Nearly twenty years ago, if a predecessor of mine had been standing on this stage, a key issue for debate would have been whether substantial investment in a wholly new fixed network could be justified and whether investors could make an adequate return on what was seen as a risky investment.
He would have been saying that in an environment remarkably similar to today:-
- Rapid take-up of new and exciting technologies - at that time it was personal computers.
- Political uncertainty - with a government that had been in power for over a decade, under new leadership but lagging in the polls.
- And against a backdrop of economic slowdown and uncertainty in UK and the wider global financial markets.
Then, it was the roll out of cable- bringing TV and telephony over one network for the first time, an event which was in many ways the pre-cursor to convergence.
Today we are at an equally critical juncture in the development of our markets, and those developments are taking place against a remarkably similar set of external factors to the early 1990s: rapid technological development, political uncertainty and at a time of economic slowdown.
And while 20 years ago those choices and challenges posed a real examination at the time for everyone involved, in contrast to today, they seem tame:
- At the network level- where we see more and more networks competing in an IP based, converged world - fixed broadband, cable, 3G mobile and wi-fi today with the prospect of Wimax, fourth generation mobile and next generation fibre on the horizon.
- At the service level- where innovative new services are being brought to market on an unprecedented level: Mobile TV, VOIP, video downloads/streaming, HDTV and many more.
- In content - where more and more content is being produced, edited and refashioned, but where real questions are emerging about the economic sustainability in the medium term about who will fund the production of high quality content.
- And at the device level - where we know of the competition and innovation around mobiles, around set top boxes and PCs, but we now see the next generation of competition and innovation around personal mobile devices and home hubs with changes to standards, functionality and operating systems now dissolving borders that we once thought insoluble.
In that context, what I want to do today is consider how we carry the success of the last two decades in our communications markets forward into the post switchover digital era.
I want to ask what we need to do to continue taking risks, to keep innovating – so that the UK can stay at the forefront of an increasingly competitive global economy.
The questions at the heart of this are, of course, about:
- Investment; and
Most of this will be determined by businesses and consumers – but as the regulator we also have a role to play, particularly at a time when economic uncertainty and new investment across a wide range of areas are happening simultaneously.
At Ofcom, everything we do flows from our duties set for us by parliament- to further the interests of citizens and consumers.
In building on these core purposes, let me today set out five areas where the regulator has a critical role to play:-
- Ensuring effective access to economic bottlenecks.
- Providing the raw materials for innovation.
- Allowing companies to make a fair return to stimulate efficient and timely investment.
- Achieving a judicious mix of public and private players to stimulate the best innovation from both sectors.
- And the importance of sticking to the principles of good regulation.
Allowing Companies To Make A Fair Return To Stimulate Efficient And Timely Investment
So in fixed, the big issue is addressing the roll-out of super-fast next generation fixed fibre networks in the UK.
Super-fast broadband is crucial to the UK’s future. These next generation networks form part of the critical infrastructure of the country’s economy and will be central to the way we live our lives in the future.
Super-fast next generation broadband will come to change our perception of communications radically. Alongside mobile broadband, it will, in time, have a similar impact on our society and economy as first generation of broadband.
Not just in information and entertainment, but in how businesses and consumers organise themselves and interact and, increasingly, in aspects of our lifestyles such as healthcare.
It will affect distribution, services, content, devices and competition.
Here as much as anywhere we need to ensure that there is a healthy environment for investment – which can support, in turn, competition and innovation.
Our position is clear. Ofcom favours a regulatory environment for the next generation of networks and access that both allows and encourages operators to make risky investments, to innovate for the benefit of consumers and, if the risks pay off, for the benefit of their shareholders too.
We are very clear that if operators are going to make investments in new infrastructure, investment that is inherently more risky than developing the existing infrastructure, then they need to know that the regulatory framework will allow them to make and keep a rate of return that is commensurate with the risks they are taking.
And they need a time horizon that gives them a degree of assurance for a realistic period in the future; that they know for example that the regulator will not suddenly change the rules of the game to reduce the returns just as the rewards for the risk start to flow in.
We want investment in a competitive environment. It is encouraging that cable is now talking about seriously rolling out their next generation high bandwidth product at the end of the summer. The emerging success and rapid take-up of mobile broadband will provide a further spur to the fixed line operators to upgrade to next generation high bandwidth products to differentiate themselves competitively to consumers.
In the fixed line environment there is a range of possible approaches to enable a competitive environment. At the deepest infrastructure layer, we are exploring the possibility of duct access, which is already being implemented in a number of other European countries.
At the next level, sub-loop unbundling, or fibre to the street cabinet, has advanced to the point of meaningful trials.
But these deep infrastructure forms of competition will focus on dense metropolitan areas; and the physics means that there is likely to be room - literally - for a very limited number of competitors.
So while a lot of the emphasis elsewhere in Europe has been on ducts and SLU, we also want to focus on a successful wholesale route to competition; what we call active line access- a good wholesale product family that allows other providers to innovate and differentiate well above that which is associated with a simple resale model.
Perhaps because of the strength of current generation broadband competition in the UK, the debate on next generation access has taken some time to ignite in this country.
Ofcom first surfaced the issue in our Telecommunications Strategic Review. It received little engagement at the time as operators were, understandably, focused on the near term opportunity offered by current generation LLU. Since then we have published two further documents discussing the regulatory challenges posed by next generation access networks, with, it has to be said, very limited reaction or interest until very recently.
Over the last few weeks there has been a step change in the level of interest and engagement on NGA issues from a range of companies and organisations.
This is excellent news and a development that I very much welcome. Now we have meaningful engagement, the time is right to change gear in our determination to address regulatory and other issues of practical implementation.
We need to bring industry together to debate and resolve some critical issues. Ofcom will provide an important forum for debating and resolving these key issues with industry.
That is why I have today written to leading CEOs across the communications sector to initiate a concerted dialogue on the key issues. Ofcom will host the first of a series of working sessions focused on practical action and resolution of areas of uncertainty as soon as possible.