Trigger-happy BT opposes calls for broadband subsidies
From ZDNet UK News
Trigger-happy BT opposes calls for broadband subsidies
15:33 Monday 16th September 2002
Ben Verwaayen and Stephen Timms stand shoulder to shoulder - bad news for broadband have-nots?
By declaring that he does not believe the UK government should provide broadband subsidies, Ben Verwaayen -- BT's chief executive -- has put the weight of Britain's incumbent telco behind government policy but given little comfort to the 25 percent of the population who are currently excluded from BT's broadband network.
Speaking to journalists last week, Verwaayen said he did not support calls for the UK government to subsidise broadband rollout in parts of Britain where telcos such as BT have decided it is not economically viable to make affordable high-speed Internet services available to consumers.
Instead, Verwaayen wants the UK government to concentrate on becoming a broadband customer.
"Subsidies are never a good idea in the long-term. The best thing to do is use the stuff. That's a much better way to spend money than subsidies," insisted Verwaayen.
"It's clear that the government is a huge customer, and a huge innovator if they put their mind to it. They are an enormous influence on the behaviour of residential and business customers," he added.
Verwaayen also said that e-commerce minister Stephen Timms and his predecessors have done a "great job" in ensuring that the government is focused on broadband.
Unlike the governments of Sweden, the US and France -- which have all stumped up hundreds of millions of pounds to help broadband rollout in rural areas -- the UK government insists that market forces must drive the progress of broadband Britain. This policy that has enraged many consumers and business people who fear they will remain broadband have-nots for the foreseeable future.
Many are angry that BT has not upgraded their local telephone exchange to support ADSL -- the technology that allows high-speed Internet access down a telephone line -- even though they live close to a town or city.
BT's ADSL network covers some 1,115 local exchanges, which means that about 75 percent of the population can get an ADSL-based broadband product. The unlucky 25 percent of people are connected to exchanges where, according to BT, there is insufficient broadband demand for it to be commercially viable to upgrade the exchange.
BT recently launched a scheme that allows users who can't get broadband in their area to register their interest. It has calculated how many broadband customers it would need in each area for an exchange upgrade to be financially viable -- and it has published these trigger levels on its Web site.
The first of these trigger levels was hit early in September in Todmorden, West Yorkshire, where 200 people have signed up.
In other places, though, where trigger levels are set at 500 or even 750 sign-ups, there is despair -- but Verwaayen has rejected criticism that trigger levels are too high, insisting they are based purely on commercial factors.
"BT is not an institution with an obligation to bring technology to the UK. It is a business with obligations to shareholders," Verwaayen said.
According to BT, the trigger levels are based on the cost of installing ADSL equipment in each local exchange, which can vary considerably from building to building. The key factors include the distance from the local exchange to BT's main network, the state of the technology already in the exchange, and the cost of the necessary equipment.
Verwaayen explained that the trigger levels are set to guarantee around 40 percent of the necessary cost, or risk, of installing broadband in an exchange. BT will cover the rest of the risk, and expects to make its money back within three years.
Suggestions that BT extend its payback time, allowing trigger levels to be set lower, have been rebuffed.
"Our methods must be transparent and predictable. We can't start changing this and that," Verwaayen insisted.
As ZDNet UK reported in August, trigger levels of 750 are highly likely to be unachievable in the foreseeable future.
Rhos-on-Sea, for example, has been given a trigger level of 750 pre-registered orders. According to the latest population data, though, there are just 3,488 homes in Rhos-on-Sea -- so BT is effectively asking for over 20 percent of homeowners to sign up for broadband.
Even though the number of broadband users is growing fast following significant price cuts made by BT Wholesale earlier this year, the overall take-up is still less than 3 percent -- out of 15 million homes that could get ADSL, just over 350,000 have signed up.
This makes Rhos-on-Sea's target of 750 a very difficult one to reach, as illustrated by the fact that just 53 pre-registration orders had been recorded at the local exchange after two months.
Verwaayen points out that BT is a commercial organisation with a responsibility to its shareholders. The BT chief executive refused to criticise the UK government's policy towards broadband -- but there is a growing feeling that if broadband really is important, public money should be used to take it to parts of the UK where commercial broadband providers fear to tread alone.
The UK government favours a market-led approach in conjunction with a drive towards aggregating the public sector demand for broadband.
This policy argues that if the schools, hospitals and local government offices in a non-broadband area pool their broadband requirements, they can prove to a telco such as BT -- or another operator such as Easynet -- that it makes financial sense to make broadband available in that area. Once ADSL equipment has been installed at the local exchange, nearby businesses and consumers would then be able to sign up for broadband too.
Many in the industry believe this is a sensible policy -- the problem is the speed at which it is being implemented.
The Broadband Stakeholder Group recommended public sector broadband aggregation to the government at the end of 2001. Douglas Alexander, e-commerce minister at the time, took the advice on board, but it took until June for the government to announce the creation of a broadband unit -- made up of a network of broadband advisors, and a team within the Office of Government Commerce (OGC) to advise public sector bodies on how to buy broadband effectively.
Only at the end of August, though, did the OGC announce it had begun searching for suitable broadband suppliers to work with.
According to chief executive Peter Gershon, the OGC has saved the public sector hundreds of millions of pounds in the two years it has been in existence, and it is confident that it will soon be creating framework agreements that will let public sector official obtain the best value for money when purchasing broadband Internet services. "I am delighted that we will be able to offer further value for money savings for broadband buyers," said Gershon in a statement.
The worry, though, is that the government is not moving fast enough -- and despite the recent broadband boom that saw take-up double in the first six months of 2002, things are still far from rosy.
Latest figures from research firm Nielsen/NetRatings, published at the start of September, reveal that the UK is still lagging way behind other European countries such as Germany, Sweden and France for broadband take-up.
Tom Ewing, Internet Analyst at Nielsen/NetRatings, said that although the UK's position was slowly improving, it is unlikely to catch up soon.
"Broadband is growing in this country but the Government's stated target of being the G7 leader in broadband connectivity by 2005 is absurd if you set it against current rates of growth," said Ewing.
Should the UK continue to perform poorly compared to other countries, the British government risks widespread criticism for its broadband policy, and for not throwing more hard cash at the problem of the UK's broadband divide.