If you want a smart economy it’s about the infrastructure, stupid!

23 Sep 2009

European countries need to start thinking of the provision of essential next-generation communications infrastructure as a public good and vital for social justice, the architect for Digital Britain Lord Stephen Carter warned this week.

Lord Carter, who recently resigned from his post following the publication of his Digital Britain report during the summer, was previously the head of OfCom in the UK and prior to that chief operations officer at NTL.

He was in Dublin this week to address the 16th annual Telecommunications and Internet Federation conference.

“Smart economies see the security and supply of energy, food and the environment as key pillars. The fourth pillar is communications services. For any economy, failure to work out the security and supply of fit-for-purpose communications means you are failing your public services duty if you are the government of the day.”

Lord Carter said that during his time with NTL he got to know the former ComReg chair Etain Doyle quite well and “while I learned a lot about incumbents it is about ensuring there is deal space you need if you want to make progress when facing intractable problems.”

He said that when it comes to a country like Ireland or Britain rolling out next-generation infrastructure, he is a pragmatist and takes the simple view that a goal without a plan is just a wish. “If you don’t have a coherent plan, move on and think of something else.”

Referring to Arthur C. Clarke’s predictions of the “orbital post office,” which is today’s internet, Lord Carter said there’s a multiplicity of approaches to the smart economy being taken by governments around the world.

“But the most common theme is infrastructure, infrastructure and infrastructure. It’s about the infrastructure, stupid!

“In Europe this is very challenging because most European countries are not used to treating communications infrastructure as a public good. It’s very clear in my mind that communications infrastructure is a public good – but the problem is: who pays the price?”

Lord Carter said any country that wants to protect its interests will need to take a bet on public infrastructure.

He said that telecoms operators in many countries face a strategy dilemma. “But strategy is much maligned – it is usually the last refuge of a desperate CEO. Or my favourite – ultimately businesses will come up with an objective, a tactic, a move or a position and dress it up as a strategy.”

Lord Carter pointed out that broadband traffic volumes are set to double every two years, placing major pressure on networks. “Robust, reliable and fixed telecoms networks are essential. If you don’t get that right you’ll end up with a patchwork that won’t be scalable.

“At the same time, debt, capital and equity markets are challenging – it’s certainly going to be a considerable period of time before they are back in their previous position.”

He said that for operators and any country’s government making the investment, the costs, benefits and revenues from next generation access (NGA) will fall in different places and it won’t be clear at first if the consumer is even willing to pay for these services. In other words, it’s a leap of faith that needs to be taken.

“Operators never appreciate the degree to which they can cause medium-term damage by the short-term extraction of value from their business. Most people go into business to make unreasonable returns and be as successful as they can be. When you see investors extract value from investments in a way that doesn’t get the value right, that scar lasts a long time.”

Lord Carter said that policy makers have a role to play and must not confuse due process with progress. “You have to follow due process, if you don’t the guy with more lawyers will take you out. But due process can have a deadening effect.”

When it came to formulating the Digital Britain plan, Lord Carter said he took the view that having 40pc of the UK’s population not participating in the digital age on social justice terms would have been unacceptable.

“We looked at everything, including the re-farming of 2G and 3G spectrum. We wanted to build a digital economic ecology that embraced connectivity and content as economic issues. Our final report contained 82 recommendations and the legislation will go before the UK parliament in the autumn as part of the Digital Economy Bill.

“Some 30 of these recommendations will require legislation and 90pc of the recommendations will be politically uncontestable.

“The three recommendations that provoked the most interest were tackling content piracy, the revision of the BBC’s reach and market structure in terms of who would pay for NGA. It was our conclusion that there was a clear case for investment in NGA and we decided that the market could not do it on its own, especially since there would be a period of time where it wouldn’t be clear the consumer would be willing to pay. We decided on a 50p per month landline tax which we believe to be fair and reasonable.

“The stg£1.5 that this will generate should be enough to pump-prime the next stage of investment.”

Looking to Ireland – “the innovation island” – Lord Carter said that Ireland has a lot more going for it than the UK in terms of its advantages in languages, location and size.

But issues need to be decided urgently if the country is to have the quality of next-generation access that its businesses and citizens will need.

“What is the role of the incumbent operator? You have to answer that question in order to come up with a solution. You need a game-changing plan that will allow all parties to step out of their own interests. A strategic view of the UK market allowed us to float previously unthinkable options and this led to aggressive LLU rollout and significant investments. For Ireland to move forward you need to start with the roll of the incumbent.

“Secondly, you need to define what the network architecture will be, it will likely be a mix of solutions but you need to create a working model and then you need to price it.

“Other questions need to be asked, what are the price, innovation and competition trade-offs? What are the legal, political and regulatory trade-offs and what are the political and social issues?

“Fundamentally, you need to create an environment of trust to overcome personal and political dynamics.

“It is clear to everyone, Digital Europe is going to happen under the new commissioner who will have a new agenda.

“It is very clear to me that whoever the next commissioner on communications will be, there’s going to be a need for a clear and coherent digital strategy and there’s a great opportunity for Ireland to lead the way on that,” Lord Carter told more than 200 telecoms industry executives.

By John Kennedy