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Home > Media and Analysts > Speeches and Presentations > 2008 > Jul >  Intellect Conference 08


03|07|08

Serving Consumers: Competition, Innovation And Investment Through The Next Phase - Intellect Conference 2008 - 3 July 2008

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Introduction

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:-

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:

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:

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:-

Effective Access To Economic Bottlenecks

Firstly, ensuring access to enduring economic bottlenecks.

Today we have some of the most competitive communications markets in the world, and that is largely because we have put effective competition at the heart of our policy making.

But where competition fails or is weak, we will continue to need regulatory intervention – to create the conditions for new competition, for innovation and for investment by other companies.

To see the merits of appropriate regulatory intervention, one only needs to consider the functional separation of BT and the consequential success of the UK broadband market, where today we have 99% coverage and typical headline speeds of 8mbps and where European authorities are debating the potential inclusion of functional separation into the new European Framework on the back of the UK’s success.

Of course, last year we also received a submission from BT, Setanta, Top Up TV, and Virgin Media requesting regulatory intervention to address a bottleneck in the Pay TV market, and where they allege that competition in the UK Pay TV industry is not working effectively.

We have set out our initial assessment on that matter and will continue to conduct further and detailed analysis which we will bring forward by the end of the Summer.

Ensuring effective competition requires constant vigilance. That applies equally in telecoms markets, in broadcasting, in mobile markets and in the emerging market for spectrum.

The Raw Materials For Competition, Investment And Innovation

The second big thing that we can do for competition, investment and innovation is provide raw materials.

Because spectrum is destined to be a crucial raw material for innovation over the next few years, fuelled by the extensive agenda of spectrum liberalisation and trading already underway which will bring in total almost three times the amount of spectrum released for 3G to the market over the next few years.

We have already completed some auctions, including the recent L-Band auction, won by Qualcomm.

And we have other significant releases coming, notably the 2.6Ghz spectrum which provides possibilities for innovation around mobile broadband and, of course, the Digital Dividend - the 120MHz of prime spectrum released by digital switchover.

We should not underestimate the importance, and most critically the timeliness, of these releases and what they will spur. At the very least, options include:

2008 has been the year in which mobile broadband has taken off and the data dongle or 3G datacard is the latest must-have accessory.

And other much-heralded technologies – Wimax and LTE - are now moving from being on the distant horizon to being just around the corner.

And whilst wireless may not supplant fixed for very high speed broadband, as technological improvements lead to faster and faster mobile broadband, there will be plenty of situations and applications where it will give fixed a run for its money – as I think the latest data is beginning to show.

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.

A Judicious Mix Of Public And Private To Stimulate The Best Innovation From Both Sectors

Advancing next generation broadband, and indeed much else in our communications industries requires a judicious mix of public and private to stimulate the best innovation in the interests of consumers and the UK more widely.

In television, one can see the benefit of that in driving forward platform competition. On the private side, we have Sky innovating with products such as Sky+ and Sky HD and, of course, Virgin TV over the cable network. At the same time Freeview HD, with the BBC and other PSBs at its fore is successful, with FreeSat HD just launched.

And the forthcoming introduction of new, most likely HD services onto the DTT platform has been a good lesson in how public and private can work together - Government, regulators and industry - to achieve real change to the benefit of consumers.

Last week, the T2 standard was approved in Geneva removing the final technical uncertainty around the proposed upgrade.

Shortly, we will receive the responses to our Invitation to Tender for that capacity and already work is underway, involving many of you here today, to ensure that the implementation of the upgrade can take place smoothly within the overall parameters of switchover.

Whilst I don’t underestimate the size of the task in delivering the upgrade to the DTT platform, I do believe that we should recognise the breakthrough.

And in radio we are making good progress on tackling the concerns around the emergence of multiple standards internationally.

Ofcom, Intellect, the Digital Radio Working Group, BERR, industry and World DMB have all played an an important part in agreeing in principle the need for a chip which can be built into future digital radios which would able to receive broadcasts from all technologies within the EUREKA 147 family of standards, including DAB, DMB and DAB+. And if international agreement on its specification goes as planned, such a chip might be available as early as the beginning of next year.

And of course more controversially, the issue of the boundaries of public service organisations and their impact on the commercial market place.

Today this poses real questions of a form which I know sparks widespread disagreement. Where should the boundaries of the BBC and its services lie?

Where does the expansion of public services play a role in stimulating and supporting the market and where do they risk undermining or foreclosing markets for commercial players.

This is where we must strive to ensure the judicious mix that I describe – a mix that focuses on bringing together the best of both spheres, public service acting as a complement rather than as a direct competitor to the private sector.

Sticking To Principles Of Good Regulation

Finally, we must of course ensure that we continue to apply principles of good regulation to the challenges we face.

That means:

Of course, our broader role goes beyond a simplistic interpretation of competition and innovation.

Deciding which consumer issues to tackle is becoming increasingly challenging in a more complex digital environment.

Let me take one example. The current debate around illegal downloading online.

To date, Ofcom has not made a lot of public noise about the piracy issue. But that should not be mistaken for a lack of interest or concern. Our formal locus may be limited. But this sort of piracy is something that affects network operators, ISPs, content creators and consumers – and as the converged regulator we have of course been keeping a watchful eye on developments.

The issue is critical. An operator investing in next generation networks will not want it clogged up with illegal peer-to-peer content if that means no-one will pay to ensure a return on the investment, as we have seen in some Asia Pacific markets. And content providers, self evidently, do not want illegal traffic undermining their investment in IPR.

This is a crucial issue for both network providers and content creators. It has not touched every company in these spheres yet, but it will do. We very much hope that a commercial or voluntary agreement can be found to resolve these difficult issues. As the converged communications regulator, if we can play a constructive role in helping to find a common solution in the best interests of companies and consumers we would be very happy to do so.

Conclusion

Let me return to where I began.

As an industry, our world has changed. We are in the post switchover world today – it is just that the event itself has yet to happen.

The challenges are broad, deep and complex.

We do not know and cannot know what all the answers are – any more than any of you here today can.

Competition, investment and innovation will be driven by companies and by consumers.

But we too have a role to play – by focusing on our core duties and promoting wherever we can the scope for competition, investment and innovation.

I have set out a few ways in which we will do that - I hope they are clear and relevant for your business.

Because it is only by working together that we will be able to ensure that the success we have enjoyed in the UK in the last decade can be carried forward to the next.

Thank you.



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