Tuesday, December 10, 2013

My presentation last week in Budapest

Last week I had the pleasure of presenting at a conference hosted in beautiful Budapest by the Hungarian national telecom regulator, NMHH. The theme of the conference, broadly, was whether the telecom sector is once again becoming attractive to investors, and if not, why not and how might regulation play a role in restoring some stability to the sector? I was on a panel with three sell-side equity analysts, but I had determined beforehand to talk about the role of private entrepreneurial capital in changing the status quo in FTTx investment, with a particular focus on Germany and the UK. My presentation begins at 1:02:20.

The last few minutes of the video feature an unidentified commenter skewering my analysis of the UK market. He was speaking from the back of the room, and the lighting was such that I couldn't make out at the time who he was, but both the moderator and I came to the conclusion that he must be a BT employee, given the level of defensiveness and irritation evident in his commentary.

It turns out that it was Ed Richards of OFCOM. He lambastes me for the "utter nonsense" of suggesting that Spotify or Twitter require FTTH connections. That would be utter nonsense, if I'd actually said that, but I didn't. What I said was that if you live in a post-industrial city in Eastern Germany and you want to start the next Spotify or Twitter, you're going to need to move to Berlin (I was referencing a map which shows a dearth of connectivity >50Mbps outside of Berlin in the eastern half of the country).

Maybe I wasn't clear enough, but I was assuming the audience would implicitly understand the fact that start-ups dealing with data-intensive platforms need fast pipes to data centres, and these may not be readily available anywhere except the major cities. I never said, as Ed asserts, that Spotify or Twitter could never have been developed in the UK or Germany because of connectivity issues. My implication was that data-intensive start-ups would naturally gravitate to places where the connectivity and associated infrastructure was conducive, and that as long as this remains concentrated in a few large cities, it just perpetuates the economic disparity between the major hubs and the second tier cities struggling to redefine themselves. Perhaps years of listening to incumbents complaining about their imminent doom leads to a higher propensity towards selective deafness among the regulatory community.

I was also apparently too harsh for not recognising what has apparently been a highly successful and widespread UK fibre roll-out. I must have been asleep, because I haven't seen any fibre rolled out in the UK. Just because the ASA allows it to be marketed as "fibre optic broadband" doesn't magically make it fibre. On this basis, we might as well allow bog-standard ADSL to also be called fibre, as the exchanges where the DSLAMs sit are backhauled by fibre. Hell, mobile could be marketed as fibre. The term, as used in the Orwellian context in which it has been cast in the UK, is meaningless, though I fear that saying so might constitute thoughtcrime.


186k said...


Interesting presentation and thanks for posting. It must have been a little uncomfortable/annoying being skewered by Ed and then not having an opportunity to respond. Putting the twitter/spotify bit to one side, do you not though recognise the merit of the thrust of what Ed was saying - that fibre to the cabinet, is in the round, the most sensible interim step for UK? From the way you concluded your speech, claiming that it's clear the UK/Germany are far behind where they should be, it seems you believe it's fibre to the premise or nothing. Do you not worry that you may be a tadge monomaniacal on this. For example, CEO of Pointtopic only recently was quoted as saying "U.K. continues to compare well to Europe and much of the world for most metrics. Adoption is strong and while the market continues to need watchful regulation it has been a qualified success so far"?

Titus Poulus said...

Well, you'll have to forgive Mr. Richards for his ignorance. Those poor regulator people are constantly being harassed by the incumbent and lobby groups, trying to get their message across. Which is only slightly skewed to existing business models and scarcity-based thinking.

James Enck said...

@186k, I agree that FTTC is, in the round, the most sensible interim step for BT. From the perspective of BT's shareholders, there is no logical financial rationale to do anything other than what the company is doing today. Ditto for Virgin. They are both predictably behaving as rational infrastructure incumbents, and their shareholders should be very happy. As to whether this state of affairs is actually the best interim solution for the UK is another question entirely. As long as no one emerges to challenge their duopoly in infrastructure, things will move at a pace which they dictate.

For my presentation, I only had 15 minutes, and this isn't really conducive to deep analysis or subtlety of thought, but with more time I could have provided several other examples of markets (Denmark, Sweden, Norway) where things have only happened in the FTTH space because of the presence of a third party with the capacity to invest for the long term.

As it stands now, if you aggregate the addressable markets of Gigaclear, Hyperoptic and IFNL, you might get to 10% of the UK over the next 5 - 7 years. It's hardly the sort of thing that's going to bring BT to its knees, and as things stand now, I have a hard time seeing anything like ubiquitous fibre in the UK in my lifetime. However, I do know that there are municipalities, businesses, and consumers out there who have a thirst for something different than what's on offer at the moment, and that sort of demand creates a niche which someone willing to invest could exploit on a market-by-market basis. I don't think everyone should be forced to rely on the technology roadmap of a single provider (and Virgin where they are present) at a national level.

Anonymous said...

This cabinet v FTTP has been complicated by the lack of transparency on the actual costs and subsidies- see national audit office and Public accounts committee reports.

The regulator has allowed BT to go unchecked when stating Cabinets cost a £100k each and each exchange costs millions. (liv Garfied BBC R4 2012)

If the Regulator by their silence consents to the overstating of FTTC costs, then it is complicit in slowing down the transition to FTTP.

FTTP has a proven lower LRIC (long run incrmental cost) and tons more potential. Ofcoms will say it can only examine markets 4 years in advance and perhaps this is the route cause of their blindness. This is certainly evident in the current market reviews for fixed line access where no attempt is being made to change the cost recovery regime to encourage investment.

FTTC deployment in the UK can be fully appreciated but we do not have to pretend its world leading as Ofcom wishes to portray.

Stefan Stanislawski said...

Ofcom is in a political bind partly because their own policy allowed the replacement anomaly (my term for the incumbent's over-recovery of capital in the access network due to failure to renew those assets at the rate they are paid to do in regulated prices).
The other factor, I suspect, was the very bullish commitment by Jeremy Hunt when he was the relevant Minister to the effect that the UK would have the best broadband in the Universe by 2015. Since then - and I do feel some slight twinge of sympathy for them - officials at all levels have had to spin things to fit this story.