Home / Blogs

Free Broadband: The Shape of Things to Come

Henry Lancaster

The UK's broadband market is one of the most competitive in Europe. The DSL network effectively covers the entire country, while the network of the dominant cable provider Virgin Media covers more than half of all households (about 12.6 million homes). Beginning in 2007, Virgin Media expanded the availability of its services not by increasing the footprint of its cable network but by utilising wholesale LLU services: a four-year wholesale LLU agreement with Cable & Wireless gained Virgin Media access to an additional four million UK households, allowing it to offer triple-play services to parts of the country not then served by its cable network. Recently, however, Virgin Media announced plans to expand its network to an additional 500,000 homes which are close enough to its existing network to make them commercially attractive.

Given this excellent cross-platform competition, broadband retail prices in the UK have plummeted in recent years: prices fell by an average 36% between 2004 and 2008. They are unlikely to fall much further — instead customers will be offered more for their money as ISPs continue to increase speeds, and broadband itself, as most customers recognize it, progressively becomes only one of three or (increasingly) four products bundled within a single package.

Broadband pricing models were altered dramatically from March 2006 with the introduction of 'free' broadband by the Carphone Warehouse and subsequently by Orange Broadband and BSkyB. In late 2006 Virgin Mobile offered its own take on 'free' broadband with a promotion via its Virgin-branded subsidiaries Virgin Mobile and Virgin.net. Virgin Mobile offered one year free Virgin.net ADSL access to customers taking its SIM-only pay monthly mobile tariffs.

BT, which has about quarter of the UK's broadband market, does not offer free broadband but this month it announced that it would upgrade customers to 20Mb/s plans for free if they signed up for a 12 month contract (the 20Mb/s offer is currently limited to the 40% of the population served by its 550 largest exchanges, mostly in urban areas).

For providers, the diminishing significance of broadband as a service has been on the cards for some time, and will be exacerbated in coming years as fibre networks are built out and capacity allows innumerable other services to be carried on those networks. The cable alternative is also pushing for FttH as an end-game solution, since the cheaper hybrid fibre VDSL alternative cannot match the 120Mb/s service increasingly common in Europe, let alone the 200Mb/s service currently being piloted by Virgin Media.

The UK is as yet not a significant fibre player in Europe. BT Retail will begin the first trials of 40Mb/s fibre-based broadband within the next few months, while Openreach only delivers speeds of up to 100Mb/s to customers in the Ebbsfleet Valley in Kent, using FttP. These are small-scale key deployments, and far less ambitious than the national FttH networks envisaged by countries such as Finland.

Nevertheless, the point to grasp is that with fibre in place broadband as such will become a relatively insignificant component, making up perhaps as little as 10% to 15% of revenue. The bulk of revenue will come from other existing services which require a high level of video-based infrastructure, the limitless yet-to-be-developed services, and commitments from large institutions and government departments. The latter are obvious candidates as 'bandwidth tenants': tele-education, 'virtual classrooms' and long-distance learning can of course be supplemented by private institutions performing the same tasks, by music schools giving piano lessons via video link to different parts of the country, or from abroad. The list goes on and on. Government health departments are other key candidates, as are gas and electricity utilities which can use the infrastructure to monitor their networks.

Given that broadband will make up only a small proportion of future service revenue, and will itself become a less significant part of a household's bundled package, it is perhaps time that consumers and providers alike shift their mindsets from costing broadband to costing 'total IP'.

By Henry Lancaster, Senior Analysts at Paul Budde Communication Henry is also a contributor of the Paul Budde Communication blog located hereVisit Page
Follow CircleID on
Related topics: Access Providers, Broadband, Telecom
SHARE THIS POST

If you are pressed for time ...

... this is for you. More and more professionals are choosing to publish critical posts on CircleID from all corners of the Internet industry. If you find it hard to keep up daily, consider subscribing to our weekly digest. We will provide you a convenient summary report once a week sent directly to your inbox. It's a quick and easy read.

I make a point of reading CircleID. There is no getting around the utility of knowing what thoughtful people are thinking and saying about our industry.

Vinton Cerf, Co-designer of the TCP/IP Protocols & the Architecture of the Internet

Share your comments

To post comments, please login or create an account.

Related

Topics

Cybersecurity

Sponsored byVerisign

Domain Names

Sponsored byVerisign

IP Addressing

Sponsored byAvenue4 LLC

DNS Security

Sponsored byAfilias

New TLDs

Sponsored byAfilias