As Alistair Darling has now formally announced the fixed line tax, intended to fund
the shortfall in super-fast broadband coverage in the UK, Point Topic has published
its work from earlier this year taking an in depth look on what it could mean for
the consumers and businesses in the UK.
This report was originally published in July 2009.
Matching funds to needs
As far as broadband is concerned, the key proposal in Lord Carter’s Digital
Britain Final Report is to charge what he delicately calls a “supplement” of 50p
a month on the rental of every telephone line in the country (barring those provided
under social telephony schemes). The money raised will go to a “Next Generation
Fund” to deliver “at least 90% coverage of next-generation broadband by 2017.”
Many commentators have said such funds would be quite inadequate and the objective
is far short of what is required. But Point Topic’s research shows that this
modest tax should be more than enough to support the rollout of superfast broadband
to serve over 90% of the UK population. With a flexible approach it should be able
to take coverage up into the high nineties.
On the other hand, our current forecasts suggest that 2017 looks a rather slack
target for achieving 90% complete coverage. We think it should be brought forward by
two years. We also believe that we should see a much more ambitious definition of
what taxpayers are going to get for their money than Carter has given us so far.
Based on some simple assumptions, our research shows that market demand alone should
be strong enough to bring next-generation broadband to around 73% of the UK
population. We estimate that, provided it was efficiently used, a cross-subsidy of
£70m a year could extend coverage to another 19%. Reaching the final 8% will be
more difficult, but with the Carter Tax able to raise at least £170m a year there
should be resources to spare to do it.
The key revenue assumption behind this is that the equivalent of 60% of present-day
broadband users will be prepared to pay an extra £1.50 per month (including VAT) to
get the benefits of next-generation broadband, rather than current products.
The matching cost assumption is that the average investment required to provide
fibre-to-the-cabinet (FTTC) broadband to a single street cabinet, able to deliver
over 40Mbps to each user in its service area of about 1.6 sq km, will be £50,000.
We assume this will be amortised over 10 years with a regulated rate of return of
On this basis it turns out that next generation access needs about 300 customers per
square kilometre to be viable on a purely commercial basis – corresponding to a
total broadband density of about 500 lines per sq km after allowing for the 60%
More generally, Point Topic believes that broadband density (the estimated number of
broadband lines per sq km) is the best single indicator of the “next-generation
attractiveness” of an area. For example, this is the first measure which
communications providers should consider to decide where they should deploy their
next-generation investments. On the other side of the market it is what development
agencies should look at first to see which parts of their region are most likely to
lack NGA-appeal and need special support.
Broadband density zones
Point Topic’s model for estimating the relative attractiveness of different areas
for rolling out next-generation access (NGA) networks is explained in more detail in
a separate UK Plus Short Report,
'NGA Attractiveness'', together with more detailed results. Here we provide just a
Broadband density varies hugely, from over 10,000 lines per sq km in business
districts and apartment blocks to under 1 in the most thinly populated areas. Point
Topic has devised a range of nine density zones to be able to view this range in a
In turn we have merged the detailed nine zones into four broad areas which focus on
the main differences as far as distributing the Carter money is concerned. The
pattern of these areas for the UK as a whole is shown in Map 1 while their basic
statistics are provided in Table 1.
Figure 1: UK NGA Appeal (click for larger
The four areas range from the highest-density Area A, dark blue on the map, where
next-generation broadband can be financed by market demand alone, to the lowest
density Area D, brick red, which will need case-by-case solutions to bring broadband
to the most remote places in Britain. Area D looms large on the map because it
covers over 75% of the land area of the UK but only 4.4% of the population while
Area A looks much less significant than it should, with 73% of the population but
only 3.7% of the land area.
Table 1 Figures for the four Density Areas
Density lower limit (BB lines/sq km)
Land area (sq km)
Total broad-band lines (‘000s)
Total premises (‘000s)
NGA net added revenue per year (‘000s)
NGA revenue required per year (‘000s)
Revenue shortfall per year (‘000s)
NGA subsidy per premises per year (£)
Map 2 gives a close-up view, focusing just on London and the South-East, to show how
the different areas are distributed between the towns and the countryside.
Fig 2: NGA in London and the South East (click for larger
Area A includes the three most high-density zones (9, 8 and 7) and the great bulk of
Britain’s homes and businesses, comprising anything from city centres and
apartment blocks to leafy suburbs. It includes almost all the areas covered by
Virgin Media’s cable network, which is already offering a type of next-generation
service with download speeds up to 50mbps.
Area B comprises the next three zones (6, 5 and 4) with broadband density ranging
from 500 to as low as 30 lines per sq km. These areas include suburban fringes,
villages and the more populated countryside, with 19.3% of the UK population. Point
Topic estimates that the extra revenue generated from next-generation services in
Area B areas would be about £25.3m a year, £69.2m short of the revenue required to
finance it. This gives an indication of the subsidy needed.
Area C has been identified with just one density zone, Zone 3, because this is the
transitional area where straightforward subsidy should give way to more complex
solutions. We estimate that total extra next-generation revenue in Area C would be
only £4.1m a year while the amount required to finance the rollout on the basic
assumptions would be £126m a year. But Zone 3 is essentially small villages and
hamlets with no continuous built up areas. Here next-generation broadband will be a
matter of delivery to isolated points rather than across broad areas, and the
technology and economics is likely to be considerably different from what prevails
across Area B.
Finally, Area D comprises the most remote areas of all, density zones 1 and 2, with
nowhere supporting more than 10 broadband lines per sq km, and often much less. The
same points apply as with Area C only more so. Satellite broadband could be one
solution but these empty moorland areas will often also have very low costs per
kilometre for laying fibre-optic cable. Subsidies will still be needed but with
local knowledge and initiative they could be much lower than appears necessary at
While the four Areas show the NGA appeal of different parts of the country at a
broad strategic level it is necessary to look at the nine Zones to see the full
detail. Map 3, focusing on the seaside city of Brighton and its hinterland of Sussex
countryside, shows how sharply broadband density varies between tightly-packed town
centres and open spaces such as the South Downs. Working at this level planners,
marketers and campaigners can see immediately where the market is likely to support
investment or where special intervention is likely to be required – and even what
form it might take.
Figure 3: NGA Density Zones (click for larger
What kind of service?
Lord Carter’s proposals will not succeed unless they deliver a broadband service
for the 2010’s. This means broadband with the performance which enables ordinary
households to access the high-performance internet applications they will want to
use. The public is gradually realising that having a high download speed is not the
biggest issue for their broadband; increasingly they want more modest speeds which
are continuously sustained and, in particular are not choked off at peak hours.
“We just want to be able to watch iPlayer,” as one newspaper interviewee put it
when asked to comment on the Digital Britain report.
Peak download speeds will not be a problem for next-generation customers. BT’s
FTTC rollout programme should be able to provide up to 60mbps. Virgin Media is
already offering 50mbps and working on 200 – although the cost of that is likely
to be high. But high peak speeds alone will not meet the needs of broadband users in
To have a quality experience with iPlayer, especially in high-definition versions,
users will want to receive a sustained, continuous data stream of at least 2mbps,
maybe 4. To join in video exchanges with their friends they will want at least 1mbps
upstream as well. They will want low latency and jitter for good quality voice and
successful online gaming. All this will define a service which represents a step
change beyond the broadband we know today, so much so that it really needs a
different name – “superband” is one suggestion.
Simply building out next-generation access services which offer scores or even
hundreds of megabits downstream will not be enough. The delivery of superband
features and quality of service must be a requirement of next generation
infrastructure delivered with the help of Carter money – and hopefully that which
is financed by the market as well. Such Quality of Service will also demand
substantial investment in the “middle mile” backhaul and core networks, which we
believe will be covered by the costs we have assumed.
The Digital Britain timescales also look unambitious. Although BT has committed to
achieving next-generation coverage of 40% of the UK by the end of 2012 our current
forecast is that it will slip by a year to end-2013. But by then BT and its
competitors should be rolling out at the rate of 4m more homes and businesses passed
every year. Even just maintaining this rate would take them to the 25m level needed
for 90% coverage by mid-2017. A target of 2015 for 90% coverage would set a more
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