Why the Tories aren’t so super-fast on their digital vision

Both major parties have recently set out their policies on broadband expansion and digital Britain. The Conservative's policy causes concern.

The digital revolution will form a major pillar in the creation of a ‘new’ economy for Britain. In recent weeks, both the major parties have staked out their positions but it is the plans unveiled by the Conservatives that cause concern.

To match the government’s target of universal next generation broadband services (100mbps) by 2017, they have proposed breaking up BT’s local monopoly on telecommunications cabling, arguing the lack of competition is the main factor behind Britain slow development of super-fast internet services.

They have studied and based their digital policy on South Korea. However, a variety of factors are attributable to South Korea’s success, not just competition. Major public investment laid the structural foundations for the network. The Korean government spent $24 billion in constructing a nationwide high-speed fibre optical network that allowed for different broadband service providers to compete. This was supplemented with further government funding and low-cost loans partnered with private investment to develop the ‘last mile’ broadband deployment – the key aspect of next generation broadband, as ‘fibre to the home’ (FTTH) would need to replace the current copper based cables supplying most businesses and homes. This is something the Government has set about doing, recently launching the Digital Regions project, which has so far raised £90 million to deliver next generation broadband services across South Yorkshire by 2012.

A key driver of super fast internet access in South Korea has been the government’s initiatives to stimulate demand for information technology. Small and medium-sized enterprises were given a tax exemption equivalent to 5 per cent for investment in broadband communications systems. In 2002, they also provided 50,000 free computers to low-income students. The Labour government recently announced similar measures, ensuring that 270,000 of the poorest families in Britain will receive a free computer and have broadband access. There was no mention of similar ideas by the Conservatives.

The high-density of South Korea’s population – 50 per cent of the country reside in tower blocks and apartments – make it structurally easier to deliver super-fast information services. To overcome the rural access problem in Britain, the Conservatives proposed using 3.5 per cent of the license fee from the digital switchover (Labour want this to fund regional news broadcast services), to invest in creating fibre-optic lines in these hard to reach areas. This will provide £750 million to £1 billion, far short of the Government’s proposed telephone levy and industry estimates of what it would take to achieve a Universal Services Commitment.

8 Responses to “Why the Tories aren’t so super-fast on their digital vision”

  1. Elrik Merlin

    Tories' plans for #digitalbritain just don't add up: //bit.ly/dAaa9b

  2. Rob Bamforth

    RT @ElrikMerlin: Tories' plans for #digitalbritain just don't add up: //bit.ly/dAaa9b ……

  3. Phillip Clarke

    Rayhan, interesting take on the Tories broadband announcement, and a spirited defence of state investment in broadband, but a couple of comments on the points you make.

    BT sharing their duct is not a new idea. It has been mooted by Ofcom since 2004; it a recommendation at European level a part of a solution to opening up competition in NGA. True BT have resisted ever since, but allowing access will have an impact on the rollout of NGA. You’re right though, it won’t solve everything.

    You then choose the south yorkshire region project as an example of the great things that Government is going, and suggest that the Digital Region project has raised £90 million. Let’s be clear, that is public money whether from Europe or the Uk Government, which has been given as a block grant to one company in a tender process driven by Whitehall rules on per year spending requirements, rather than what is best for the market or consumers. The project will lead to massive overbuilding of existing networks rather than focusing on areas that cannot currently receive fast broadband – a huge waste of public money.

    The guarantee to give laptops to students is even worse. Do the sums and you’ll find that over 50% of the cash set aside for that project – around £150 – will go on administration of the scheme and that each unit provided to low income families will cost much much more than they would do on the open market.

    Finally, the telephone levy a potentially distortive, ill thought out tax on the very market that the proceeds of the tax are meant to stimulate. This is at a time when the Government is looking to put extra costs on these providers through the file sharing elements of digital britain. The Tories proposal to look at the licence fee looks like a perfectly sensible idea, especially as the BBC already make use of the internet as a distribution platform through iPlayer and will do even more so when the project canvas project is approved by the BBC Trust. It fits perfectly within it’s statutory remit. Enlarge the DSO element, let it run on for a bit longer, any number of ways to get around the quantity issue.

    A bit of imagination is required rather than a costly tax and spend policy that risks undermining the very market it is trying to stimulate.

  4. ST

    The Government’s 50p tax makes no sense this blog claims to be progressive and yet is implicitly supporting a tax that takes no account of ability to pay nor whether the service is desired. The salt in the wound is that the urban poor live in areas which already (or will shortly have) access to super-fast broaband provided by the market but which they cannot afford. You’re asking people to pay 50p a month so the rural rich can watch streamed video in several rooms of the home. Explain to me how this tax is progressive, the fact is it’s not, it’s wholly regressive.

    The Government claims low income families will be exempt from the tax. They will but only if their on a social telephony tarriff which currently does not exist for broadband.

    The Tories plan may be sourced from the regressive tax which is the licence fee, but at least it’s not imposing a new regressive tax.

    I also wholly agree with the previous post. Have a root around in the Government’s figures and reports on the subject e.g. BSG publication and the Ciao report and the demand for super-fast broadband looks shakey. I agree subsidy will be required but the Government risk overestimating the demand in the short term and underestimating it in the long. As a result subisdy will be needlessly high and the communications providers will milk the state by nationalising the riks and privitising the reward.

  5. rayhan haque

    Thanks philip and sk for your comments. You’re right, Ofcom have been pushing BT to open up their networks for a number of years now. It was only yesterday that they announced they would be doing so. This move will help to boost competitiveness in the market, but more needs to be done. Alternative providers may wish to have access to their own cabling and wires, rather than access BT’s warehouse capacity. Thats why the digital regions is a good idea. It seeks to build new infrastructure and networks with public and private financing, and the more separate networks we can build (there are very few in the country) the stronger and more secure the capacity will be.

    The south yorkshire digital regions project has been largely tendered by one company, the conglomerate thales. But that’s to be expected. Large infrastructural projects of this kind tend have a monopolistic nature – the huge costs and funding can only really be met by large and highly-resourced companies. It’s very much a pilot project, but so far it is looking good, with considerable work already completed and within budget. I don’t agree with your point about over-building as yorkshire is an area that has traditionally been lacking in telecommunications. This is big opportunity for the region!

    In the technical sense, yes the proposed telephone levy is a regressive tax, but then so is VAT. The key to making it a fair one is to provide appropriate offsets for those on lower incomes, i.e exemptions for the poor and free IT equipment and broadband access. This levy will boost access to rural areas, and rightly so, as we have to inter-connect every part of the country to the digital network. And believe me, there are some very poor areas in rural Britain. This is an area that will have to be subsidised anyway, and the though Labour’s levy falls short of the estimated costs projected by industry experts, the Tories are even further off. This should not be seen as a rural tax as it will also apply to many poor urban areas that have historically been underfunded. And its important to mention that by using the surplus digital switchover funds to meet the broadband shortfall, they will be sacrificing regional news broadcasting. I’m very worried by this as regional and local news is one of the most trusted forms of news services, and we have to take measures to protect it.

    As I stated earlier, the key to driving broadband technology throughout the country is to boost demand, particularly in poorer communities. And if that requires subsidised state intervention then that is a price worth paying, as the new digital economy will require a highly-educated and IT savy population. We would be sacrificing our chances in being a world leader in this respect while equally inhibiting our fight against inequality and socio-economic disadvantage.

  6. Phillip Clarke

    Rayhan, South Yorkshire has some good spots and some bad spots, like ever county in the country. A more economic way to look at this would be to look at where those bad spots are and build out to them rather than building over the top of the entire region.

    You suggest it is a pilot project. I wish I had £90 million to throw at a pilot project. As for the project looking good – on what basis? Pipes in the ground? The millenium dome ‘looked good’. I’m sorry but no one will trust a Labour Government if our attitude is oh well, it’s only public money so i’ll bung a few million quid at a pilot and see what happens!

    On the VAT point, worth noting that the 50p levy would be subject to vat, which would then be diverted back into the general taxation pot – not towards NGA.

    On the amount not being enough, you can surely see that while the license fee idea works – in that it is external to the market – the 50p levy risks distortng the market fundamentally as it is a levy on the market itself. Therefore whether or not there is more or less money from the licence fee, or the 50p levy, distortion of the market caused by the 50p could actually harm planned investment by undermining the incentive to invest.

  7. Fab 5: Tuesday 9 February 2010 | The Young Fabians Blog

    […] Rayhan Hauqe, writing for Left Foot Forward, takes issue with Tory plans for super-fast broadband. […]

  8. FiberNews

    Why the Tories aren't so super-fast on their digital vision | Left …: This was supplemented with further governm… //bit.ly/d4P8g6

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