Cabinet Office Strategy

Electronic Networks: Scoping Note

Summary

1. Electronic Networks 1 - including narrowband and broadband internet, and mobile networks - are becoming increasingly important economically and socially.

2. Government has a number of objectives for the development of electronic networks - supporting economic growth, meeting social goals, delivering public services and generally ensuring the best outcomes for consumers. A great deal of work is underway across Government to support these objectives and to encourage the development of the UK's electronic infrastructure. The regulatory environment should support and contribute to the achievement of these objectives.

3. In considering the regulatory environment, the intention to establish OFCOM 2 in 2003 offers a good opportunity for Government to take stock of the overall regulatory approach, consider the lessons from recent experience and ensure it has a clear view of the issues which need to be addressed over the next decade.

4. The PIU has therefore been asked to undertake a project which will:

• review the likely range of technology and market developments over the next decade, and the challenges they raise for Government and the regulator;
• consider the importance of electronic networks, including the development of broadband, to the UK's productivity and long-run economic growth;
• take a strategic view of the Government's objectives in the development of electronic networks over the next decade, with a particular focus on the regulatory goals and approach.

5. The project will draw on comparative regulatory experience in the UK and abroad and will work closely with other Government departments and the sectoral regulators.

6. The output of the project will be a report to Government which will assist with the setting of future Government policy and approach, and will contribute to strategic thinking for the new regulator OFCOM.

7. The project is expected to be completed by Summer 2002.

What are the issues?

8. Electronic Networks have long been a critical focus for policy-makers. However, with the rise of narrowband and broadband Internet, and mobile networks, their reach, cost, and quality has come to be seen as even more decisive not only for the economy, but also for public services and society more generally.

9. The accelerating pace of change in Electronic Networks has been driven by significant technology shifts in recent years, including:

• xDSL 3 technology providing fast internet connections down traditional telephone lines;
• Cable/fibre combining traditional broadcast entertainment with telephony and internet access;
• Satellite broadcast technology evolving to offer high-speed internet access, including in remote regions;
• Mobile telephony moving beyond voice communication to offer data transfer and mobile internet access via '3G' networks;
• Wireless access technologies starting to change the dependence on wired infrastructure for connections in homes and offices;
• Interactive digital television providing consumers with entertainment and communication through a familiar access device.

10. Further integration between technologies, content and services seems inevitable, although the exact form it will take is unpredictable. A distinction is likely to remain between wired and wireless networks given differences in speed, capacity and availability, although over time the applications and services available through these networks are likely to converge. Further technological developments such as high speed DSL, fibre to the kerb/home, and wireless local access networks can be expected.

11. There have also been significant changes in the nature of the telecommunications and content industries in recent years, partly because of market pressures, and partly because of regulatory action to improve the level of competition. There has been a dramatic shift in the range of players involved, with new entrants such as infrastructure providers, internet service providers and web portals challenging incumbent telecoms companies and content providers. Regulatory priorities have shifted to take into account Local Loop Unbundling, the development of wholesale markets, and the challenge of regulating converged businesses. Over the next decade, the setting-up of OFCOM, the influence of European legal frameworks and the forthcoming Communications Bill will help to define and shape UK markets.

12. All these changes are leading to a wide range of different options for connectivity - depending on what businesses and individuals want that connectivity for, and the content and added-value services available.

13. An emerging view is that improved quality, accessibility and price of connectivity - however delivered - is likely to be of increasing importance in the knowledge economy. What is currently described as broadband (for most consumers, either ADSL or cable technology) clearly has an important role to play in this as the starting point for future developments.

14. A potential downside of future developments in Electronic Networks is the widening of any 'digital divide'. This could either be caused by socio-demographic factors (such as lack of equipment, skills, motivation or trust), or by restricted access to advanced networks caused by limited geographic roll-out.

15. This set of issues raises a number of challenges for the public and private sectors. Particular challenges for Government over the next decade include:

• developing a flexible approach to regulation which delivers the best outcomes for consumers;
• identifying market failures and evaluating the use of non-regulatory levers (such as fiscal intervention, public procurement, and market co-ordination) to address them;
• the effective delivery of Government content and services over Electronic Networks.
• maintaining and where possible improving the competitiveness of UK industries involved in electronic networks

What action has the UK Government taken to address these challenges?

16. The UK Government has been active in responding to recent developments in Electronic Networks, including a recent focus on the development of broadband internet access. Key areas of activity are set out below.

Economic and social impact

17. The Office of the e-Envoy have co-ordinated a great deal of work on the economic and social impact of Electronic Networks. Much of this is summarised in the 'UK Online Annual Report 2001' and earlier publications, as well as in the work of the Broadband Stakeholders Group.

Government role and objectives

18. The approach to Government role and objectives has resulted in a number of key objectives and targets, including:

• To ensure an effective regulatory environment for telecommunications, with specific functions for the Director General of Oftel under the 1984 Telecommunications Act, including duties to:
  •  ensure that telecommunications services are provided in the UK to meet all reasonable demands for them (including emergency services, public call boxes, directory information services and services in rural areas);
  • promote the interests of consumers;
  • maintain and promote effective competition 4
• To make the UK the best and safest environment in the world for e-commerce by 2002 5 ;
• To make 100% of Government services available electronically by 2005 6
• To ensure that everyone who wants it has access to the Internet by 2005 7
• To ensure that the UK has the most extensive and competitive broadband market in the G7 by 2005, with significantly increased broadband connections to schools, libraries, further education colleges and universities 8
• To have the most competitive and dynamic market for digital television in the G7, as measured by take up, choice and cost 9

Sector regulation

19. The regulation of Electronic Networks in the UK has to date been the responsibility of a number of bodies, including Oftel, the Radio Authority, the Radiocommunications Agency, the Broadcasting Standards Commission, and the Independent Television Commission.

20. With the creation of OFCOM in 2003 the responsibilities of all these regulators will be brought together into one body. The Communications White Paper proposes that OFCOM's central regulatory objectives should be to:

• protect the interests of consumers in terms of choice, price, quality of service and value for money, in particular through promoting open and competitive markets;
• maintain high quality of content, a wide range of programming, and plurality of public expression;
• protect the interests of citizens by maintaining accepted community standards in content, balancing freedom of speech against the need to protect against potentially offensive or harmful material, and ensuring appropriate protection of fairness and privacy.

21. OFCOM will be able to take a broader and more holistic view of the issues around convergence of platforms and content. This will require a flexible approach, while not losing the particular skills which have been developed in the current regulators. The influence of the EU on UK regulation is also likely to increase in the future, particularly through the adoption of the harmonised framework for regulation of electronic communications networks and services set out in the European Communications Directives.

Non-regulatory activities

22. Non regulatory activities have spanned a wide range of issues, including:

• the development of an e-commerce legal framework;
• work with the Broadband Stakeholders Group to stimulate the development and rollout of broadband 10 , including the use of public sector procurement;
• the development of the UK online Government portal;
• a commitment to develop a network of over 6000 UK online centres, providing community-based access to the Internet and the skills to use it;
• the development of public service material for the internet, including the creation of National Curriculum On-line;
• the focus on the transition to digital broadcasting, and the analogue-digital switchover.

What are the objectives of the project? What are the expected outputs?

23. The PIU has been asked to stand back from this existing work to take a strategic view of the challenges which Government and the sectoral regulator are likely to face over the next decade. This will require close work with key Government departments (Office of the e-Envoy, Department of Trade and Industry, Department of Culture, Media and Sport, HM Treasury). The PIU will also keep in close touch with the current sectoral regulators, while recognising their statutory position and independence from Government.

24. The PIU will build on existing work, and feed back into the work programmes of these other departments. The PIU will need to co-ordinate with existing initiatives such as the Digital TV action plan, and the preparation for the Communications Bill.

25. Particular areas for focus will include the areas set out below.

26. A review of the likely range of technology and market developments over the next decade, and the challenges they raise for Government and the regulator . This will be based on interviews and discussions with market players. An initial issues paper which considers some of these issues - and has a particular focus on broadband - is attached (N.B. this was prepared for a PIU Seminar held in January 2002. It therefore does not take into account developments since then, such as BT's large cuts in wholesale ADSL prices.) The review will cover a range of issues which will affect the regulatory goals and approach, for example:

• an assessment of the implications of developments in competing technologies for telecoms infrastructure (for example, the local loop);
• the potential digital divide for access to Electronic Networks, including high-speed networks, whether caused by geography or socio-demographics;
• the challenges associated with the potentially complex convergence of content and technology, including possible changes in industry structures;
• the further development of interactive digital television, and the analogue/digital switchover;

27. Assessment of the importance of electronic networks, including the development of broadband, to the UK's productivity and long-run economic growth . The PIU has commissioned academic research drawing together comparative international evidence on the economic impact of ICT. This will be published on the PIU website shortly for comment;

28. Taking a fresh and strategic view of the Government's objectives in the development of electronic networks over the next decade, with a particular focus on the regulatory goals and approach. This will include:

• consideration of the rationale for Government intervention - what are the market failures and externalities (if any);
• assessment of the Government's distributional objectives in the development of electronic infrastructure, including access to high-speed networks;
• the future role of European legislation in UK regulation and Government policy;
• reviewing where elements of monopoly are likely to persist in the network and the implications for regulation;
• lessons from comparative regulatory experience in the UK and abroad;
• ensuring that sufficient incentives exist for investment to support continued innovation and system resilience in regulated markets;
• the regulatory implications of the anticipated convergence of content and technology.

29. The output of the project will be a report to Government which will assist with the setting of future Government policy and approach, and will contribute to strategic thinking for the new regulator OFCOM.

Sponsor Minister

30. Douglas Alexander (Minister of State for E-Commerce and Competitiveness, DTI)

Timetable

31. Completion by Summer 2002

April 2002

Endnotes

1. Electronic Networks are defined as including all the different networks in the UK that offer connectivity, so that information (voice, data, video etc.) can be transmitted to and from multiple points, including a return path from the end user to the originator.
2. OFCOM stands for the Office of Communications, a new regulatory body which will replace Oftel (The Office of Telecommunications), the Radio Authority, the Radiocommunications Agency, the Broadcasting Standards Commission, and the Independent Television Commission
3. DSL stands for Digital Subscriber Line; xDSL implies the family of DSL technologies, including Asymmetric DSL, Symmetric DSL, High-Speed DSL etc.
4. See http://www.oftel.gov.uk/about/index.htm for more detail
5. UK Online Annual Report 2001
6. 'Government to speed up introduction of online services', No. 10 press notice, 30 March 2000
7. Prime Minister's speech at the Knowledge 2000 conference, 7 March 2000
8. UK Online: The Broadband Future (February 2001)
9. 'Opportunity for all in a world of change' White Paper (Cm 5052), 13 February 2001
10. Response to the Broadband Stakeholders Group, Office of the e-Envoy, December 2001