The communications regulator Ofcom launched its consultation on the future of the UK’s next-generation broadband infrastructure last week.

Super-high-speed connections of up to 100Mbit/s are being rolled out in countries around the world. But the UK is lagging well behind the frontrunners.

The issues are much the same as those that had to be addressed during the rollout of first-generation broadband: until there is demand, there is no business case for investment; but without the infrastructure, there can be few of the services that will drive demand.

Much of the debate focuses on fibreoptic cabling. The speed of current ADSL broadband is limited by the copper wires that link individual premises to BT’s telephone exchanges. The laying of “fibre to the home” (FTTH) would deliver exponentially higher speeds and accelerate the data transmission upload rate to match the download rate.

But the costs of rolling out FTTH in the UK would be massive – as much as £15bn, says BT.

The regulator
Ofcom’s job is to encourage investment while balancing the longer-term goal of a vibrant and competitive market. The regulator is clear about the importance of getting it right.

“We believe the deployment of next-generation access networks will potentially be the most fundamental change to the country’s communications infrastructure in the next 20 years,” said Ofcom chief executive Ed Richards. “It has huge implications for the way people consume services, how we do business and how we interact in our day-to-day lives.”

There are two strands to Ofcom’s current proposals, which are open for consultation until early December. After a slow start, the regulator’s strategy for first-generation access has helped create a market with world-leading levels of availability and low prices.

In the UK 99.6 per cent of people can access broadband if they want it – a higher percentage than in France, Germany, the US or Japan. And the 39 per cent take-up rate is also ahead of France, Germany and the US.

Ofcom’s proposals, published last week, build on the existing two-tier model, which includes a BT wholesale ADSL product for resale by third-party providers, and provision for alternative suppliers to have direct access to the network infrastructure by installing their own kit in BT’s local exchanges – known as local loop unbundling (LLU).

Ofcom’s vision is for either fibre to the home or to the street cabinets between local exchanges and individual customers – see graphic, right. The regulator also wants a wholesale super-fast product and the extension of unbundling to the street cabinets.

Sub-loop unbundling (SLU) would stimulate competition and open up the possibility of other suppliers building the fibre link to the exchange.

Ofcom is keen to play a long game rather than simply encourage BT to lay fibre without reference to the implications for the market.

“We could trade competition for faster investment,” said Ofcom’s director of policy development Dougal Scott. “But the evidence is that in the longer term competition delivers wider coverage, lower prices and higher take-up than that kind of monopoly provision.”

The network owner
BT’s position is that the biggest obstacles to infrastructure upgrades are regulatory. BT argues that without a guaranteed level of return – which is set by Ofcom – the business case for a major infrastructure upgrade does not stack up.

“We would want an amount of certainty going forward, particularly if it is going to need big investments,” said Alan Lazarus, BT head of regulatory policy and strategy.
In BT’s view, the resale of a wholesale product makes more sense than SLU, although the technical differences between fibre and copper still make the details of such a product open for discussion.

SLU is good in theory, but may not make practical sense, according to Lazarus.

“Ofcom is keen to see SLU work because it gives third-party providers more ability to differentiate themselves completely from BT,” he said. “But we are yet to see serious interest on a large scale because it is hard to make the economic case.”

The Ofcom consultation will also need to address the implications where BT does make the necessary infrastructure investments.

Where BT rolls out fibre, then theoretically third-party providers could complain to the regulator that their existing investment in first-generation ADSL technology to serve that area has been rendered obsolete.

And BT’s role supporting the copper loop in parallel with any next-generation network will also needed to be established.

The third-party provider
But fibre is not the only solution. Wireless technologies also have a role to play, as does Virgin Media’s cable network, which reaches 12 million households, or about half the country.

The cable company is running a trial of a 50Mbit/s service in Kent, which will be expanded to 300 users this month. And though the scale is limited, wider rollout will not require major building works.

“It is relatively straightforward to expand because we don’t have to build new infrastructure,” said director of technical strategy Kevin Baughan. “It is based on an upgrade of the electronics rather than changing the access network.”

But Virgin Media’s role is not purely as an alternative to ADSL broadband. The firm’s LLU-based product will go on sale to customers outside the reach of the cable network next year. It also has ADSL customers using the BT wholesale product.

The economics of LLU – which involves installing equipment in relatively few exchanges – are very different from those of unbundling the 85,000 or so street cabinets. And the logistics of providers building multiple on-street boxes to house their unbundling kit may also cause difficulties.

But Virgin Media is still interested. “Copper is already installed in virtually every home in the UK so that is a huge opportunity to try our hardest to exploit,” said Baughan.

Ofcom’s consultation – along with a stakeholder meeting to be chaired by competitiveness minister Stephen Timms – will help set the parameters of the debate. But finding the answers will not be easy.