On the eve of broadband war in the UK

DSL vs. Cable vs. Satellite vs....

Last month in Telepolis, in a piece entitled 'Doing Time Online', I argued that behind the patchy, free dial-up offerings of small companies such as Localtel and Tempo lurked massive tectonic shifts in the world of access provision: major companies were indeed lining up high bandwidth, unmetered offerings, but remained unwilling to roll them out in the face of uncertain competition and market conditions in the UK in which metered, pay-per-minute access to telecommunications has traditionally prevailed.

Since then, the UK consumer has seen British Telecom weigh in with a reliable, robust 0800 dialup service which provides subscribers with free access to the Internet each and every weekend. Smaller providers such as Claranet have launched similar offers, as have a slew of other ISPs, many of them start-ups who will doubtless find it difficult to cope with the amount of traffic that their offers will bring.

Such services, however, are still only the tip of the iceberg for the UK net community, and 0800 number access is not going to be the only, or prime, means of gaining unmetered access to the Net in the UK for long. In fact 0800 function chiefly as something a loss-leader whilst next generation services characterised by a high bandwidth (anywhere from 500k to 2Mbit or higher), low cost model, in which providers look to pay-content provision in order to recoup the costs of providing cheap or free infrastructure. With its own 0800 offering, BT Internet will have probably have succeeded in little more than retaining a good base of customers who will form its group of early adopters for next-generation services, and who might have otherwise been snapped up by other companies. With its own broadband services on the way, such a base will form a valuable resource in the months to come.

The broadband myth - made real?

How is it possible to predict with such certainty that broadband access is finally on the way in the UK after years of restrictive pricing from telecommunications companies? Simply because in the past fortnight, the brinkmanship which has until recently characterised the UK's net provision scene has begun to resolve into clear statements of position from major players. Although no solid commitments to service details and pricing structure have been made as yet, a clear view has begun to emerge of who will be the likely major players in the high-bandwidth market.

First of all, Rupert Murdoch's declaration that he will be shifting the focus of his media companies to the digital domain has firmly established the interests of Sky as an interactive content provider (although how successful Sky's interactive services will be in the long run will critically depend on his ability to find a suitable partner for uplink, since satellite only provides downlink capability).

Meanwhile, BT's announcement of an imminent rollout of ADSL, with which it aims to achieve a 250,000 household penetration by March 2000, has suggested to other digital providers that the giant telecoms company too has designs on interactive digital content provision. According to Dorian Spackman of content provision company Terranova Media, BT has already installed CEC-Pro content scheduling, editing and management equipment from the Fantastic Corporation in its central exchange, which it will use to deliver broadband interactive content from selected third party companies once its infrastructure is updated.

ADSL scares Cable Big Boys

That, certainly, is one reason for the moves from NTL and Cable and Wireless Communications, two of the UK's major cable players, to form a partnership. Industry sources report a certain nervousness in the world of cable provision following BT's announcement: the telecoms company has 80% of the copper wire market in the UK, all of which could potentially be opened up to DSL services within months, compared to cable's 16% penetration at the current time as a whole. Those are worrying figures for the cable industry, and the undertaking of NTL and CWC to consolidate their enterprises in the near future is influenced in no small measure by the critical need to produce a single company large enough to launch a digital service capable of challenging that which will run over BT's ADSL.

The massification of forces will probably not end there: Telewest, currently left out in the cold from the NTL/CWC deal because of its procrastination over valuation costs, will now be feeling considerable pressure to negotiate terms for a three-way merger. Industry experts widely expect the company to follow into the merger and create what has been called a single 'communications superpower' in the UK. The monopolies commission, it is thought, will take a generous view of the creation of such a superpower, given the existence of BskyB and BT: so much for the farce of competition in the cable market which has been going on up to now. (A significant point to bear in mind here is that, if Telewest does come in on the deal, Microsoft will have its real 'in' to the UK broadband market, since it has already bought 30% of Telewest and would have a significant role to play in any future deals between the three companies.)

Forces Massing For Battle

Add to all this the fact that the government is about to start auctioning off parts of the UK's high frequency radio bandwidth for use in spread spectrum net access both for mobile and fixed use, and the UK begins to look like one of the most wired places on the planet - potentially. The massing of forces early this month will soon leave the three main infrastructure players - satellite, copper wire and cable - with a set of large, well funded and no doubt resolute corporations behind them, ready to do battle in the British marketplace. What remains to be seen is fall-out from that battle, and what mature services eventually emerge for the UK consumer.

Oftel Report: Access to bandwidth

Oftel's recently released document, Access to bandwidth: Proposals for Action, which recommends that BT open its DSL-ready local loops to third party companies who want to provide high bandwidth services, attempts to regulate the only one of these providers over whom it has any jurisdiction. Whilst the government has quite obviously, and laudably, decided that it's high time for the UK to have decent Net access at a good price, its telecommunications regulator has taken pains to ensure that BT, with its obvious advantages over its competitors, is not allowed to operate services over the DSL infrastructure as a monopoly by passing regulations allowing other providers to use BT exchange lines to offer ADSL service to consumers and businesses.

Oftel's decision to allow in third party providers will have uncertain effects. It may, as many articles have suggested, serve to hasten the introduction of ADSL technologies in the UK by stimulating BT to roll out services more quickly. However, BT's threat to Oftel that any such attempts to involve other operators might slow or stop altogether the roll out of the DSL network as a whole (in other words, unless we're allowed to play on our own, we won't build the network at all, and then no-one gets to play) indicates another possible scenario. BT may use stalling tactics, artificially retarding the deployment of ADSL as a way of mooting its disgruntlement over Oftel's decision. You can see the company's worry: a household with an unmetered ASDL connection could conceivably do away with a standard telephony service, given the potential for local email, ICQ, IP-Phones and other such services to take its place.

BT, it's safe to assume from industry rumours, plans to offset such potentially critical losses to its metered calls revenue by providing streaming pay-per-view digital video, information channels and interactive services over its 2-Mbit copper wire network: to become, in short, a media operator alongside the cable and satellite companies. The incentive for it to provide such a network is considerably diminished, it's easy to see, if third parties are allowed in to provide services alongside it. And indeed, why should BT be expected to let third parties operate over their network whilst operators such as Sky or the cable conglomeration are allowed to operate theirs as a monopoly?

Broadband really is just around the corner for the UK

In the final analysis, however, Oftel were probably right to surmise that BT, despite all its moaning and groaning about giving up its monopoly over DSL, will probably go ahead and build the infrastructure anyway - and in good time to boot. There are strong reasons to suggest that this will be the case. Firstly, as Oftel themselves point out, if they don't do it, there is nothing to stop the newly formed cable superpower from lapping up a massive proportion of their business. Secondly, they have already invested in the equipment necessary to update many of their local loops and contracted Fujitsu and Alcatel to fit ADSL equipment in 400 local exchanges, not to mention having announced a partial roll out of the service in late 1999. Thirdly, and most importantly, if BT moves fast, it will enjoy at least a few month's head start on possible competitors, enabling it to capitalise on its 80 per cent share of the UK's homes and small businesses who currently get their telephony through BT's copperwire. New providers would then have to either improve on those services by upgrading the local loop, or offering better content or access services: the onus would be on them, not BT, to innovate, and the telecoms operator would win simply by having an established, consumer recognised offering.

However the details work out, the access scene is thus now looking incredibly rosy for the UK consumer, who could seriously expect low cost, high bandwidth services from both the new cable conglomerate and BT within the next few months. Furthermore, Oftel is said to be about to produce a review of the Universal Service Statutory Obligation which may legislate for all operators, not just BT, to connect those who are financially worst off to high speed interactive and internet services. That, too, should encourage those planning digital services to keep basic costs down and to concentrate on gaining revenue from value-added services. As Oftel has finally recognised publicly, 'Higher bandwidth services are vital in building the UK's digital future', and insofar as its latest report has encouraged the development of broadband in the UK, the group is to be commended. With many details still to be decided, however, the rest of Europe - not to mention the US - will look on with interest at the development of DSL in the UK.