THE BLOG
07/29/2016 02:05 pm ET Updated Jul 30, 2017

The BT carrot and stick and the challenge of building the future of digital telecoms for the UK

The next generation of broadband, the new 5G standard, smart systems, the Internet of Things and Machine to machine connectivity is vital for the "next big thing" that will define the digital connected economy of the 2020 2025 and beyond. The UK has established a leading position in digital innovation and pushing to build connected society, industry and productivity improvements that digital can bring but it is underpinned by a telecoms network that is cost effect and fit for purpose. It is a race as other nations push ahead with similar initiative and what is at stake is competitive industries and jobs in the new connected regionals and international markets.
The recent BT Group ruling by Ofcom to continue the Openreach program is heavily caveated with the government and industry demands for more investment in not just speed of the network but capacity and coverage to meet the demand for truly connected and high bandwidth digital services. How this will pan out is the technological and investment roadmap that needs to keep being relevant and up-to-date in its thinking in at all levels in government, regulator and industry leadership to leverage the many different frequencies and technology networks coming onto the market driving the smart connected society of the near future.

Does Regulation drive Innovation and Investment?

This is a key question in the recent Ofcom ruling not to break up BT Group into two separate businesses a few days ago. This would have freed up the Openreach broadband Infrastructure division into a standalone business. As it stands the solution reached was a legally separate Openreach business to be run by a separate management board but the overall investment budget still set by the BT group.
This came with a strong condition from Ofcom and the government that BT must invest more in UK Broadband Openreach and give it more freedom to invest supported by an independent review published in 7 July 2016 (1). So this may yet to a stay of execution rather than the final solution, even if Gavin Patterson, BT CEO, promised to invest £1 billion in Openreach if it retained control. It raises questions over what time frame and to what extent this investment is enough to reach some level of performance deemed acceptable. With MPs saying BT is "not investing enough" in the national network and more on higher returns in sports services, it is a question on how effective the role of regulators, companies and market forces to drive innovation and investment for national interests.

What is the goal?

BT Group Q1 earning announcement yesterday (July 28) that profits are up 13% and adjusted revenue up 35% to 5.78 billion pounds was attributed to the £12.5 Billion acquisition of EE the immediate performance expectations from the shareholders and BT management board seem to be upward (2). But other reports on the service availability of mobile networks coverage and access to "fast" broadband networks has been described as falling behind other countries in terms of coverage and speed. Part of the difficulty is establishing what facts are relevant in this case the terminology of the network and coverage used is often wrapped in commercial language and interests when the needs of households and businesses to be objectively set beyond a tactical roll-out.

In January 2016 BT reported Fibre Broadband networks reaching 86% of UK premises following 19 million homes equivalent to 66% of the UK in a 2014 programme of investment. BT next generation G.fast and Fibre-to-the-Premises (FTTP) is reported as a mixed approach to implementing a faster network. Fibre-to-the-Premises (FTTP) and the G.fast network is starting rollout in 2017 with speeds of 300Mbps to 500Mbps available to 10 million premises by 2020 and most of the UK by 2025. FTTP will also get a speed boost to 1Gbps mostly for business customers (3).

Overall putting 90% of premises within reach of superfast broadband described as +24 Mbps from BT and other providers including Virgin Media and Gigaclear this seems to be different to the expectation of a faster network reported in the Ofcom Openreach review. The BT competitors Sky, Vodafone, TalkTalk are currently reliant on access and the performance of the BT Openreach infrastructure both in terms of open access but in its upgrades and maintenance. But does the BT ownership create the right future infrastructure strategy and outcomes? The reported Ofcom reason for the legal separation only was the complexity and time to split the organisation weighed again the benefits presumable and the imperative to get a faster network in the 2020, 2025 timeframe for the UK economy.

Building the infrastructure we want not what the market deserves
What is at stake here is more than the current discussions based around company competition, profits and market share. It is the vision and roadmap for a faster world class national broadband infrastructure. The government demands that companies in this area should "operate for the wider good" reflects the challenges for regulators to stimulate competition but at the same time seek to drive a national agenda.
The independent government report stated that an emphasis on just speed as the main metric for describing broadband performance was not telling the entire story of total service performance particularly capacity offered to users and the real availability of this coverage. In deed the "Demand for broadband services has increased considerably over the past few years." New uses of connected services from smart cities, smart homes to new ways to design products and services are rapidly becoming apparent.
It matters because modern digital economies are powered by online business models and a growing connected infrastructure that is enabling new smarter services, higher productivity throughputs and new competitive edge from new data and high performance systems.
There is a huge difference in network coverage and capacity to shift speed that in 3G, 4G is typically supporting email or web surfing and video calls to being able to move large data files , images and more importantly always connected and in real-time. This is the expectation and design standard of the "Internet if Things" IoT and the 5G generation mobile standard
This type of vision describes a new level of ultrafast low latency internet connection; gigabit bandwidth and the ability to support tens if not hundreds of connected sensors and users in close location and always connected with this performance from any location static or moving. This is not possible today with current technology infrastructure. It is a steep change from today's coverage of the UK and speed of services driven by subscription models for data.

Challenges to implementing new digital technology

The challenge to implementing new digital technology is in the commercial models, information standards, workforce skills and governance to drive forward new technology adoption and the value from digital business models it enabled. As stated in the BT strategy and in telecommunications business models that are today heavily focused towards asset ownership return on investment but new digital models require "building ecosystems" beyond individual companies. There are cases that have seen national broadband investments at city and national levels. In Sweden the Stockab municipal broadband network to the SK Telecoms and Samsung partnership to investing in LoRWAN nationwide network for connected sensors. Examples nearer home such as the Bristol "programmable city" show an inter-network pilot of telecoms, Wi-Fi and mesh sensors into connected homes. Commercial telecom investment needs subscribers and data volumes that will drive usage which is why the remote connectivity to rural areas can be challenging but even with investment from EU development funds, the new business models of the digital economy will need coverage, capacity to be a connected society in the true sense.

The move from a "speed" based model to a "capacity" based model is a different mind-set and investment profile. Therefore I think there may be more than one way to approach this, whether it is the consistency of a single network operator to drive a complete infrastructure refresh as in the current BT model is open to debate. What is apparent is the open forecasts of demand for data is rapidly changing.
This may need rapid new investment approaches across many IoT networks, local area networks and machine to machine connection standards. Work in the UK Innovate Digital catapult, Future Cities catapult, Future Transport catapult and many other initiatives are all travelling towards this goal.

Speed throttling and net-neutrality versus innovation

The issues of landlords, investment funding and commercial models are just part of the demand side adoption strategy that ultimately needs held down or enabled by the supply side network that is faster, bigger and better than today. The UK is at the forefront of many ideas in digital and it is critical that the path to the vision of 5G, IoT to enable smart connected business and systems is maintained and realistically invested in. This may need to adapt and work with partners and strategies that may be different to the old world of systems and services and more a connected ecosystem of services and multiple providers. The aspirations of net-neutrality are to enable commercially fair practices and consumer access yet the pace of innovation and new forms of networks raised the question of protection of existing networks for the choice of faster routes to new scale capabilities.
The future will need to be funded and a vision and standards to progress the roadmap to the digital economy.

1. Annex: Specialist Advisers' advice to the Committee, Investment in superfast broadband: Regulation, competition and the cost of capital, A joint paper to the Committee by Tim Jenkinson,254 Tony Lavender,255 Jim Norton256 and Helen Weeds,257 7 July 2016 http://www.publications.parliament.uk/pa/cm201617/cmselect/cmcumeds/147/14714.htm#_idTextAnchor084
2. BT Q1 2016 Results http://www.nasdaq.com/article/bt-group-q1-pretax-profit-up-13--quick-facts-20160728-00076#ixzz4Fhw1sfux
3. BT's "Fibre Broadband" Network Reaches 86 Per cent of UK Premises April 2016 http://www.ispreview.co.uk/index.php/2016/04/bt-openreachs-fttc-dominated-broadband-covers-25-million-premises.html
4. BT not investing enough in Openreach, MPs say July 2016 https://www.theguardian.com/business/2016/jul/19/bt-not-investing-enough-in-openreach-broadband-mps-say