internet connections just don't cut it. Recent research from US analyst group Park Associates found that only 53 percent of the narrowband users surveyed were happy with their service, compared to 71 percent back in 2001. Just 11 percent were "extremely satisfied".

The transformation from narrowband nation to Broadband Britain has so far been concentrated on metropolitan areas. Even today with the lower trigger levels that BT has set for upgrading rural exchanges, people living in the UK's more remote towns and villages remain fearful and frustrated that they are being left behind.

In cities, and rural areas where there's sufficient interest in broadband access, together with suitable conditions at the exchange, the move to broadband appears to be gaining pace. Broadband take-up in the UK is now thought to exceed 30,000 new subscribers a week as prices have dropped to a little over £20 a month for the cheapest no-frills services. Worldwide, uptake of ADSL is going from strength to strength, with research firm Point Topic estimating that 5.5m people signed up during the first three months of 2003. Broadband cable connections are thought to be growing at a comparable rate.

But the UK has been the slowest of all the major developed economies to take up broadband services, at least in the residential sector. According to Point Topic, a little over 200,000 DSL lines were added in the UK during the first quarter of 2003, but the country still fails to make it into the top ten for DSL penetration. This is in part due to the fact that cable has proven popular in the UK, but it also comes back to the slow start that UK got with broadband.

What went wrong and what can the UK learn from the way other countries have approached broadband rollout and the reticence of incumbent telcos to sacrifice their grip on the infrastructure?

First, a little history.

In the late 90s, BT successfully persuaded Oftel that DSL services would require a long period of preparation. As a result BT launched its service in September 2000, more than a year later than such European leaders as Belgacom and Deutsche Telekom. However, despite this advanced planning, BT discovered that many practical problems - from space to access and planning permission issues -- had to be solved before it could roll out DSL smoothly. British residents would have to wait until 2001 before DSL lines were available to order.

After an initial high price was set, demand increased sharply when BT cut prices by 45 percent in February 2002. Many analysts believe there is a sweet spot, or take-off zone, for residential broadband prices, and that this is around the US$35 to US$50 price band. Last year's significant price drops in the UK - broadband connections now typically cost between £20 and £30 -- led to a great acceleration of take-up.

Meanwhile the cable networks - who have since caught up -- neglected the cable modem opportunity. Despite some low-key trials NTL and Telewest, the cable operators that share almost the whole UK market between them, did not promote cable broadband until early 2001. When they did, prices were relatively low and numbers quickly overtook DSL but given the sharp reduction in the DSL price, and the handicap of the cable companies' financial problems, some analysts believe they are unlikely to keep their lead.

On the business side, broadband is reasonably well developed in the UK, thanks to the relatively early telecoms liberalisation of the early 90s. But here Point Topic warns of "a non-explicit, non-organised cartel" that has grown up with leased circuit prices among the highest in Europe. "It is not in the interest of any of the established players to halt this gravy train, so DSL as a low-cost alternative is not making much progress in the business sector either" says the company.

Unbundling in the UK

In June 2003, Oftel reported that a mere 4,600 telephone lines had been handed over to rival telcos through local-loop unbundling (LLU). Although there was a pre-launch burst of enthusiasm for unbundling with over 40 companies expressing interest at one point, only a couple of operators -- Easynet and Bulldog -- have taken up the challenge. Most DSL providers buy services wholesale from BT. Broadband resellers here include AOL, Zen, Demon, Pipex, Iomart, Easynet, Freeserve and Virgin

According to the European Competitive Telecoms Association, even today only 3 percent of exchanges in the UK have been unbundled. This compares to 55 percent in Sweden, and 60 percent in the US (according to the FCC).

Broadband resellers in the UK:

All this means that however much the Government promotes the readiness of the UK as a hub for e-commerce, the nation has seriously lagged behind world leaders in terms of its network infrastructure. Analysts put the problems down to BT's past unwillingness to upgrade its exchanges and to the focus by cable operators on urban areas.

There has been some recent improvement, but there are still stumbling blocks, some of which border on the farcical (the UK is currently in its third attempt to auction the 26GHz spectrum for fixed wireless broadband, for instance).

But there are many positive signs that the UK is finally heading in the right direction. After an initial £30m was earmarked to stimulate broadband deployment and uptake was widely criticised as being insufficient, the government announced details in July 2003 of Regional Aggregation Bodies. The idea of these is that each RAB will assess how much demand for broadband there is from the public sector in its area. This demand will be bundled together, and telecoms operators will be invited to pitch for the contract to satisfy this demand. Initially, just schools and hospitals will be included, but the government hopes that a wider range of public sector institutions will eventually be involved. The RABs will decide how a £1bn fund, announced in November 2002, will be spent among local health and education institutions.

In Wales meanwhile the Welsh Assembly has earmarked £100m of EU funding to develop broadband in Wales through the Regional Broadband Unit.