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Jeremy Hunt: Next Generation Broadband

Monday 29th September was the second day of last year's Conservative Party conference.

As we got up in Birmingham that morning for the usual round of conference events, none of us had any idea how much things would change that day.

Financial markets collapsed with alarming speed. The FTSE fell 10% in 10 minutes, followed soon by Wall Street and then markets worldwide.

David Cameron interrupted the conference to say he would support the government in any emergency measures required.

As markets collapsed, so too did the assumptions that had been the baseline of British politics since Tony Blair's election in 1997.

The assumption that Britain had one of the strongest economies in Europe; the assumption our public finances were basically sound; the assumption that the pound was one of the most solid currencies in the world; the assumption that Labour would not increase the top rate of tax; or indeed the assumption that the Conservatives would match Labour spending plans.
Now at the start of 2009 we face a challenge eerily reminiscent not of 1997 but of 1979.

Then as now the debate was about rebuilding a shattered British economy. Starting then, farsighted and difficult reforms laid the foundations for one of the most spectacular economic turnarounds in history.

How will that debate replay today?

Today I want to talk about one element of that debate, namely how we build an economy that is broader than one based on financial services, a housing bubble and an explosion of personal debt. I want to focus on a particular opportunity we have to create more solid foundations that will reduce the risk of similar meltdowns in the future.

It is an opportunity that Britain is uniquely well-placed to grasp if we choose. It is also an opportunity we are in real danger of missing if the government continues along its current track.

To harness it will require as bold a vision as that which informed economic decision making at the start of the 1980s. Then, as now, the vision was about creating conditions to allow enterprise to flourish rather than picking individual winners. Then, as now, the vision was about embracing the new industries of the future rather than propping up old business models; then as now the argument was about whether you achieve this by top down direction from the man in Whitehall or harnessing markets and competition.

This time, however, there is an important added element, namely to harness the massive changes being wrought by the internet and new technology.

<h2>2. An opportunity being missed</h2>

Bill Gates predicted that the internet would become the 'town square for the global village of tomorrow.' It is already happening. But is it happening in Britain?

Trade has always been the foundation of our prosperity. The internet has opened up new trade routes as surely as the Silk Road did for Chinese merchants or Pax Britannica did for the East India Company.

But whereas the trade routes of old allowed the exchange of goods, the internet allows the exchange of intellectual property.

This ought to be a massive opportunity for Britain. If you examine the skills or talent needed for the digital economy, we have a massive competitive advantage. We already have the largest independent television production sector in the world; we are the largest exporter of TV formats; the second largest music exporter; the third largest film industry; and Europe's leading computer games developers.

The UK is a world-beater when it comes to the creation of intellectual property. We lead in
Europe and are second only to the US world-wide. We ought to be in a prime position to exploit the possibilities offered by the global networks that allow those assets to be traded freely.

We should be leading the digital revolution. But the reality is we are not. That is because although we are good at creating digital content, we are less good at distributing it. Which means that others could end up benefiting from the natural advantages that should be ours. A curious but eerily familiar paradox.

It feels like a digital re-run of the old adage that the UK is brilliant at inventing things, but weak at exploiting them commercially. Given the internet itself was conceived of by Briton Tim Berners Lee, it would be a tragedy if history repeated itself.

<h2>3. Britain in the superhighway slow lane</h2>

Gordon Brown talks about the UK becoming the leading knowledge economy in the world. If only his policies had laid the foundations to make that possible. But sadly the last 12 years have been a wasted opportunity.

The UK has some of the slowest broadband speeds in the developed world, coming 21st out of 30 countries in a survey by the US-based Information Technology & Innovation Foundation. Yesterday Ofcom published research saying that average UK broadband speed is only 3.6 Mbps, less than half of the average advertised speed. This causes significant dissatisfaction amongst users of broadband hungry applications such as video, with a third of users not satisfied with the service they receive.

We do better on price and overall sit in the middle of international league tables - but only for current generation broadband.

When it comes to next generation broadband, we fare even worse.
Internet capacity is of course a real challenge for all countries. You Tube alone now consumes more bandwidth than the entire internet did in 2000. And Britons are phenomenal consumers of online video, second only to the Chinese, according to Ofcom.

Like processor capacity in computers, we need broadband capacity to increase exponentially.
But the reality is that bandwidth speeds are increasing more slowly than they should because investment by telecoms companies has not kept pace with the explosion in the number of services hungry for capacity.

The government has, predictably, commissioned countless reports on the topic. Last year we have had no less than four major reports on the question of next generation broadband access.

This year we have another two on the way.

Many of them contain detailed and important work.

But they miss the crucial point that this is not about doing what we currently do on the internet a little bit faster, convenient though that would be. It is about creating a platform for a whole generation of new businesses.

While Britain dithers with endless reports, other countries are actually getting on with building the infrastructure to create jobs and services.

In Guam, a remote Pacific island with a population of 173,000, patients undergoing heart surgery are supervised over a fibre optic link by a specialist operating 3,500 miles away in
Hawaii. A South Korean company employs 150 teachers in Wyoming to teach English to students in Korea using high speed video conferencing.

Whether remote medical care, online tutorials, video calling or community television, the possibilities are endless. They are limited only by the imagination of the entrepreneurs who
use it.

To have a chance of success, those businesses essentially need two things. They need a platform and they need coverage. Realistically this means a connection to more than half the population in a defined area - whether a town, city or the whole country.

Yet in the UK we are so far off this that not one of our technology companies are even talking about mass laying of fibre from street cabinets to the home.

BT has promised a a £1.5 billion plan essentially for fibre to the cabinet, but only if certain conditions are met.

Virgin Media is rolling out a 50 Mbps service to their cable customers through a fibre connection to street cabinets but again not to the home.

These plans are of course welcome. But they should not obscure the reality that as of today, less than 1% of our population accesses the internet using modern fibre optic technology, compared to an OECD average of around 8% and nearly 50% in Japan.

Ironically, we are lagging at a time when we most need to be ahead. If next generation businesses were desirable in times of economic prosperity, they are essential in times of economic crisis. They offer not just jobs and opportunities for thousands of people, but a critical chance to rebalance our economy away from financial services, housing and debt.

<h2>4. Why opportunity should be knocking but isn't</h2>

Economists sometimes talk about "first mover advantage," the premium an organisation gets from being the first into a particular market. First mover advantage was vital for the City of
London in the 1980s; it was vital for the first generation of internet businesses such as Google, Amazon and eBay.

As the world turns digital, it could be the same for Britain's creative economy too.

Our knowledge and creative industries are some of the best in the world at creating the content required for the digital economy.

They already employ 2 million people and constitute over 7% of GDP. They contribute £60bn to the UK economy every year, with exports alone worth at least £13bn.

To his credit, Labour's first Culture Secretary Chris Smith recognised the significance of this sector, setting up a creative industries mapping exercise and in many ways getting the debate going about the potential of our creative economy. Sadly his successors have not continued his approach - not least demonstrated by the painfully light detail in the Creative Britain strategy published by the DCMS last February.

It is because of the natural strength of our creative industries that next generation broadband offers a far greater commercial opportunity to the UK than to nearly any of our competitors.

Our advertising industry, for example, is one of the biggest in the world. TV, radio and print advertising are all having a tough time right now because of the advertising recession. If they are to remain competitive, they need a home market that embraces new approaches such as embedded internet advertising in both high speed and mobile connections.

Or our video games and software sectors, also world-beaters. Increasingly their products are being downloaded rather than sold off the shelf. To do this, their manufacturers need an infrastructure in their home market that competes with North America and the Far East. The more sophisticated our home market is, the less likely we are to lose out to aggressive competitors such as Canada.

Another success story is our music industry. Piracy is a major threat to their business model, so I warmly welcome the decision by 6 ISPs to work with the music industry to combat it as a first step. High speed broadband offers the opportunity to develop new business models based on different distribution channels - as we have seen only this week with Apple's decision to remove digital rights management from songs sold on iTunes.

Likewise for our TV and film industries, again some of the biggest in the world. Here the success of the BBC iPlayer has already given us a taste of the huge potential. Unlimited bandwidth would make it as easy to set up a TV channel as it currently is to set up a website - with huge implication as the barriers to entry fall for those wishing to set up local and community TV channels.

Or our telecoms industry. In the 1980s, the privatisation of BT gave us one of the most competitive telecoms industries in the world, with some of the lowest costs anywhere for international calling. High speed broadband offers the opportunity for a further revolution, namely TV-quality video calling.

Even more traditional industries such as architecture are being transformed.

Anyone travelling through the new Norman Foster airport at Beijing to last summer's Olympics will tell you that we have some of the most trailblazing and innovative architects in the world. Computer imaging now allows accurate 3D simulations so that structures can be 'built' digitally and tested cheaply. Next generation broadband will allow British architects to take on jobs further afield.

There is no question about our talent for creating digital content, content that can be traded and exchanged in Bill Gates' global village square. The question is whether we seize the opportunity presented by that talent to build the next generation of global businesses based on the new technology platforms that are emerging.

There may be no British Google - but there could be.

Nor is the impact restricted to the creative and knowledge industries. The internet has transformed businesses from supermarkets to flower delivery companies - next generation access will do the same. Alan Duncan and Mark Prisk in the Shadow Business team will be addressing the wider impact of next generation access in work they are doing later this year.

This also reflects the fact that broadband policy cuts across a number of government departments.

<h2>5. What needs to happen</h2>

Let me conclude with some more concrete thoughts as to what needs to happen.

I am not talking about massive East Asian-style state financed investment. Not only would that be extremely expensive for the taxpayer, it would also risk stifling the innovation that comes from healthy private sector competition. The government is simply not close enough to the market to make the right kind of decisions, and there would be a real risk it would end up deploying the wrong fibre to the wrong places.

But there are many other ways we can make this happen as a country, even if they appear to be of little interest to the government.

We should start by recognising that local as well as central government has a critical role.
Competition at state or city levels has spurred innovation in the US, and it could do so in the

UK as well. One particularly good example is Fort Wayne in Indiana, which persuaded telecoms company Verizon to build a fibre optic network. It transformed itself from a city with falling employment to one with the highest growth rate in the state.
Local government has responsibility both for regeneration and for planning. This directly impacts on the major cost in next generation broadband roll out, which is the physical cost of digging up the road. A reduction of just 10% in the civil costs of laying fibre saves private investors around £1 billion.

But the roads are always being dug up anyway as the water or gas infrastructure is improved.
So why do we not coordinate better so that fibre is laid at the same time, massively reducing the cost? Why also do we not allow telegraph poles to be used where they exist, with the consent of local residents; something that would avoid the roads being dug up at all?

Local authorities and the planning system can also help deliver NGA infrastructure to new build developments. I'd like to see an industry standard for next generation broadband included in building guidance to ensure each new home is capable of receiving super fast broadband through a fibre to the home network.

Above all though the key issue is to create a framework which allows private sector investors to get the returns necessary to make the huge investment required.

This means creating a regulatory environment that stimulates investment both by large incumbent players like BT, or where they are slow or unwilling to do so, by more nimble newcomers.

To do this we should oversee wholesale deregulation of the current broadband infrastructure.
Dark fibre, Openreach's ducts and the sub-local loop should be opened up and other operators allowed to access them. We should not rely solely on BT to build this new network.

If they are not willing to lay fibre in their ducts, other operators should be allowed the opportunity to do so.

Allowing the market to decide between operators and technologies should always be the preferred route. Whether it is a 100% fibre network or a mixture of fibre and copper, whether it is underground, overground or wireless, the nimbleness of competition will be far more effective at stimulating investment than top down strategies by ministers or regulators.

The key is to focus on outcomes, not inputs or ideologies. Labour's obsession with targets has led to an obsession with inputs and structure rather than the results that actually impact on people's lives. On the rare occasions the government has specified outcomes, they are often for decades ahead, totally removing any possibility of accountability from the government and ministers actually in office.

With thousands of jobs and livelihoods at stake, we must not make the same mistake again.

So a Conservative government will focus on a simple outcome to be achieved within a limited timescale. Our objective will be that the majority of the population should have access to a next generation high speed network within five years, with near universal provision available as soon as possible after that. Only by making such a firm commitment will we ensure that the UK has a platform in place to exploit the global opportunities available for our creative and knowledge industries.
In order to inform our detailed thinking on these matters, we will this spring conduct a wideranging review of our creative and knowledge industries. This will operate at arms length and with total independence. It will be asking whether as a country we are taking the tough decisions needed to maximise the opportunity our creative economy provides us. We will be announcing shortly a detailed remit of this review and who will be leading it.

<h2>6. Needed - a lead from government</h2>

Let me finish by saying this is an area where we desperately need a lead from government.
Taking a lead does not mean old style 1970s corporatism or its 21st century Mandelsonian equivalent. The role of government is to facilitate and not deliver, and this could not be truer than for a sector that earns its living through creativity and ingenuity.

But the government can take a lead by making it clear it is an absolute policy priority to encourage and support the private investment required to develop next generation networks.

It can, as far as is possible, provide regulatory certainty to investors. Setting a clear national goal for provision will help ensure this. It will also galvanise local government to play its role. This in turn should mean progress in minimising the costs of the civil works needed and speeding up the planning process.

It should not get involved in the detail of technical standards to allow interoperability between different networks. But it should ensure the co-ordinating mechanisms are in place so that such interoperability can take place.

We need all the current major players - BT, Virgin, Sky, Carphone Warehouse and the mobile operators - to play a major role, along with new players who bring fresh ideas and business models to the market. It is the government's job to ensure that this patchwork quilt of provision is constructed in such a way to ensure it becomes a single national network. That
way next generation businesses will have both the platform and reach they require.

A Conservative government achieved something similar when we launched the cable and satellite revolution in the 1980s. Now it is time to do the same for next generation access.

The benefits for British business, culture and lifestyle are simply too great to ignore.

From the earliest days of the building of the railways, we are no strangers in this country to pioneering new communications networks.

The talent, energy, expertise and enthusiasm of our creative sector is waiting to take off. The question is whether we have a government with the vision to allow it to do so.

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