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For years now successive Governments have promoted the importance of superfast broadband in the UK and its expected impact on the growth of the UK economy. They believe this mantra so much that they have invested over £530million (rising to £830 million by 2017) to ensure we have the best broadband network in Europe by 2015 with a further £150 million invested for super-connected cities, £150 million for the mobile infrastructure project, £32million announced a few months ago for Scotland and a potential £20million in a Rural Community Broadband Fund. But will this hefty investment into broadband really save the UK economy?

Neil Watson, Head of Service Operations

Neil Watson, Head of Service Operations

Well the Government certainly thinks so and so do a number of other interested stakeholders including BT (who have also invested heavily into the availability of superfast broadband across the UK) and the Federation of Small Business (FSB). John Walker, National Chairman, FSB said: “Online trading has helped to empower small businesses to find new markets, sell new products, try new models and compete on an equal footing with larger businesses. Online trade has great potentials for small businesses but it still has its barriers. These must be removed. The biggest obstacle for many small businesses is the lack of broadband speeds and so as a result they cannot compete online.”

So how exactly will ‘superfast’ broadband help the UK economy? Well faster broadband brings several opportunities for business users including:

  • The ability to take advantage of new technologies such as video conferencing, SaaS and VoIP which could potentially help them to decrease costs and improve productivity.
  • Utilising new working practices such as connecting remote workers to enable them to attract skilled employees from further afield or communicate with mobile representatives more cost effectively.
  • E-commerce to attract new markets and customers from across the UK and even abroad. The FSB states that of those businesses that trade online, 97 per cent do so within the UK, but four in 10 trade in other countries in the European Economic Area (EEA), a third trade online with North America and Canada, and a quarter with Australasia.
  • E-commerce often negating the need for a business premises, encouraging new businesses to start-up with little or no capital expenditure.
  • Plus, it’s important to remember that technological advancements bring with them the start-up of new creative businesses, just look at Apple (and the immense amount of app companies that are now in operation), Google and Facebook.

BT has recently conducted a social study into the economic benefits of broadband investment and found that from BT’s investment in fibre-based superfast broadband, which has reached £2.5billion, as many as 10million businesses and homes will be able to access superfast broadband. It says that, for any one location such as a rural area, town or city it is expected that superfast broadband could create between £143 million and £19.8 billion in additional GVA (Gross Value Added). This equates to an annual increase in GVA of between 0.3% and 0.5%.

In more simple terms in a rural area, for example, for every £1 a business invests in superfast broadband this will create nearly £15 in additional GVA for the UK economy and around 1800 jobs would be created through business creation and improved business performance.

Impressive stats I’m sure you’ll agree. However, the availability of superfast broadband doesn’t just affect businesses, it also has an impact on the social aspects of the UK and indeed the world. Dr Touré, Secretary-General of the ITU (International Telecommunication Union) said: “Well over half the world’s people – from those in developing countries, to those living in geographically isolated communities, to marginalized groups like persons living with disabilities, the elderly, the illiterate and house-bound women – are yet to get online. That makes digital inclusion an important issue that needs to be tackled by every country, not just the world’s poorer nations.”

In an open letter to the G20 leaders, the BCDD (Broadband Commission for Digital Development) urged them to prioritise not only the roll out of a high speed infrastructure but also to develop and promote the services and applications that will serve as a catalyst for future socio-economic growth.
The letter states: “Broadband moves innovation into people’s hands and homes, allowing end-users to take on new roles as entrepreneurs, software developers, lobbyists, activists, journalists and other content generators.

The digital era will produce a whole new range of digital careers and industries which do not yet exist and are hardly even imaginable today. ICTs and broadband generate great technological dynamism and reduce barriers to entry, offering opportunities for small and medium-sized enterprises and entrepreneurs to challenge existing hierarchies, to innovate, to compete, and to grow.”

A balanced argument

As an ISP we obviously have a biased opinion on the role of connectivity in the growth plans for the economy and welcome further investment from the Government and incumbent provider but in the interest of providing a fair article, we should also discuss the potential flaws to these plans.
Suggested reasons as to why superfast broadband won’t ‘save’ the economy:

It’s just teenage kids using fibre broadband

Some industry spectators argue that take-up of next generation superfast services such as FTTC and FTTP has been in the main from residential users hoping to satisfy the needs of the family, from mum and dad watching IPTV and web browsing through to teenage children gaming and using P2P all at the same time. Whilst this may be true for some providers, we have actually seen the majority of interest in fibre products from business users.

The digital divide is widening

Recently the House of Lords published a report into the Government’s broadband strategy and one of its main criticisms was the failure to eliminate the digital divide. While the Government are ploughing money into ‘super-connected’ cities the digital divide is growing further and more investment really needs to be made into rural areas. This is certainly a view supported by the FSB and one we too agree with. Whilst we advocate the Government’s investment plans we also feel care needs to be taken not to further isolate rural communities and we need to ensure rural businesses can also benefit from superfast connectivity.

The cost of bandwidth

Whilst the Government and BT plough money into faster and faster broadband services across the country there is also the key issue of the cost of wholesale bandwidth. Faster services require more and more bandwidth which puts pressure on the network capacity of many smaller ISPs. For example with the latest 330Mbps FTTP services one customer could potentially be using 330Mbps, where previously when customers had 1Mbps connections that same capacity would have supported 330 separate customers, significantly increasing the capacity requirements and costs for ISPs. We believe BT Wholesale need to consider this impact and reduce their wholesale bandwidth charges to enable smaller ISPs to be able to support the emerging services, this may require intervention from Ofcom.

Education is key

Access to superfast broadband is all well and good but to really make a difference, especially in social terms, we need to provide ICT education. This is particularly important when trying to encourage certain social groups to get online e.g. older users, lower income users and people with disabilities. Again we agree that, in addition to providing access to superfast broadband, we need to provide education and encourage people to get online, especially as the Government plans to increase the number of Government services available online e.g. healthcare information, local government information etc.

££££ Cost

We have already spent millions investing in broadband both via the UK Government and through private ISPs such as BT. Has the investment really been worthwhile and will it really make that much of a difference? Well the stats so far seem to support the investment but it’s a case of only time will tell. By 2015 the Government aims to have the best broadband infrastructure in Europe and will need to fight off some stiff competition to achieve that aim.

Entanet’s View

We don’t believe that superfast broadband will single-handedly bring us out of the economic downturn but, unsurprisingly as an ISP, we do believe that the investment in superfast broadband by the Government and UK ISPs will help to boost the UK economy. Only time will tell to what extent. However, we also believe that if we are going to continue to develop faster and faster broadband services then something also needs to be done about the cost of wholesale bandwidth. Otherwise smaller market players are going to struggle to keep up with capacity demands, which will lead to a lack of viable competition within the market, restricting consumer choice and potentially leading to monopolistic behaviour.

Have your say!
What are your thoughts on this? Do you think the Government’s investment will boost the UK economy or do you think its going to take a lot more than superfast broadband? As an ISP is the cost of wholesale bandwidth causing you problems? Let us know your thoughts by leaving us a comment below.

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2 Responses to “Will Superfast broadband really save the UK economy?”

  1. [quote][Some industry spectators argue that take-up of next generation superfast services such as FTTC and FTTP has been in the main from residential users hoping to satisfy the needs of the family[/quote]
    And the main reason it is residential is that’s the area BT are upgrading and rolling out these services in the main, it is correct most interest has come from business, but business areas are not where BT are rolling out FTTx my guess if to protect their leased line business connections.

    [quote]We believe BT Wholesale need to consider this impact and reduce their wholesale bandwidth charges to enable smaller ISPs to be able to support the emerging services, this may require intervention from Ofcom.[/quote]
    And we know BT will not easily go down the route of reducing BW costs, why would they where is the competition? Where else would you go? I know there are still some people that will tell you (mainly our next to useless regulator or some other government department) that there is competition and that BT have been broken up, but surely no one buys this!
    Yes I know this sounds bitter, but that is how I see it.

    For the answer to the main question, will it save the economy, in short NO, but it will help

  2. Thanks for your feedback Karl, you make some very interesting points.

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