Comparing communications in the US and UK
28 June 2016
Sharon White, Chief Executive, Ofcom
Speech to the International Institute of Communications USA event, Washington DC
Good morning. I’m delighted to be here at the IIC today, during such an exciting period of evolution in communications.
To think that, five years ago, few of us enjoyed tablet computers, superfast broadband, streaming video or 4G mobile. Today, we take these services for granted; they have become intrinsic to our personal and working lives.
Never has our industry changed so fast, and consumers sought so much from their telecoms, technology and television.
That’s true on both sides of the Atlantic. Much of what we watch might be different, but viewers’ needs are the same. Whether it’s the BBC or ABC, the Super Bowl or the Premiership, people now want it on demand, at home and on the move.
More than that, good broadband has become the basis of people’s livelihoods. That’s the message from small businesses, which make up more than 99% of companies here and in the UK. They need a fast, reliable service, to stay afloat and to grow.
By working together through the IIC, regulators can help to meet those demands. This goes to the heart of the Institute's purpose: “To explore and debate critical issues in communications and their economic, cultural, social and public policy impact”.
Today I want to explore that shared agenda by comparing communications in the US and the UK: the backgrounds to our markets, and how well our consumers are being served.
That, in turn, may offer some answers to one critical issue in modern-day communications. Namely, how can we encourage companies to compete and invest, so they can respond to the growing needs of consumers?
These challenges go back a long way. Our forebears could not have foreseen the ubiquity of 4G and fibre optics, but they knew all about investing in networks. Fittingly, when the first transatlantic cable was completed in 1858, its first message declared: “Europe and America are united by telegraphy!” Just twenty years later, engineers in London and Connecticut formed the world’s first commercial phone networks.
In 2016, I believe we remain united by the common challenge of making communications work for everyone. Thanks to the IIC, industry and regulators can work together, seeking joint solutions.
Of course, we come from different starting points in the UK and the US. So let’s begin by reminding ourselves how technology and geography have shaped our respective markets.
Networks: today and tomorrow
Let’s start with our networks.
They say Americans think 100 years is a long time; we Brits think 100 miles is a long way. The entire UK is smaller than many US states. By landmass, we sit somewhere between Michigan and Minnesota. Still, we face the challenge of extending decent broadband to everyone.
Our reasons are partly historic; in telecoms, 100 years really is a long time. The UK’s incumbent provider BT ran a monopoly network for most of the 20th century, and competition was slow to take off in the 1990s.
Today, around 80% of homes still receive broadband over BT’s network, which relies on copper from the street cabinet. Virgin Media’s cable network, owned by Liberty Global, serves the other 20%.
Convergence has taken time. From the birth of the BBC in 1927, it took 28 years for our second channel – ITV – to go on air. Television remained in these two hands until the 1980s.
Then cable arrived, as dozens of companies serving small franchise areas. It took 20 years for these to consolidate into one operator, which could then sell cable broadband to most of our cities. That was important: operators need national scale in the UK, whose population is one fifth of yours.
In the US, as you know, AT&T was generally the only game in town for phone services until divestments in the 1980s. This allowed MCI and Sprint to challenge AT&T’s monopoly in long-distance networks.
In the Nineties, the cable companies – originally designed to extend TV to remote and mountainous areas – brought competition in local telecoms to the baby bells over the last mile. Today, those cables provide fast broadband to almost three in five US homes, while the copper network serves only one third.
So our histories vary. But the future challenges of effective regulation are familiar to us all.
First, extending coverage to people who need it now.
In both the UK and the US, around 10% of homes can’t get superfast broadband. For US rural areas, that climbs to 39%; but in the rural UK, it’s closer to 70%. I’m concerned for the UK’s rural users, and the FCC has voiced similar fears over access for America’s rural areas and Tribal lands.
Our geographies are different, but our goal is the same. Whether it’s extending mobile coverage to the deserts and mountains of the American West, or improving broadband in remote parts of the Scottish Highlands, regulators have a role to play.
In the UK, Ofcom is working with the Government on plans for a universal, legal right to decent broadband, starting at 10 megabits per second. And the FCC is also reforming its universal service for the modern age, through programmes such as Connect America.
Second, keeping pace with soaring data demand.
US and UK citizens are using around twice as much data, year on year, over fixed lines. The average American now uses 19 gigabytes monthly. It’s even higher in the UK: 22 gigabytes – the equivalent of 50,000 digital photos, every month.
That’s why we believe minimum speeds for the UK’s planned universal service must rise over time. I know the FCC has a similar goal.
Third, how do we support companies to deliver the ultrafast networks that will drive our digital future? One word: competition.
I couldn’t agree more with Chairman Wheeler at the FCC, who said: “The simple lesson of history is that competition drives deployment and network innovation. That was true yesterday, and it will be true tomorrow.”
Competition is why companies like AT&T here in the US, and BT in the UK, are testing G.Fast technology to lift their older networks into the ultrafast age. Cable operators want to beat them on speed. Smaller players are building fibre to the premise. Here, Verizon and others are laying fibre, and we hope large operators will follow in the UK.
Because the UK needs more fibre. We might lead major European nations for superfast broadband, but only 2% of our homes and offices have a fibre connection to the door, compared to 19% in the US.
Why is that? I think we need greater network competition. In Europe, we’ve tended to rely more on network unbundling than the US – although cable has also boosted competition and investment across Europe. We’ve mainly increased choice by forcing our former monopoly telcos to provide wholesale network access to rival sellers.
For many years, it delivered good results. In the UK, Ofcom required BT to ringfence its network division in 2005 and allow competitors into its exchange buildings at regulated prices. Ten years later, average broadband prices had roughly halved, and broadband speeds and availability soared.
Today about 95% of UK premises have a choice of three or more broadband providers, and Virgin Media has begun extending its footprint, aiming to reach nearly two thirds of UK premises by 2020.
We want to see further investment in better and fast networks. The future is fibre. At Ofcom, we believe network competition can deliver that investment. So this year we announced plans to require BT to open its ducts and telephone poles for others to lay ultrafast, fibre connections.
Of course, America has a long tradition of network competition, enjoying a virtuous circle of investment. Cable firms invested to compete with satellite, and found themselves able to deliver broadband. Traditional telcos responded with DSL, then fibre. So cable companies kept upping their speeds.
But no model is perfect. At retail level, Americans have less choice than in the UK. Most are served only by their local cable operator and the incumbent telco. And that can mean higher prices, which I’ll come to later.
So I understand why the FCC wants to ensure networks compete fairly on content, by upholding net neutrality rules. Like much regulation, it’s a balancing act. Network providers want a deal that gives them sustainable returns. But content providers need terms that allow them to innovate and invest.
Neutrality is less an issue in the UK, where competition has been stronger over the ‘final mile’. But I empathise with the challenge of achieving balance in good regulation.
Net neutrality in the US. Network access competition in the UK. Two examples of major, targeted interventions by regulators in areas where consumers are losing out. We call it ‘right touch’ regulation.
For me, ‘right touch’ means fixing the problem, while taking care to avoid unintended harm – not discouraging investment by regulating too soon, or focusing on short-term results. Keeping prices competitive, but allowing healthy returns for operators.
How TV is changing
Now I mentioned content. Let’s pause to consider the case of television, and how this market is evolving in both our countries.
Here, once again, the balance between networks is different – you have more cable TV, we watch more terrestrial. You’re more likely to pay a subscription, we’re still watching more free channels. That reflects our historic reliance on universal, public-service broadcasting.
But when it comes to TV technology, I think American and UK viewers want the same things: choice, power and flexibility.
At least half of Brits and Americans own a digital recorder. Internet TV is growing fast, fuelled in the UK by services such as BBC iPlayer. Today, our public-service broadcasters – the BBC, ITV, Channels 4 and 5 – still provide the most popular on-demand services, but ‘over the top’ TV players like Amazon and Netflix are closing the gap.
In total, four in five UK homes now watch IPTV at least occasionally, and it’s above two thirds in the US.
That success led to fears elsewhere. Would Netflix and Amazon lead American ‘cord cutters’ away from cable, onto the internet? Would the UK’s big TV shows still attract enough eye-balls to satisfy advertisers?
So far, the effects have been more modest. In the UK, viewers are largely using Netflix and Amazon to add to their pay TV and traditional viewing – not to replace it. I know pay TV subscriptions have taken a knock here – from 87% to 84% in three years – but there’s clearly room for a variety of services in the home.
Once again, competition has brought benefits. In the US, cable operators are now offering smaller, better-value TV packages, and trialling new online formats. One of our jobs as regulators is to support that innovation.
Another role for Ofcom in the UK is more cultural, less economic. While we already regulate the UK’s broadcasters, we will become the sole regulator of the BBC – the world’s largest broadcaster – in the coming months. Clearly that means measuring and understanding the social importance of television in people’s lives, and protecting its value.
Fair prices and quality of service
Of course, value takes many forms. What about the value that good communications providers deliver every day – quality of service, and fair prices. On these measures, are customers better served in the UK or the US?
Let’s take quality of service. Most people are largely happy with their broadband – around 80%, both here and in the UK. And roughly three quarters are happy with speeds and reliability. But that means a lot of people are dissatisfied.
So we’re working to improve quality of service across the UK industry. Speeding up repairs and installations by BT. Publishing performance tables and making switching easier, so that consumers are empowered to find the best deal. Investigating companies who fall short. Some measures are new, and I’m keen to share our experiences as they come into effect this year and next.
How about price? Let’s compare like-for-like, in US dollars. First, a ‘late adopter’ household using lots of landline minutes, a bit of cellphone data, basic broadband and free TV. We estimate such a UK household would pay about $60 per month. For American homes, it’s about $160.
What about a higher-spending home – using less landline but more cell phone, plus superfast broadband and pay TV? That UK home would pay around $140; in the US, it’s $400 – nearly three times as much.
Why is that? There are many factors. The UK is small, so deployment costs are lower. We import more cheap equipment from the Far East. And while you might pay more, our research shows you certainly get more for your money.
Americans talk more on the phone than we British – perhaps that reflects our famous ‘reserve’. You enjoy around an hour’s more TV each day – almost five on average. And you download far more cell phone data – almost two gigabytes per person, each month. We use less than half a gigabyte – though it’s growing fast, as 4G catches up with the US.
When it comes to cell phones, other factors may be at play. Mobile networks are costly to deploy in a landscape as vast and diverse as the United States. Americans’ monthly mobile bills are two-and-a-half times higher, on average, than in the UK.
But I’ve no doubt that prices would be higher, in both our markets, if it weren’t for effective competition. For many years the UK had five national networks; since 2010, we’ve had four. What we’d like to see in UK broadband, we already have in mobile: strong network competition.
And we have some of the lowest mobile prices around. The smallest operator, Three UK, has acted as a ‘maverick’ challenger brand, competing hard on price and innovating on offers like free overseas roaming.
So when Three announced plans to merge with its larger rival, O2, we opposed that deal, and the European Commission rejected it last month. That was an important decision. Our research shows that mobile prices are around 20% higher in mobile markets with fewer than four operators, and no ‘maverick’ player.
So I’m sure that strong competition between four networks – including a disruptive player, such as Three or T-Mobile has been here in the States – will remain important to both our markets in the coming years.
To summarise: if our histories tell us one thing, it is that competition delivers.
Retail competition helps, but competition among network operators is vital. Only these companies can meet the challenge of improving your coverage, making your cell signal more reliable, or speeding up your broadband.
These are our challenges too. Network operators need ‘right-touch’ regulation, and incentives to invest – not just today, but in tomorrow’s world of ultrafast broadband and 5G. I hope today I’ve explained our approach to supporting those goals.
I’ve also sought to highlight how competition has served the communications needs of Britain and America well, in different ways.
The UK has seen lower prices and wider choice, but the US is making rapid progress in building the networks of tomorrow. Here, I think, we can learn from each other.
So I very much hope we’ll continue working together, through the IIC. Sharing what we find. And striving to meet the communications needs of all our citizens, wherever they live.