Broadband

In a recent interview BT’s CEO Ian Livingston suggests that the recession and shareholder pressure may jeopardise plans to spend £1.5bn bringing the next generation of super-fast broadband services to 10m British households within the next four years.

The credit crunch and BT’s recent results will have constrained the availability of capital, and there remains regulatory uncertainty over BT’s pricing and return as it would be the one operator forced to wholesale connections over fibre infrastructure. In any case the economics of FTTx remain vague and if a commercial operator can’t achieve a projected IRR of 15% or more they are probably right to use the cash to pay off debt instead.

There is also a technical challenge around the necessity of the proposed FTTC (fibre to the cabinet) investment - the projected speed increase to 20-40 Mbits/s would be welcomed by many but is it really necessary? How many consumers have taken advantage of Be’s 24M or Virgin’s 20M services that are already available in the sort of areas likely to get FTTC from BT - not many.

Looking at the broadband infrastructure in the round it is apparent that in most cases the end user link is not the constraint, as a line capable of 6 Mbits/s may only run at 600 kbits/s during peak times due to contention either at the telephone exchange or at the ISP. Increasing the capability of the end user link from 6 to 30 Mbits/s could be a futile gesture if the limiting factor in the network remains at 600 kbits/s.

We are about to experience price increases in the costs of BT Centrals, which carry data to ISPs from BT’s network, which will result in either higher end user charges or (more likely) lower available bandwidth at that constrained point - if an ISP only provides 40 kbit/s per user on average where is the merit in investing substantial sums to uprate the first mile from 4Mbps to 40Mbps?

Tags: BT, Credit Crunch, fttc