International Institute of Communications Broadband; can Europe catch up? 22 June 2004, Brussels Ewan Sutherland

Thank you very much for invitation to speak here today.

I think the first time I attended an IIC event was the annual conference in Edinburgh, some time in the mid-1980s. A lot has happened since then.

At that time ISDN was seen as the equivalent of broadband, but it proved to be a very difficult service to sell, one where users had little if any genuine interest, hence the title "Interfaces Subscribers Don't Need".  Some operators and even a few policy-maker seem content with 128 kbps, a service we could have mandated twenty years ago with ISDN, saving a lot of fuss and bother.


Broadband as a priority

Broadband Internet access is an issue of considerable concern to business users. The reasons were discussed at some length in the OECD Report Broadband Access for Business. It is now an issue to support teleworkers across Europe. Not to have a respectable and deliverable broadband offer is to discourage inward investment.

In some respects broadband has become the proxy for all telecommunications policies, certainly it has been pushed to the top of the agenda of most governments and regulatory agencies. Though at times the ministry expects the NRA to solve the problems and vice versa.

We have seen an OECD Council Resolution to encourage the development of broadband, emphasising its importance for economic, social and cultural development worldwide and warning about the risk of missed opportunities from failing to act.

Policies for broadband are a pointer to future policy successes and failures. If broadband is not working, then what are the chance of getting the next set of issues correct?

We have seen useful analyses from the ITU in the Birth of Broadband and at the OECD on the development of broadband Internet access in rural and remote areas and benchmarking price comparisons. Coincidentally, the OECD has today published comparative data (and a chart) to the end of last year. It does not show Europe at the forefront and that is before you add non-OECD countries that are doing well with broadband.

Nonetheless, it is very hard to give a detailed account, because each national story has its own contingencies, while there are unifying themes, there is certainly no simple policy or model to follow, these have to be crafted to suit circumstances. Competition is at the heart of broadband take up, whether in densely populated urban areas or in remote and poorly populated areas. Where there is competition in infrastructure, then broadband takes off.


Broadband in Asia

I am just back from CommunicAsia, held in Singapore, and that weighs heavily on my mind. There is a very different view of broadband in Asia, where it is characterised by very large numbers.

At the end of 2003, there were 11 million broadband lines in South Korea and 13 million lines in each of China and Japan. In 2004, we have seen no growth in Korea, but in Japan about 400,000 lines have veeb added each month and 1,000,000 lines each month in China. So that by the end of 2004 we will have 11 million lines in South Korea, 19 million in Japan and 26 million in China. China will overtake the European Union early in 2005 and just keep growing.

Singapore, Taiwan and Hong Kong SAR contribute a further six or seven million lines.

Soon we will see India in the broadband game and Pakistan is not far behind. Together they might add 500,000 lines per month, but not becoming significant until the end of 2004 or early 2005. Just before the elections, the regulator in India publsished its Recommendations on Accelerating Growth of Internet and Broadband Penetration.
 
What is available in Asia is, generally speaking, genuine broadband, 6, 10, 20, 40 or 100 Mbps. NTT will shortly raise its FTTH speed from 100 to 200Mbps, because of the pressure of competition from ADSL at 45Mbps and the threat of even high speeds on copper.

Satellite is being used to reach rural areas, such as the IPStar service, by a subsidiary of ShinSat. This has important potential in the outback of Australia and in the island chains of Indonesia and the Philippines, plus the mountains of Indo-China.

A crucial policy in Asia was to create rapid and effective initial market entry, getting everyone to the starting line in an orderly manner. It has been followed by a race for economies of scale in networks, in applications and in consumer devices. It is the pursuit of the mass market. The government policy is to admit too many players, accepting that slower growers will be eaten by the faster.

The sheer power of numbers gives Asia an importance we have not seen in the past. One consequence is that North-East Asia is now the logical place to develop new services and new appliances for true broadband.


Broadband in North America

In recent months we have seen something of an uplift in broadband in the USA, this comes from competition, which can be seen both in price and in line speed. For example, Comcast now offers 5 Mbps.

The rival camps of the cable operators and the RBOCs have ground themselves to a standstill in the Congress and the courts. There is little more that can be gained in the short term, so that they have fallen back on the weapon of last resort, that is competition.

The FCC is hopelessly split and is losing battles in court, reducing its capacity to influence the debate. Yet on one issue the FCC commissioners could agree, that was to exempt new optical fibre infrastructure from unbundling obligations. This creates an incentive, perhaps artificial, for RBOCs to roll-out fibre cable and, indeed, Verizon seems to be doing so, hinting at one million lines to be installed by the end of this year. (For other countries there is a genuine policy dilemma of whether or not to enforce unbundling on new investment to upgrade an established network. This entails a very difficult assessment of the investment incentives.)


Broadband in Africa

ADSL is already available in Morocco, Algeria, Tunisia and Egypt in North Africa, plus in South Africa. This is very much faster than the availability of previous generations of technology, for example, digital exchanges or ISDN.

It may make for interesting holiday homes in North Africa, for those who dislike the winter in Brussels or in Berlin and can telework from somewhere warmer and sunnier.

Nonetheless, Africa faces some very real challenges, which I will address next week in Johannesburg. However, they do not have enormous bearing on developments in Europe.


Broadband in Europe

In almost all European countries we have "bonsai broadband", where an upgrade from 256k to 512k is presented as a great technical breakthrough. Bonsai is an artform in which beauty is achieved by artificially stunting growth. There are no technical reasons why European broadband is so slow, only operators protecting revenues from leased lines and trying to work out how to disadvantage competitors when and if they increase line speeds.

Local Loop Unbundling (LLU) has been in place for a long time in the European Union, but has proved painfully slow and deeply divisive. The numbers are disappointing and even dispiriting. Instead of a single market with uniform unbundling, we have twenty-five markets with different flavours of unbundling at different prices and different levels of adoption. A single market legal instrument delivered balkanisation.

A very real concern is that what success we have in unbundling will be wiped out by the larger players bundling free on net calls and content with broadband Internet access; it is a rational strategy that does little for sustainable strategy, playing to the advantage of network scale.

We recently had some manufacturers from the FTTH Council Europe advocating their technology. It is very hard to see how to do this in a policy regime that is avowedly neutral about technology. Nonetheless, we must be aiming for multi-megabit speeds. There is a role for fibre, but not necessarily all the way to every home.

Rural communities are anxious to see broadband introduced. Rightly or wrongly, they do not beleive in forbearance. However, the technologies are only just becoming available and there are very few robust commercial models. We need to be very careful not to distort competition in intervening when markets have not failed, but merely not yet developed. It is worrying that there is so much enthusiasm for state aid and so little confidence in markets delivering services. The OECD Workshop in Oporto in October will help us stocktake the economic and technical lessons.


Wireless Broadband

In terms of mobile data we have offers of "all you eat" in the USA for about US$ 35 per month at 500kbps speeds and similar deals in Japan and Korea, with best effort speeds up to 2Mbps. Meanwhile in Europe we are offered prices per Megabyte that are expensive in your home country and punitive on crossing a border. Why we are expected to purchase data in this manner is hard to understand, few of us have any sense of what we use in terms of Megabytes or which applications use those Megabytes. Incomprehensible prices do not encourage business to adopt technology rapidly.

Mobile telecommunications is still waiting for its Jean Monet (or perhaps its Bismarck). It is still built on a national model from the nineteenth century. There is no single market in mobile telecommunications.

New services are slow to be accepted. I wonder how many MMS postcards you will receive this summer? Perhaps none. It is hard to see any uplift in data or value-added services, apart from SMS. I should add our thanks to the French authorities for acting to reduce the price of text messages.

In Europe Wi-fi hot spots are still too few and too difficult to find. By comparison, KT will have 25,000 hotspots in place in South Korea by the end of the year.

There are significant rivals to 3G from DAB and DVB for radio, television and data casting, plus data-casting from satellite. Delivering television to a mobile phone can be achieved by several means and the choice may lie in the hands of handset manufacturers.

South Korea is working on Broadband Convergence Network (BCN) for 100Mbps national coverage by the end of the decade. Likewise Japan is looking at speeds close to their fixed broadband. These are speeds unattainable and almost unimaginable in Europe. The next generation is being developed in Asia, though they prefer to call it ubiquitous network.

European wireless is characterised by 3GSM operators pleading for favourable treatment on termination rates and roaming charges, while failing to deliver new services to users.  (See the recent comments by our Vice-Chairman Asia-Pacific.)


Conclusions

Europe does not have a single market in broadband telecommunications and will not have one under the existing legislation, it is simply unattainable. It remains twenty-five very different markets, each with a distinct regulatory regime, each increasingly dominated by its own incumbent operator. That dominance is unlikely to diminish as incumbent operators bundle voice or VoIP plus television with broadband Internet access and where network size will play to their advantage.

Without a single telecommunicaitons market the Lisbon goals will remain a "pipe dream", an unattainable illusion.

Whether we will have more or less harmonisation is hard to say, but it seems a bit academic. It would be a good subject for a PhD thesis rather than being something of commercial immediacy. It is not even clear that greater harmonisation would make much difference, if the markets remain so divided and remained regulated in a manner that is largely unchanged.

If we need to achieve a single market and I would argue very strongly that we do, then we need to do something completely different, something dramatic. There are few economies of scale in Europe, we are far too fragmented for manufacturers and for service providers. Europe has been overtaken and is in danger of being outclassed.

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