Market Scenarios (2009)

First published in 2009. With the various strategic shifts in the fibre market increasing leading to a patchwork, this article from the archives looks at the different scenarios for the broadband market and starts to consider how it might be joined together to create a competitive infrastructure market.


Market Scenarios

There is a wide consensus that ubiquitous Next Generation Access networks (NGA’s) could never be successfully developed in the UK by a single organisation during a single “big bang” project. Rather it is highly likely that a number of local projects will appear, built by a wide variety of organisations and with a number of possible ownership structures.

While at a technical level, this is not a new problem – the term “Internet” used to describe the current global infrastructure reflects the necessity to inter-connect disparate networks. When we use the term “The Internet” we are actually referring to traffic across many networks working co-operatively to deliver service.

However, NGA poses a new problem of a commercial nature. Homes and businesses are comfortable with buying their internet services from a range of national and international organisations. If a mosaic of separate networks is allowed to grow up without some form of conjoining framework, then this commercial model will necessarily fall by the wayside; even the largest networks will struggle to provide the kind of scale that many of today’s service providers find necessary.

Three Scenarios

Today there are two main intellectual camps – those that tend towards a top-down national roll-out and those that see a bottom-up locally led market transition. These thought processes imply three scenarios which may play out as next generation projects emerge in the UK:

  • Da Wo (“Big Me”)
This describes the development of a traditional vertically integrated operator willing to build NGA networks alone. This is essentially what occurred in Japan.
  • Islands of Connectivity
A scenario where projects develop largely in isolation with few links with other projects. This is the traditional municipal network approach.
  • The Patchwork Quilt
Local projects develop but exist within a framework which ensures a consistent interface to the market.

Da Wo is most likely to create a market which is very much as today; one where there is significant choice but limited variety. The scope for product differentiation and innovation is limited and largely in the hands of the network owner.

However the biggest hurdle to overcome problem with this approach is the need to secure massive levels of investment – figures of £10-15bn are commonly talked about – which few is any in the industry believe deliver a business case.

The emergence of islands of connectivity may overcome the lack of variety and opportunities to innovate but many projects may struggle to achieve the scale needed to create a rich product set and vibrant market of service providers; even the very largest cities in the UK may struggle to attract some of the key media organisations, the elite of which make no secret of their requirement for a million customers before engaging with an organisation.

A patchwork quilt approach permits local innovation, allowing projects to reflect local needs and colour while offering the benefits of the Da Wo approach without the potential problems.

Co-existence

It is possible that all three scenarios will play some role in the future of the UK’s transition to NGA networks. The cable companies, for example, may elect to remain vertically integrated and follow the Da Wo path; some municipalities may feel they are better able to deliver their strategy alone, developing islands of connectivity; while others may see benefits in working together to create a patchwork quilt.

The regulatory framework will need to develop to encompass all three scenarios as each will have a different impact on the consumer and the industry. In many respects the Da Wo scenario is the easiest to regulate as it largely describes business as usual with only fine adjustments needed to fully reflect the technical transition to fibre.

The two new approaches will require more regulatory thought as they to varying degrees describe a transition from a tightly held monopolistic market to a more “perfect market” which perhaps demands less of an ex ante regulatory regime.