Fujitsu announces UK FTTH roll-out to 5 million homes

In today’s connected world a lot of what passes for news is more of a rolling update – a snippet of new information that is not terribly unexpected. However, today’s announcement by Fujitsu that it is planning to deploy a fibre to the home (FTTH) network to over 5 million UK rural homes really is new, in that it was unexpected and market changing.

Until this announcement, received wisdom was that there were only two players in the UK’s next generation broadband infrastructure market – BT Openreach and Virgin Media. Both of these players have been focussing their rollout on the lucrative dense urban areas, and the expectation was that government subsidy to stimulate fibre deployment to the ‘final third’ (the third of the country where deployment is uneconomic without financial assistance) would be taken up by BT Openreach.

The project appears to be well thought through with two large ISPs – Virgin and TalkTalk apparently committed to purchasing the venture’s wholesale outputs. The underlying technology is fibre to the home, based on Cisco technology with initial speeds of 1GB/s, upgradeable to 10GB/s and above.

However, the deployment is predicated on two regulatory assumptions:

  1. Access to BT’s ducts and poles on  fair, reasonable and non-discriminatory terms; and
  2. Access to a significant proportion of the available government subsidy.

Neither of these assumptions can be taken as read. Whilst BT is progressing its passive infrastructure access product, there remain significant problems with its current offer and I understand that industry remains very concerned about the restrictions within BT’s current proposed contract.

So far as the subsidy is concerned, I would expect to see BT Openreach fight very hard to retain the subsidies it would previously have taken for granted. Competition for subsidy is good news for tax payers, provided that Fujitsu’s venture gets over whatever threshold it needs to get off the ground.

UK carrier avoids Ofcom regulatory action by making £2.5 million of ‘goodwill’ payments

When two companies merge, effective management of the integration of IT systems is often critical. When the systems in question control customer billing, and billing is subject to regulation, mistakes can be costly, not only in monetary terms but also in reputational damage.

The Carphone Warehouse was founded in the early days of mobile telephony (when mobile phones were so bulky you needed a car…) and built a very successful business and brand based on impartial advice and customer service. In 2003 it branched out from selling mobile handsets and contracts to selling own brand telephony and broadband products under the TalkTalk brand. Unfortunately, its experience of running retail outlets did not prepare it for the process intensive business of a retail carrier, and soon after launch it found itself on the receiving end of consumer activism with (now-defunct) sites such as ‘MyTalkTalkHell’.

TalkTalk was demerged from Carphone Warehouse in 2010, but is still living with the legacy of its £236 million acquisition of Tiscali in June 2009.

In July 2010 Ofcom opened an investigation as to: ‘whether the TalkTalk Group has contravened General Condition 11.1, which prohibits Communications Providers from billing customers for services that have not been provided’.

In November 2010, Ofcom: ‘determined that there are reasonable grounds for believing that since 1 January 2010, TalkTalk Group has contravened, and is contravening, GC11.1 by issuing bills to customers (end-users) for services that have not been provided (in particular for cancelled services).’

Ofcom then required TalkTalk to undertake a series of remedial measures and to compensate customers. Those compensation requirements were significant, and included:

  • providing refunds of all sums paid by end-users to the TalkTalk Group for which it had billed them in contravention of GC11.1;
  • in relation to any affected end-user whose credit rating has been adversely affected by steps taken by or on behalf of TalkTalk Group, or by any party, in connection with its contravention of GC11.1, taking the necessary steps to repair the affected credit rating, including but not limited to applying to have any relevant court judgment set aside and notifying relevant credit reference agencies;
  • in relation to any affected end-user against whom TalkTalk Group has instituted legal proceedings to claim monies purportedly owed, withdrawing forthwith from such legal proceedings, and paying the end-user’s reasonable legal costs in resisting the claim; and
  • paying an appropriate amount to affected end-users in respect of annoyance, inconvenience or anxiety to which they have been put.

In addition, TalkTalk suffered significant brand and reputational damage from adverse press reports. Despite TalkTalk taking significant remedial steps and paying out almost £2.5 million to 62,000 customers in refunds and goodwill payments, the matter is not yet closed and Ofcom continues to receive customer complaints and indicated yesterday that it may take further action including imposing a financial penalty.

Whilst it is easy to look at this issue as a regulatory issue, for me the wider lesson is the importance of good diligence and post-merger systems integration planning.

UK Government asks Ofcom to assess practicality of blocking copyright infringing web-sites

Jeremy Hunt, the UK’s Culture Secretary (who also has responsibility for telecoms) today asked Ofcom to review sections of the Digital Economy Act to assess whether it considers that the reserve powers enabling the courts to block access to copyright infringing web-sites could work in practice. This is apparently in response to comments posted on the new Government’s “Your Freedom” web-site.

Related provisions (3-18) of the Digital Economy Act have proved to be contentious and the Act itself is subject to a judicial review hearing in March initiated by BT and TalkTalk. The review announced therefore excludes questions of proportionality and compliance with European commercial law and the Human Rights Act as these are considered in the judicial review.

The press release explains that Ofcom’s terms of reference are to assess:

  • Is it possible for access to the site to be blocked by internet service providers?
  • How robust would such a block be – in other words would it have the intended effect, and how easy would it be to circumvent for most site operators?
  • What measures might be adopted by internet service providers to prevent such circumvention?
  • How granular can blocking be – i.e. can specific parts of the site be blocked, how precise can this be, and how effective?
  • How effective are sections 17 and 18 of the Act in providing for an appropriate method of generating lists of sites to be blocked?
  • If possible, identify either a potential range of costs for ISP blocking solutions or the main drivers of those costs.

Given the deeply held views on each side of this debate, I would expect that Ofcom’s review will be rather lively. So far as next steps are concerned I would expect that Ofcom is likely to consult by means of meetings, workshops and/or a formal consultation to gather views for its report. I will report on that as more detail emerges.

For those interested in the detail, Section 17 of the Digital Economy Act provides:

‘(1) The Secretary of State may by regulations make provision about the granting by a court of a blocking injunction in respect of a location on the internet which the court is satisfied has been, is being or is likely to be used for or in connection with an activity that infringes copyright.

(2) “Blocking injunction” means an injunction that requires a service provider to prevent its service being used to gain access to the location.

(3) The Secretary of State may not make regulations under this section unless satisfied that—

(a) the use of the internet for activities that infringe copyright is having a serious adverse effect on businesses or consumers,

(b) making the regulations is a proportionate way to address that effect, and

(c) making the regulations would not prejudice national security or the prevention or detection of crime.

(4) The regulations must provide that a court may not grant an injunction unless satisfied that the location is—

(a) a location from which a substantial amount of material has been, is being or is likely to be obtained in infringement of copyright,

(b) a location at which a substantial amount of material has been, is being or is likely to be made available in infringement of copyright, or

(c) a location which has been, is being or is likely to be used to facilitate access to a location within paragraph (a) or (b).

(5) The regulations must provide that, in determining whether to grant an injunction, the court must take account of—

(a) any evidence presented of steps taken by the service provider, or by an operator of the location, to prevent infringement of copyright in the qualifying material,

(b) any evidence presented of steps taken by the copyright owner, or by a licensee of copyright in the qualifying material, to facilitate lawful access to the qualifying material,

(c) any representations made by a Minister of the Crown,

(d) whether the injunction would be likely to have a disproportionate effect on any person’s legitimate interests, and

(e) the importance of freedom of expression.

(6) The regulations must provide that a court may not grant an injunction unless notice of the application for the injunction has been given, in such form and by such means as is specified in the regulations, to—

(a) the service provider, and

(b) operators of the location.

(7) The regulations may, in particular—

(a) make provision about when a location is, or is not, to be treated as being used to facilitate access to another location,

(b) provide that notice of an application for an injunction may be given to operators of a location by being published in accordance with the regulations,

(c) provide that a court may not make an order for costs against the service provider,

(d) make different provision for different purposes, and

(e) make incidental, supplementary, consequential, transitional, transitory or saving provision.

(8) The regulations may—

(a) modify Chapter 6 of Part 1 of the Copyright, Designs and Patents Act 1988, and

(b) make consequential provision modifying Acts and subordinate legislation. …’

Mobile operators to acquire more fixed assets in 2011?

Any twitter followers (to follow go to: @rbratby) may have seen my live tweet commentary from the AnalysysMason city briefing last night.

I thought the four speakers were well-informed and authoritative, and their presentations thought-provoking.

The first presentation summarised the results of some cost modelling they had undertaken relating to mobile networks, by reference to a number of scenarios. These included using existing technology, deploying LTE and off-loading increasing amounts of traffic to fixed networks via femtocells and wi-fi. The conclusions were not earth-shatteringly new – current network architectures would become uneconomic as data volumes increased, LTE helped but was expensive and off-load to fixed networks would help mobile cost structures.

The second presentation looked at the demand side of the equation and made the interesting distinction between mobile data by from dongles (currently significant volumes, but low revenue per GB) and mobile data from smartphones (volumes increasing, and higher revenue per GB than dongle traffic). The relative growth rates and revenue characteristics were good news for mobile operators, and the presenter suggested that network deployment, particularly of LTE, should be targeted in dense business areas, on the basis that femtocells and wi-fi handover would predominate in residential areas.

The third speaker looked at the applications that would drive data volumes (in both fixed and mobile). He identified TV, and in particular HDTV, as a key driver – something this Watcher agrees with. This demand would drive NGA investment by incumbent and cable operators, and he highlighted that fixed infrastructure retained a significant cost advantage over mobile infrastructure to deliver HDTV traffic. As a result, TV offerings will become of increasing importance to fixed operators and YouView’s success is critical to the long-term future of BT and TalkTalk, as the broadcasters and telecoms operators compete against each other with bundled multi-play offers.

The fourth speaker brought the first three presentations together to conclude:

  • mobile operators needed fixed assets in order to control costs – both backhaul in their networks and end-user connections for deployment of femtocells and wi-fi;
  • regulated access to NGA infrastructure was a key issue for mobile operators as it became widely deployed; and
  • whilst access to fixed infrastructure could be secured through commercial arrangements, recent activity suggests that we are likely to see more M&A activity with mobile operators acquiring fixed assets.