July 2002 Number 181

BROADBAND INTERNET
ACCESS
There are now over 700,000 subscribers to high speed lines (ADSL - see box). Cable broadband is supplied by
'broadband' internet access in the UK. With 100,000 NTL and Telewest. BT sells wholesale ADSL packages to
new customers being connected each month, progress around 200 operators, so customers can buy ADSL
is being made towards the Government's target "for the directly from BT (who have around 60% of the market)
UK to have the most extensive and competitive or from another operator. See table below.
broadband market in the G7 by 2005". However, the
UK still has one of the lowest numbers of broadband Broadband subscribers, cost and coverage
subscribers in the G7 and a third of UK households are Number of Cost per Coverage (%
Broadband
not covered by the main broadband providers. This technology subscribers month of all
briefing outlines how broadband internet access can be (June 2002) (512kbps) households)
received, examines international comparisons and Cable modem 419,0001 £25-352 45%
considers options to encourage take-up and coverage.1 Telephone
290,000 £22-30 60%
line (ADSL)
1
Includes customers on NTL's 128kbps package, at £15/month
What is broadband? 2
Includes telephone line rental
Broadband internet connections allow users to download Sources: Oftel, Broadband Stakeholder Group, NTL
web pages and data many times faster than conventional
'narrowband' internet access. There is little agreement on Government policy
the definition of broadband - the Government's UK The Government published its broadband policy UK
Broadband Stakeholder Group has accepted that it is online: the broadband future, in February 2001. This set
constantly evolving and uses a definition based on out two main reasons why the Government believes
services to the end user rather than data rates. Most broadband is important: to encourage users to connect to
current UK mass-market broadband consumer packages the internet more often and for longer; and to enable new
offer speeds of 512kbps (512,000 bits of information consumer and business services. It suggests that these
per second), compared with 56kbps for narrowband. changes will play an important role in national
competitiveness. In the autumn, the Prime Minister's
Broadband services are 'always-on' - the computer is Strategy Unit is expected to report on the development of
connected to the internet continuously. Users pay a flat electronic networks over the next decade3.
rate independent of how long they spend on the internet
or the amount of data downloaded. Broadband users The UK Broadband Stakeholder Group
typically spend four times as long online as narrowband The Government's Broadband Stakeholder Group was
customers2 and broadband take-up has been faster than established in April 2001 and reports to the DTI.4 It
many comparable technologies, such as mobile phones. includes representatives of policy makers, content
providers, communications companies and consumers.
Some of the ways to receive broadband are shown in the Its latest report was published in June 2002, focusing on
box on page 2. The vast majority of UK broadband two main areas: accelerating take-up and extending
customers use the cable network or standard telephone coverage. These issues are considered on page 3.
postnote July 2002 Number 181 Broadband internet access Page 2

International comparisons
Technologies for broadband in the UK Take-up
Broadband take-up in five countries is shown in the
Cable
Cable networks in the UK cover around half of all
figure below. Although UK take-up is increasing, it
households, providing television, telephone and internet remains the lowest of the countries considered. South
access. Around 85% of these networks currently can supply Korea has the world's highest take-up of broadband, with
broadband internet services using cable modems. NTL and 64% of households subscribing (July 2002) – although
Telewest both offer services at 512kbps and 1,000kbps. In because much of the population lives in apartment
2001, NTL launched a combined cable modem and digital
TV set-top box offering broadband internet access.
blocks, direct comparisons with the UK are difficult. The
box below considers the policy approaches taken by
Standard telephone lines - ADSL some of the leading broadband nations.
ADSL (Asymmetric Digital Subscriber Line) technology uses
special equipment at each end of copper telephone lines so International broadband take-up (% of population)
that they can send and receive data more quickly. Like many
broadband technologies, ADSL provides faster downstream 8
rates (to the user) than upstream (from the user to the 7
internet). Many users receive more data from the internet 6
(web pages, audio files etc.) than they send. BT launched France
5 Germany
ADSL services in summer 2000 and aims for more than 1
4 Sweden
million ADSL connections by summer 2003. ADSL is also UK
3
provided by Kingston Communications in Hull, who have US
10,000 subscribers. 2
1
ADSL can only be used within ~5.5km of a suitably 0
equipped telephone exchange - in a typical exchange area, Oct-99 Apr-00 Nov-00 May-01 Dec-01 Jul-02
this includes 90% of premises, although it will be less in
Source: Oftel
rural areas. 1115 exchanges, serving two thirds of
households, have been converted to offer ADSL.

Satellite internet International broadband policy

Satellite services can provide broadband internet access to
areas which other technologies do not cover. Information South Korea
sent to each user is broadcast by the satellite, but encoded 'Cyber Korea 21' aims to provide universal access to
so that only the intended recipient can read it. The return broadband by 2002. In a new initiative, 85% of homes
path can be via a landline phone or direct to the satellite. A should have 20,000kbps connections by 2005. The
number of service providers now offer satellite broadband government has offered low interest loans to network
services, mainly aimed at small and medium-sized providers in rural areas and mandated broadband
businesses. It is generally more expensive than cable or installation in new apartment buildings.
ADSL with particularly high installation costs. However, rural
businesses may be able to receive support - for example, Canada
Highlands and Islands Enterprise in Scotland have allocated $4bn Canadian dollars (£1.75bn) is being spent by the
£250,000 to help with installation costs. government to implement the National Broadband Task
Force action plan, which includes connecting all
Optical fibre communities to national broadband networks. The
Optical fibre can provide very high data rates. It is used for government is funding network builders and co-ordinating
the backbone of the communications network and by many demand to stimulate infrastructure investment.
existing businesses, but costs have been too high to allow
fibre to the home. However, costs are falling and becoming Sweden
comparable to ADSL for new housing estates. In Stockholm, a publicly owned company is installing a
network of 'dark fibre' (with no communications equipment
Wireless at either end). This can then be leased by operators to
'Broadband fixed wireless access' allows high speed internet provide communications services. The Swedish government
access via an antenna which users attach to the outside of is also investing £680m with the aim of ensuring that
their building. It is offered in the UK for around £50 per broadband access reaches 98% of towns and villages. This
month but coverage is currently limited to 13% of is expected to be matched by equal private investment. In
households (although it is planned to extend this to 65% by addition, there are tax subsidies for broadband subscribers.
2003). Regional licences for spectrum were auctioned by
the Government in November 2000 but of the 42 available Source: Broadband Stakeholder Group, OECD
licences, only 16 were sold. The Government is running a
rolling auction for the unsold licences until October 2002.

The next generation of mobile phones (known as 'third Price

generation' or 3G) is due to be launched in the UK in Oftel conducted a study comparing the April 2002 price
2002/3. This will allow faster internet access than current of ADSL and cable modems in the UK with those in
mobile phones (although rates of 512kbps are unlikely). France, Germany, Sweden and the US. It considered the
two cheapest packages in each country, examining
New fixed and portable wireless technologies are also being
tested and may offer the chance to extend broadband residential and business deals. Key points were:
coverage. In particular, the 'WiFi' technology developed for • residential broadband prices in the UK were similar to
in-building wireless networks may prove useful for local rural or lower than in all countries except Sweden.
community schemes and for broadband 'hotspots' in public • for basic business services, the UK was cheaper than
areas such as train stations and cafes. the other countries studied.
 postnote July 2002 Number 181 Broadband internet access Page 3

Further, Oftel has concluded that the UK has one of the peer' file sharing, where users swap audio and other
most competitive broadband marketplaces in Europe. It files over the internet, is one of the primary
argues that there is competition between cable and ADSL applications for current broadband users.
and that ADSL service providers can choose between
local loop unbundling (see box below) and wholesale The Group also proposed work on a number of further
services, unlike in many other European countries. areas to encourage take-up, including: security guidelines
(to inform customers about how to protect themselves
against viruses, hacking etc.); and the development of a
Unbundling the local loop competitive broadband market - particularly through the
BT, as the former state telecommunications network, proposed new communications regulator, OFCOM.
operates an extensive 'local loop' - the copper wires that run
from telephone exchanges to customer premises. Through
'local loop unbundling', BT makes its local loop available to Broadband coverage
other operators who can then upgrade individual loops using Around two-thirds of UK households are currently
ADSL technology to offer high speed internet access. An EC covered by cable or ADSL broadband services (~40% of
Regulation requiring incumbent operators to unbundle their households have a choice between the two). However, in
local loops came into force in January 2001.
rural areas less than 5% of households are covered. In
When unbundling commenced, there was great demand the longer term, satellite and other wireless solutions
from operators - so much so that BT believed that it would may offer greater availability in rural areas, but at present
be unable to offer space in exchanges to all those who these are not mass-market products.
requested it. However, by February 2001 requests from
operators had fallen to such a low level that BT could now
meet all demand. By July 2002, ~600 local loops had been
The Broadband Stakeholder Group is working on a
unbundled out of a possible 28 million. There have been detailed map of UK broadband availability and has
similar problems in other European countries, with the suggested that areas fall into four broad categories:
Competition Commissioner concluding in July 2002 that "in • a competitive market for affordable mass-market
many countries unbundling has not gone beyond a merely broadband services (duopoly)
experimental stage". Some telecommunications operators
have suggested that BT's local loop network should be run
• at least one provider offers affordable mass-market
as a stand alone business, separate from its retail services. services (monopoly)
• no services currently available, but potential for
commercially sustainable broadband services. Market
Encouraging take-up incentives required
In their June 2002 interim report, the Broadband • little expectation that the market will provide
Stakeholder Group argued that increasing take-up in affordable services. Political solutions required.
areas where broadband is already available was key to
further development. Price is clearly an important factor. UK regional development
Cable modems have gained nearly 60% of UK broadband The Government has announced the establishment of a
subscribers, in part due to 2001 price reductions. April network of dedicated regional broadband advisors, to be
2002 reductions in BT's wholesale prices (by 40% for its co-ordinated by the DTI. It is also providing £30m
main residential product) have similarly encouraged the funding for projects to encourage broadband roll-out in
ADSL market. regions across the UK. Managed by Regional
Development Agencies, the projects include:
Thus far, the UK broadband market has been driven by • 'Broadband Buckfastleigh' – connecting public services
narrowband internet customers who wish to access the in this small Devon town to broadband
same content more quickly. In business, case studies • trials of new technologies such as wireless access and
suggest that broadband can cut transaction costs and satellite in rural areas of the East Midlands.
increase efficiency and innovation. However, for
significant growth in residential take-up it seems likely Other regional initiatives are also developing. For
that new (as yet unidentified) types of content and example, in Cornwall the £12.5m ACT NOW partnership
services will be needed. aims to ADSL-enable 12 exchanges and provide
broadband equipment and support for over 3,000
The ability to view full motion video is seen by many as businesses. It is part-financed by EU Objective One
an important future application for broadband, with the funding. In addition, the devolved administrations have
BBC and Kingston Communications in Hull running a established broadband strategies (see box on page 4).
trial of broadband interactive local TV. Public sector
content may also drive take-up, for example in education Aggregating demand
and health services. The Stakeholder Group suggested Under this model, potential broadband customers in a
that new content will require two key developments: local area come together to express their interest in
• a standard 'micro-payment' system, so customers can broadband, and thus aim to persuade suppliers to extend
buy small value items, such as the right to watch an coverage to their area. The Government's broadband
online video, without needing to use their credit card strategy includes a pilot Broadband Brokerage service in
• a 'digital rights management' system, which would the East of England, to allow companies, public sector
encourage providers to deliver their content via organisations, communities and individuals to register
broadband without concerns over piracy5. 'Peer-to- their interest and then procure services together.
postnote July 2002 Number 181 Broadband internet access Page 4

aggregation, it is not clear whether demand in remote

Broadband in the devolved nations areas will be enough to justify infrastructure investment.
In addition, anticipated public sector demand is
Scotland
The Scottish Executive's August 2001 paper Connecting
uncertain, so some providers have called for the
Scotland: our broadband future set out three strands: Government to guarantee a level of future demand.
• liaison at UK level on regulation and policy
• plans for 'zonal' procurement - where public sector Fiscal incentives
demand would be aggregated in local zones, which In its December 2001 report, the Stakeholder Group
providers would then bid to serve. Two areas have been
nominated as 'pathfinder' areas: the Highlands and
noted that the stock market slump had decreased the
Islands, and South of Scotland. capital available for telecommunications companies to
• identifying areas where direct support is needed - invest in broadband infrastructure. The Group proposed
including work under the £4.4m allocated to Scotland that the Government explore fiscal methods to reduce the
from the UK broadband fund. cost of this capital, an approach used by some of the
Wales
leading broadband nations. However, the Government
Cymru Arlein Online for a Better Wales set out the Welsh rejected such incentives, arguing that there was not
Assembly's IT strategy. £100m of public money is being "clear evidence of market failure, sufficient to justify the
invested in a five year programme to bring broadband to costs of intervention". Such direct Government help may
310,000 extra homes and 67,000 extra businesses. The also be considered illegal state aid by the EU.
programme includes:
• promotion and advertising of broadband
• investigating the economic case for subsidising Universal service obligation
terrestrial broadband Despite the market incentives proposed above, there will
• a satellite subsidy scheme for businesses who cannot remain areas where it is uneconomic for communications
access affordable broadband by other means providers to offer mass-market broadband using current
• aggregation of public sector demand, including the
establishment of a 'lifelong learning network' for Wales.
technology. The Broadband Stakeholder Group suggests
that ensuring access in these regions is a matter of public
Northern Ireland policy rather than an industry issue.
The Executive's broadband programme includes:
• support for businesses to connect to satellite broadband Access to standard fixed line telephone services for all
• schemes funded through Northern Ireland's £1.5m
share of the UK broadband fund
areas of the UK is ensured through the Universal Service
• 'Broadband for Business' campaign to stimulate demand Obligation (USO). This requires BT (and Kingston
• a feasibility study into public sector aggregation Communications in Hull) to provide access to fixed line
• providing broadband in classrooms and libraries. telephone services at an affordable, geographically
averaged price. Oftel reviewed the USO in August 2001
and concluded that an extension to broadband would be
BT has set up a registration scheme for over 300 premature. EU law rules out extending the USO to
exchanges (with another 500 due to be added by broadband, but requires the EC to review this by 2005.
September) where, if demand is sufficiently high and it is
technically feasible, it will convert the exchange to ADSL. Overview
In these areas, 200-500 advance orders would trigger The number of broadband subscribers in the UK is
ADSL provision. However, the pressure group growing substantially, and should reach 1 million before
Broadband4Britain is running its own campaign to the end of the year. Oftel has concluded that the UK
aggregate local demand and has suggested that 50 broadband market is competitive, but issues remain to be
orders should be enough to convert a typical exchange. addressed in two areas before the Government's target for
In reply, BT argue that all exchanges are available for the most extensive market in the G7 is likely to be met:
local loop unbundling, so other broadband suppliers • increasing take-up where broadband is available
could meet this demand if it is commercially feasible. • extending coverage to the third of households which
do not have access to affordable broadband services.
Public sector demand
The public sector will be one of the key drivers of Endnotes
broadband demand. Pooling requirements from hospitals, 1 For a more detailed study of broadband, see POST's longer report e
schools etc. could permit more cost effective is for everything?, December 2001
procurement and stimulate broadband roll-out. A team in 2 UK online: the broadband future, Office of the e-Envoy, 2001
the Treasury's Office of Government Commerce will 3 See www.strategy-unit.gov.uk
advise public sector purchasers on broadband and 4 The Group submitted a full report and strategic recommendations to
Government in November 2001. See www.broadbanduk.org
negotiate 'framework contracts' with suppliers. The team
5 See forthcoming POSTnote about copyright and the internet
will work with the DTI network of regional advisers.
POST is an office of both Houses of Parliament, charged with providing
However, concerns have been expressed about independent and balanced analysis of public policy issues that have a basis in
aggregation of public sector demand as a means of science and technology.
encouraging infrastructure investment. Communications Parliamentary Copyright 2002 The Parliamentary Office of Science and
providers have little capital available and any proposal Technology, 7 Millbank, London SW1P 3JA Tel 020 7219 2840
will need the prospect of significant returns. Even with
www.parliament.uk/post/home.htm