Ofcom’s ambitious plan to fiber-up rural United Kingdom

Ofcom’s ambitious plan to fiber-up rural United Kingdom

The United Kingdom’s Regulator for telecommunication Ofcom on 8 January 2020 announced its plans to expand high speed fiber internet service in rural United Kingdom in order to bring the country at par with  several European and Asian countries which have a far greater penetration of high speed fiber broad band connectivity compared to the United Kingdom. The plan was part of Prime minister Boris Johnson’s poll planks to connect all British homes with Gigabit speed broadband internet by year 2025 and, among his larger ambitions, to extend the benefits of commerce and trade possibly through digital explosion to far flung areas of United Kingdom.

The plan, which the regulator wants to implement over the next five years, calls for laying of thousands of kilometers of high-speed fiber optic cables which would require capital commitments worth several millions of pounds. Currently only 3 million or 10 percent of British homes are able to connect to fiber optic broadband network. This is far below several Asian and European countries like Spain, Sweden, Portugal, France and Singapore. With the kind of changes being envisaged by the regulator, several path breaking measures are being proposed by the same. First of all, the government already has a proposal to provide £5 billion worth of subsidy to build this network infrastructure; second, it would partially deregulate BT (British Telecom) in at least a third of the country where it is highly likely to maintain monopoly in terms of network infrastructure in the event of its firm commitment to replace existing copper wire based broadband infrastructure with an optic fiber infrastructure.

BT, the old workhorse of the British telecom industry, will have to play a central role if this plan has to see a successful implementation. The company, which owns the most extensive telecommunication infrastructure in the country, is also the sole provider of telecommunication services in several parts of the country. The company, which already has extensive old generation slow copper cable network in place in most of the country, is constrained by the rates of revenue it generates in order to make a capital commitment of this order. Moreover, the cost of upgrading broadband communication infrastructure in a non-urban location is several times higher on account of lower consumer numbers. In fact, as per some estimates, it costs nearly ten times more to upgrade infrastructure in lowest most ten per cent of rural homes in the country. The figures are a testimony in themselves to the fact that, in the current state of things, the plan could very well be unviable, requiring therefore special concessions from the government for BT or any other company for that matter to take interest in this plan.

The regulator, in order to address this issue, is not only assuring a subsidy assistance of £2 billion but has also indicated that it will increase the base charges on the basic 40 Mbps broadband packages offered through a full fiber network by between £1.50 and £1.85  per month, compared to the equivalent copper wire infrastructure based service. Jonathan Oxley, acting chief executive of Ofcom, while commenting on the issue said that this increase in prices will not only provide adequate return on investment for BT to implement this plan, but is also well justified for consumers, who would now be getting a faster and more reliable broadband connection than what they were getting before. The increase in prices, however, could be limited to urban areas  as increase in prices in rural areas could hamper growth of broadband services in those areas.

The contribution made by the internet age in the expansion and integration of trade and commerce in the country is very well known. United Kingdom, which is now coming out of the European union, is faced with unprecedented challenges to transform its economy post 31 January 2020 Brexit-day event. The country not only has to compensate for the shrinkage of business activity that will take place because of this event but will also have to ponder about its long-term improvement in productivity and ensuring adequate employment generation in every nook and corner of the country. A strong digital infrastructure not only ensures that business activity continues to grow in the country at an accelerated pace but, most importantly, it also helps integrate the different fragmented marketplaces in the country to a single one. A single integrated market will ensure that producers in any part of the country will have access to a larger market for their goods ensuring them of higher revenues and profitability. Over a period of time, this will not only increase business activities in the country but with that will also bring about more employment. A good digital infrastructure also ensures that public services are also better delivered across the vast areas of country with greater efficiency, thereby ensuring better welfare for all its citizens.

The current emphasis being given by the government of United Kingdom to significantly upgrade its digital infrastructure is primarily guided by its motive to stay competitive in comparison to its other larger European neighbors like France or Germany who have far greater infrastructure and productivity standards. United Kingdom, while being one of the top financing destinations of the world, has seen its productivity not increasing as competitively as it had desired to be while it was in the European union economic bloc. Over the period of many years, the cheap influx of skilled and semi-skilled labour from rest of European Union led to rapid fall in skill levels in the United Kingdom. This was also the case with the manufacturing sector which stagnated on account of the cheap imports. In the new, post-Brexit era the United Kingdom will be looking to address these issues as quickly as possible. Otherwise, its whole purpose of leaving the European union will be defeated.

The present government’s push for an infrastructure upgrade is a step in this regard. However, a number of other policy initiatives like this this one will have to be taken at an accelerated pace if the country wants to emerge victorious from this point of economic and political transition.

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