Andrew Miller MP

 15^th January 2002

I am delighted to have the opportunity to speak to you today, and hope that you will not be too disappointed to see me in this slot rather than my colleague the Minister for E-Commerce, Douglas Alexander MP. 

To quote from BBC News Online (14/01/02):

 “The year 2001 was meant to be when the internet in the UK grew up.  That was the dream shared by the telecoms industry and the government, but it did not happen.  But 2002 looks set to be better and many net service providers are in optimistic mood.  ‘2002 has to be the year of broadband Britain, especially as 2001 was so very disappointing,’ said Matt Peacock, spokesman for AOL – one of the UK’s biggest net connection firms.  Since BT still controls over 80% of the copper wires that run into homes, no ASDL can be delivered without its cooperation.”

Amidst all the dot com-related doom and gloom we're used to reading in the papers each week, it’s important that we don’t lose sight of the progress that has already been made.

The UK is currently one of the world's most connected economies.

Internet use is higher here than in any other European country.  51% of the population and 39% of households now log on.  It is estimated that in the last year alone, more than 3 million new households have accessed the Internet.

This comes as little surprise when you look at the competitive nature of our prices.  The latest OECD figures show the UK as one of the cheapest countries in the world for Internet access.

One can use this slide at any e-conference. The curve always fits the discussion in some form !!

Despite the widely reported decline, more and more people in the UK are conducting business over the Internet.

In fact the UK boasts the highest level of e-commerce outside the US.  In 2000, 2.3m more adults bought online - up 41%.  2% of total sales worth £57bn were made using the Internet.  The number of SMEs online went up by 12%, with an additional 200 thousand signing up.  And approximately 2 million more adults are now banking online - an increase of 45% on last year.

It is so simple to use the technology that even a humble MP can develop an internet site.   Here’s one I made earlier:

No bells and whistles for two reasons:

 1)       My limitations;

 2)       Far more importantly, this site is designed to help those constituents with the most limited access.

 It is important to look at the realities of connectivity from the point of view of real customers. Again I will use my own situation as an MP’s office has close similarities to the needs of a small business. Neither my home or constituency office have DSL enabled exchanges and neither location is particularly remote.

I am surely not asking for the earth demanding better than that service.

It is worth noting at this point however that almost all the IT executives I have spoken to in California face the same frustration outside the main cities, they too have not found the magic bullet that will rapidly bring us the solutions we are all seeking.

But among all the challenges there are positive signs.

By using Local Loop Unbundling to help bring competitive pressure on BT'’s local monopoly – the Government encouraged BT to begin investing seriously in broadband on its own account.

BT has now rolled out its ADSL service over the traditional copper loop to cover 60% of homes and business addresses and the number of end users of ADSL is now over 100,000 – up 150% from 2000.  While this represents a major investment in the potential of broadband, much more progress needs to be made.

In parallel, BT has been required to offer its wholesale ADSL product to other operators and service providers on the same terms as to its own retail arm. Counterparts in France and Germany have not done this.  As a result, the UK now has Europe's most competitive broadband marketplace, with over 100 ADSL providers.

We are now seeing the benefit of the competition provided by the cable companies.  Across the country their infrastructure passes over 50% of homes. Already they are rolling out broadband to augment their existing offering of telephone, TV and Internet access.  Consumers are responding well. The latest OECD report shows cable take-up having risen 350% since 2000.

But ADSL and Cable are not the only technologies.  Satellite and fixed wireless access offer considerable potential to deliver services to more rural and remote areas.

So after a slow start real progress is being made - but more now needs to be done.

 In Manchester a couple of weeks ago I met Hugh Logan, MD of ‘Your Communications’ a wholly owned subsidiary of United Utilities. 

 United Utilities are rather good at managing pipes, they even get water to my home!  They have started to develop a broadband microwave network, and the company has invested heavily in network infrastructure enabling it to expand its national network and improve the quality of its service.  Its highly resilient national fibre optic network now reaches 2,838 kilometres in length.  Last year the company successfully bid for Broadband Radio Access Licences giving it the rights to offer broadband services in Greater Manchester, the West Midlands, Yorkshire and the North of England.

 There is no simple answer and we need to rise above the chicken and egg type of debate about what is needed first – a more extensive supply of infrastructure or more demand resulting from more compelling broadband content.

The simple fact is we need both.
We need to create an environment in which supply and demand increase in parallel, each reinforcing and driving the other.

Broadband strategy

Challenge 1: Regulatory framework

As the major communications provider in the UK, BT has a particularly important role to play in the creation of this environment.  If BT is to now reap the benefits of the major investment it has already made in broadband rollout, it needs to rise to four key challenges.

It has been show time and again that if you reduce DSL price, take-up will rise.  Therefore BT must be to continue to drive down its costs so that broadband prices can be brought down to easily affordable levels.  Not just in their retail offerings, but in wholesale too - so that the 100 plus resellers of BT's ADSL services can help drive the market.

Related to this we need a greater variety of product choice, with lower-priced items, that will make it easier for consumers to take the first steps up the broadband ladder.

BT should also drive down its cost-base in the local loop, so that LLU operators can also contribute to the roll-out and take-up of ADSL and other DSL technologies more effectively.

And BT should market the benefits of Broadband Britain effectively to as wide a market as possible. 

Such challenges also apply to other members of the industry.  All players must work to bring costs down and aggressively market the benefits of broadband. Both the cable companies and BT are making progress on this agenda and we now have over a quarter of a million broadband homes.  If they can build further on what they've achieved so far, the next 250,000 will be much, much easier.

Challenge 2: BBSG recommendations

However, the onus does not lie solely with Industry.  The scale of the challenge we face means Govt and Industry must work together in partnership.

That is why we set up the Broadband Stakeholders Group - a forum bringing together suppliers of broadband infrastructure, services and content, and their customers, from both the private and public sectors.

Challenge 3: Demand aggregation

In turn the UK Government will be publishing its own comprehensive strategy setting out in detail how we intend to drive broadband policy forward.

The supply side is clearly vital.  Particularly in the current climate, the investments needed to drive broadband into rural areas are difficult ones - high-cost, high-risk, with long-pay back periods.

So the Government is working hard to see how we can help reduce that risk and uncertainty, by longer-term and more aggregated purchasing of our own broadband needs.  The public sector is the largest single consumer of broadband in the country: we need to use that purchasing power to encourage growth in the market more widely.  The Government is currently looking at whether there is more that can be done to help Government Departments and others buy broadband more effectively. 

The challenge now is to learn from these successes and build upon them. Isolated pockets of achievement must be joined up into a co-ordinated national effort.  This task represents an immense challenge.  But the scale of this challenge is matched by the scale of the potential benefits. 

Challenge 4: Content Development

But we must not forget that supplying the technology is only half the picture.  If the UK is to realise the real potential that broadband offers - in terms of productivity, competitiveness and social inclusion - then what counts is not only availability but also widespread use.

So stimulating and entertaining content will play a huge part in developing broadband demand.  The UK already has many advantages: a thriving content sector, English as first language, converging technologies.  These are advantages that need to be nurtured and built upon in the future.

To help move this forward, government is working closely with the content industry.  Only last month we held a high level summit - "Broadband Britain: the content challenge".  Leading figures from both content and infrastructure sectors came brought together to look at what practical steps can be taken to ensure that the UK will be the home of world-class broadband content in the years to come.

In conclusion I would say:

·        The Government is working hard to make the broadband market more extensive and competitive.

·        Signs are encouraging that the market is developing.  Prices are beginning to fall, and take-up is increasing.  Latest stats (from Oftel January 2002): DSL = 141,000 (growth of 412%)  Cable  = 208,000 (growth of 801%)  Representing growth from Dec 2000.  But we have a long way to go.

·        We have already established the £30 million fund to allow RDAs and devolved administrations to develop innovative schemes for extending broadband networks.  We are in discussion with fund holders to develop a range of local projects.

·        We have worked closely with the broadband industry and with broadband users in the Broadband Stakeholders Group

·        As noted by the BSG, there is no “magic bullet”.  Instead, Government and industry are jointly putting in place a comprehensive package of measures to tackle both supply and demand in parallel. That includes:

Intensifying competition in broadband infrastructure and service markets

Driving up demand for Broadband through tax breaks for teleworking, a collaborative cross-industry marketing campaign, and the £66 million UK online for business programme

Stimulating production of new Broadband content and applications through R&D Tax credit, business support schemes, and embedding broadband in the delivery of key public services

Facilitating Broadband rollout in rural areas through encouraging infrastructure sharing, facilitating satellite broadband deployment, and more effective procurement of the public sector’s broadband requirements.

There is much for Government to do.  But industry faces a great challenge as well.

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