Driving investment in our digital economy
Speech by Sharon White to the Parliamentary Internet, Communications and Technology Forum, 10 July 2017
It’s a real pleasure to be at PICTFOR for the first time, a group whose expertise is hugely important to driving forward the debate about technology and communications in the U.K.
Your history reflects the evolution of our digital economy – all the way from 1981, when your predecessor PITCOM was forged in the furnace of passionate Parliamentary debates about how to liberalise, or privatise, the telecoms business.
Some trace your origins further back to 1978, when James Callaghan set MPs to work after watching a TV documentary – “Now the Chips Are Down” – examining how microcomputers might transform the UK economy.
Four decades on, the chips are down again, in rather different ways. Our industries are addressing a fresh wave of challenges and changes – from robotics and automation, to cybersecurity and connected devices.
None of this will be possible without telecoms networks that are fast, reliable and secure – yet largely unseen. Beneath our very feet, the Palace of Westminster alone needs 100 miles of broadband cables. Further afield, our entire digital economy rests upon a vast and vital infrastructure of broadband lines and mobile masts.
No wonder our £57-billion communications sector is the second largest in the economy. People of all ages rely on these networks for shopping, for entertainment, and to stay in touch with friends and family. Companies of every size need them to do business. They are the essential plumbing of the information age – central to modern finance, healthcare, transport and agriculture.
Now, our first priority must be for homes and offices to get the basic broadband speeds and mobile reception they need. There has been progress: nine in ten homes and offices are reached by superfast broadband, and 70% can get a 4G signal indoors.
But I still hear at first-hand – and this is a common concern among MPs – the anger and frustration of people and small-business owners who suffer from slow speeds or poor reception. All major political parties have recognised the need for legislation to address this. At Ofcom are giving technical advice to the Government on its plans to introduce a universal right to decent broadband by 2020, and to help ensure all four mobile operators cover a larger portion of the UK landmass by the end of this year.
To the same deadline, Ofcom rules will mean that at least one mobile network – O2 – must provide an indoor 4G signal to at least 98% of homes and offices.
But clearly, we need to go further as an industry. People have never had greater needs or expectations of their communications services. Future investment is essential just to meet those demands, let alone to unlock new opportunities and innovation.
Why future investment matters
At home and in the office, the amount of data flowing over broadband grew by a third last year, while the volume of mobile data expanded by 44% over the same period. Some estimates suggest it may be fifty times higher in ten years’ time.
If the UK’s physical networks don’t evolve to meet that demand, we could face a ‘capacity crunch’, leading to slower growth and stifled innovation in fields including the internet of things. Ultimately, the UK’s position as a world-leading digital economy would come under threat.
For all these reasons, we need our telecoms companies to invest in ultrafast, full-fibre broadband and higher-capacity mobile networks.
There are positive steps. All four mobile operators have spent billions of pounds on their UK infrastructure.
BT is aiming to reach two million premises with full fibre by 2020.
Virgin Media has begun a five-year, £3 billion expansion of its cable network.
KCOM is laying full-fibre broadband throughout Hull, while smaller ultrafast networks are now offered by Gigaclear in 13 counties, and by Hyperoptic in 20 cities. Last week, CityFibre announced plans to start building full-fibre lines in up to ten cities next year.
Together, this is a promising start. But only around half a million of the UK’s homes and offices currently get ultrafast, full-fibre broadband to their door. That represents around 2% of premises, compared to more than 70% in Spain, Portugal, Korea and Japan.
I believe that we can avoid that capacity crunch in the UK, if regulators and policymakers help network operators to invest. That means understanding the challenges they face.
The investment challenge
For one, we recognise that the investment climate is uncertain. While there are positive signs, such as private-sector demand for IT services, companies wishing to deploy capital face questions over future consumer spending and demand, as well as macro level uncertainties over the UK’s future trading relationship with the EU.
We appreciate, too, that fibre-optic networks are billion-pound projects with payback periods of more than a decade.
So how can we encourage firms to make those commitments?
First, we must make it quicker and cheaper to build new physical infrastructure. We welcome the EU’s Access to Infrastructure Regulations, which will allow operators across a range of sectors to access each other’s networks, on fair and reasonable terms.
Similarly, the new Digital Economy Act should lead to lower rental charges for operators, more control over their agreements with landowners, and the automatic right to share sites with others. We have also seen reforms to English planning laws to boost mobile roll-out. And today MPs are discussing new legislation to remove business rates for those building fibre networks.
For some operators, these changes do not go far enough. So we welcome the Government’s commitment to explore further options around planning and wayleaves.
Public funds can stimulate investment too. The Government has announced £740 million for 5G trials, and a £400-million fund for full-fibre broadband.
For our part, Ofcom is working to create the best possible regulatory environment for investment. I would like briefly to highlight three particular things we are doing.
First, we are making it quicker, cheaper and easier for competing operators to build ultrafast, ‘full-fibre’ broadband networks, using BT’s underground tunnels and its telegraph poles.
Last year I visited Portugal and Spain, to see how a similar process has been used to boost competition. The results are very impressive: around three quarters of premises in both countries are now connected to full-fibre broadband. Our plans should give UK providers more confidence to invest in full-fibre networks, at reduced cost.
Second, we are overseeing the biggest ever reform of Openreach, the network arm of BT. Openreach will become a distinct company, with a legal purpose to serve telecoms companies equally.
As part of that, investment decisions must be made in true consultation, across industry, in the interests of all its customers. I’m pleased that Openreach is consulting widely on how to make full-fibre broadband viable on a large scale.
Third, we are introducing pricing controls that balance the need for people and businesses to have access to affordable broadband with the need to incentivise investment. By allowing Openreach to retain pricing flexibility for its faster wholesale products, we can encourage competitors to build their own networks and compete effectively with BT’s prices.
Investing in quality of service
Investment isn’t just needed in networks. It is also crucially needed in customer service. Customer service has not been good enough. Our colleagues at Which? have found that telecom firms dominate the list of worst-rated companies for customer service – behind even banks.
This is an industry whose major operators, fixed and mobile, generated billions of pounds of excess free cash flows last year. So I do not accept there must be a trade-off between investing in networks and service quality.
Now is the time for our phone, broadband and mobile providers to commit the necessary funds to resolve customers’ problems more quickly and effectively. If they don’t, Ofcom will hold them to account.
There has been progress. Call centres are being returned to the UK. More emphasis is being given to ‘getting it right first time’. But in April, our first report on service quality revealed that 13 per cent of telecoms customers experience poor service – such as unreliable broadband, or long waits for repairs and installations.
Our report gives consumers the information they need to identify the best and worst performers, and shop around for something better. And better information is just one aspect of a package of measures Ofcom is introducing to help boost service quality.
We are planning tougher rules for Openreach to repair faults and install new lines more quickly. We are levying multi-million-pound fines on the likes of BT, EE, Plusnet and Vodafone, for a range of poor behaviours including mis-selling, overchargingand false billing.
And we’re planning automatic compensation for customers when things go wrong – a cheque in the post, or a credit on your bill, without having to ask. That will also encourage providers to up their game.
To conclude, at Ofcom we believe investment and innovation are essential not only to our communications sector, but to our wider economy.
Regulators and policymakers should do everything we can to encourage investment and innovation. Parliament has a central role to play; the careful scrutiny afforded to the Digital Economy Bill showed how MPs and peers are central to shaping the UK’s digital policy.
We particularly value your insights and perspective, and those of the Select Committees, in helping to improve our work. We hope to keep sharing in your expertise, and hearing the experiences of your constituents.
After that, we look to telecoms companies themselves to seize the opportunity and invest to set themselves apart – through faster networks, wider coverage, and better quality of service.
Progress in all these areas is vital to the citizens and consumers for whom we regulate, and to the constituents you represent. I welcome your thoughts on how, together, we can support industry to invest in our country’s digital future.