Monthly Archive for September, 2011

Steering the QE2

Published on September 29, 2011 in Adrian's tech blog. 1 Comment Tags: , , , , , , , , , .

The hand wringing over the global economy continues, and the UK is now having to consider a second round of quantitative easing (QE – hope no-one thinks this will be about luxury cruises).

In normal times we have Qualitative Easing – changing the quality of the money supply by adjusting interest rates. When you can no longer adjust the quality of money then you need to adjust the quantity – in earlier times that meant printing new notes but today that typically means the central bank buys bonds (debt).

The last Government’s QE1 programme resulted in the Bank of England buying government bonds, and the money was used to fund general government expenditure. This resulted in criticism from some quarters that the new cash didn’t optimise its impact on the wider economy. Expanding the money in circulation can have two high-level impacts:

  • It can ensure money is circulating so the economy doesn’t stop, and
  • It can be used to re-shape the economy so its more competitive when recovery comes.

It was certainly true that the former happened – because nurses and policemen kept their jobs and were paid the economy kept flowing. But the process didn’t have any lasting impact on the efficiency of the economy.

If we are to have a second round of quantitative easing, so called QE2, then a lasting impact will require investment in the shape of the economy - infrastructure, for example.

It is widely accepted that the funds available to BDUK form only a small proportion of the investment needed to ensure every UK business benefits from super-fast , even when added to the level of funding already committed by the industry. However, if QE2 was used to underwrite local authority bond issues, the sums committed to could be dramatically increased – and I purposefully use the word “underwrite” rather than simply “buy”.

Under the agenda, communities are encouraged to become more involved in their area but for many its simply not reasonable for them to build their own broadband infrastructure as it was the first time around, but that isn’t to say they don’t have a role beyond simply marketing the benefits of broadband.

By encouraging their local authority to issue infrastructure bonds, the community may be encouraged to invest in their future; by having the Bank of England underwrite the issue means the risk is somewhat reduced and the full funds may be raised in areas where there isn’t the investment cash available. This could be the 21st century “Tell Sid” campaign!

By using a local authority to issue the bonds, rather than a commercial telecoms company, ensures the wider economic impact for the area can be embeded in the process, alongside the commercial reality.

But since bonds are essentially long term loans that need to be paid back at some point in the future, today’s preferred gap funding models favoured by BDUK may not be ideal. As the local authority is today essentially providing grants to a third party to own, build and operate the network, there is no obvious mechanism for the local authority to recoup such an investment.

However, a model where the local authority issues a concession to a third party to build and operate the network but ownership remains with the local authority – or at least a stake is owned by the local authority – means they can at a later date refinance their investment to repay the bonds.

The UK already has examples of this kind of structure. NYnet in North Yorkshire is an example where the local authority retains 100% ownership, while FibreSpeed is a joint-venture model between Geo and the Welsh Assembly Government. There are pro’s and con’s to both approaches but the essence is the same – the bond owner would retain a stake to secure their investment.

I’ve no idea if we will see QE2 but if we do, this kind of approach would ensure not just the immediate re-floating of the economy but also a longer lasting impact on the UK competitiveness – we could become the first G20 country to have a fibre switch-over!

Its all about black and white

Published on September 17, 2011 in Adrian's tech blog. 12 Comments Tags: , , , , , , , , , , , .

Anyone who has been close to any public sector involvement in is likely to have come across references to Black, White and Grey areas but I get the impression that the meaning is often not well understood; this is perhaps not surprising because there are in fact two models and rarely in my experience is the specific one being used named.

A bit of background. In 2009 the EU laid down some guidelines on where it was reasonable for a state to consider intervening in the broadband market; this introduced the concept of Black, White and Grey areas for classifying market failure in both and basic broadband areas. A black area is generally one with a strong, competitive market; grey with a developing market; and White where the market has essentially failed. White does not necessarily mean there is no broadband, just no functioning market.

Basic Broadband

  • A Black area is one which has two competing fixed line infrastructures. So in the UK that typically means areas where both BT and Virgin offer services.
  • A Grey area is one where there is only a single physical infrastructure but it supports a wholesale marketplace. In the UK this covers any unbundled telephone exchange where there is no cable service, for example. Perhaps surprisingly this covers both Ofcom market 2 and 3 areas.
  • A White area is one where there is no choice of physical infrastructure and no wholesale marketplace. This in the UK means Ofcom Market 1 areas with no other infrastructure.

NGA Broadband

The definition for NGA is broadly the same:

  • An area with competing NGA broadband infrastructures would be an NGA Black area. In the UK that might mean an area with both Virgin DOCSIS3 and BT Infinity services, for example. Somewhere like Bournemouth with City Fibre and Virgin would also be Black.
  • An NGA Grey area is where there is only a single NGA provider with a wholesale market. This means an area with only BT Infinity would be classed as Grey – but an area with only Virgin would not as they don’t wholesale access services.
  • An NGA White area is one where there is currently is no NGA market available and no credible plans to deliver an NGA service within 3 years. This could include areas where Virgin is the only NGA operator and the footprint of many community projects like Alston Cybermoor as they don’t currently wholesale their services.

There are some major caveats in this!!

Only fibre-based fixed-line technologies are currently considered NGA technologies – wireless and satellite are currently considered “complimentary” and an area served by either is not considered as NGA Grey or Black. This means an operator using a Gigabit microwave technology could legitimately face state subsidised competition from a 40 Mbps FttC provider – FiWi is not currently protected! This may (should!) change but its a risk that needs to be born in mind today!

What’s an Area?

The EU guidelines recommend that an “area” isn’t defined as an exchange district as it may benefit the incumbent. So what is an area? At the moment this is something of a grey area, to stay with the theme. The UK government is providing local authorities with some latitude to choose between postcode areas and ONS “super output areas” (LSOA).

For a community thinking of building their own broadband solution, this loose definition may be critical. A postcode may only have 20-40 premises while a LSOA typically has about 400. A small community scheme may be protected from subsidised competition if the local authority decides to use postcodes as their defining area.

BUT if the LA uses super output areas as their measure, then any network which is much less than 400 premises could face a competitor legitimately subsidised by the BDUK framework.

Since BDUK are currently modelling communities as groups of around 100 premises, this seems rather contradictory.

BDUK Ambitions

The three years rule means that BDUK are able to focus their funding on the final third – the bit that BT haven’t formally announced. Their ambition appears to be to increase the NGA Grey and Black coverage from 66% to 90%. In the final 10% they want to ensure its at least Basic Broadband Grey (ie at least a single wholesale infrastructure).

NB: Big things you can’t ignore!

  1. Anyone considering building a network, whatever their motives, needs to make sure both BDUK and the relevant local authority are completely aware, not just of the currently footprint but the credible expansion plans covering the next three years. Failing to be on their radar may mean state subsidised competition and a battle over illegal state aid few smaller operators will be able to afford.
  2. A vague intention to offer wholesale services or simply making an offer to the market that is ignored is not good enough to be classed as “Grey” – you need to demonstrate a functioning wholesale market! Failing to demonstrate real wholesale agreements means your area remains “White” and could be legitimately subsidised. Working with a  national franchise model like Broadway Partners and including an existing mediator that can deliver a proven wholesale market will certainly help both whether you’re at the planning or delivery stage!
  3. And communities going it alone need to know what their local authority considers to be an “area” – if its an ONS LSOA, make sure your project covers one!

The more you think about this, the more implications you will stumble across. This a very messy, complex, and shifting space. Whoever you are, don’t do it alone!

Unintended consequences

Published on September 16, 2011 in Adrian's tech blog. 7 Comments Tags: , , , , .

Even the best planned actions can fall foul of unintended consequences but its probably fair to say that the more rigorous the thinking the less likely they are.

In this vein I’m beginning to hear of a growing number of communities that are finding that, far from supporting them as they try to become part of the solution to their problems, their local authorities are becoming hostile. Of course this is far from common but it is being reported and does appear to be growing in some districts.

The root behind it seems to be the mechanism which is supposed to protect them. BDUK is only allowed to spend its funds in what the EU calls “White areas” – areas where the market has failed to deliver a viable broadband solution.

The logic chain says that if a provider delivers a viable solution then the area must be designated as either “Grey” or “Black” depending on the level of new competition.

Some local authorities, understanding this, are concerned that if their communities push ahead, their BDUK allocation will start to shrink as more areas become “Grey”. While the local authorities don’t directly profit from the BDUK money, it will mean they have less funding to engage one of the framework partners.

My understanding is that BDUK has essentially divided their half-billion fund in two broadly equal pots; half for achieving 90% FttC and half to ensure the final 10% has access to at least 2 Mbps via satellite or wireless.

Based on this, the level of subvention per premise in the final 10% is significantly higher than in the 90%, so community projects starting out now may result in a disproportionate drop in the LA’s BDUK funding – or at least that’s how some local authorities appear to be understanding it.

The logical answer to this is to ensure communities are, in reality, engaged in this process as stakeholder and not simply as “demand stimulators” (glorified marketing agents), and that, as Mr Clegg said, BDUK increase the speed of the programme so people don’t feel excluded or simply tired of waiting.

But do the normal rules of logic apply here though?

Reliable data

Published on September 11, 2011 in Adrian's tech blog. 8 Comments Tags: , , , , , .

Recently we have seen BDUK announce the funding allocations to local authorities and the devolved assemblies, and the companies aiming hoping to get on the national framework have been short-listed. The sums awarded to councils were modelled by BDUK according to their understanding of need, and at the moment the framework companies are trying to develop a consistent understanding of what will be required of them and their shareholders should they be successful.

At stake is the investment of billions of pounds and public and private money, and the future competitiveness of the UK economy. Yet questions have been raise in several quarters for quite some time now about the accuracy of BDUKs data on which all this investment sits. So for the record I decided to correlate a source of data I have grown to trust – from who in turn get their DSL data from BT – against a set of BDUK data for the same area. The sample included a little over 19,000 postcodes.

BDUK Broadband Speed data

(click the graph to see a bigger version)

The plot shows BDUK speeds along the horizontal with BT speeds on the vertical, with each point representing a postcode average. If the two sets agreed the points should broadly align along the diagonal but its clear there is a limited correlation between the two sets.

This data is for , so the first location I checked was my own postcode. BDUK suggests that I should get 13971.456kbps while BT suggests I get 6Mbps with ADSL2+. With an ordinary ISP I do in fact get 6 Mbps (Be There uniquely allow me to tune the connection so I get a shade more).

In fact on 76% of occasions the BDUK data offers faster speeds than BT’s reported data, and on average 52% faster.

When focussing in on just the 2 Mbps Universal Service Commitment, relying on BDUK data would result in about 900 postcodes having a problem addressed which doesn’t exist, yet almost 40% of the areas which do suffer at less than 2 Mbps would have been missed altogether.

In 63 cases the discrepancy was more than 22 Mbps – or rather BDUK expected people to receive what they now consider “superfast broadband” when in fact no broadband was available at all.

From what I understand none of the usual sources relied on by the industry provided BDUK with this data and that the speeds are reported to thousandths of a kilobit suggests Excel may have been involved somewhere along the line rather than empirical data.

This information was provided to BDUK but they were largely unconcerned about the discrepancy at the time.

I’ll allow you to come to your own conclusions about the impact this might have had on the decisions BDUK is making and the fairness of funding allocations. For organisations seeking to be part of the framework, this data appears to be having a continuing impact.

NOTE: This is one of a number of blog articles which had gone unpublished for some time, occasionally dusted off and updated but left on the spike. For much of BDUK’s existence I have been supportive, and after it became clear that they were ignoring offers of help and advice from many of the people I know I had remained reluctant to be openly dismissive. But as the programme evolved it has become harder and harder to be supportive, there became fewer and fewer good news stories to write about, and my own postings became less frequent and rarely positive good news stories.

I’m publishing this now to draw a line under the whole process – time to get on with projects that make a difference in reality.

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