Insight Analysis: Broadband Britain – A Progress Report

Within Europe, the UK is surpassed only by Germany in terms of the number of home internet users. However, despite the fact that more than 10 million UK households now have access to the web, the public have been reluctant to sign up for the high-speed services that would undoubtedly enhance their online experience.

In layman’s terms, broadband is an ‘always-on’ service capable of transmitting data at up to 40 times the speed of a standard modem. In particular, it enables users to surf the web more quickly and download music and video files in a fraction of the time it takes via a dial-up connection. It also cuts out the costs of additional phone lines and hourly surcharges.

Studies have shown that broadband users spend more time on the net, download more material and are more likely to buy products online than dial-up users.

Given the obvious advantages, it is somewhat surprising that the UK has been slow on the uptake when it comes to broadband. According to the communications regulator Oftel, the number of subscribers has increased threefold this year and recently broke the one million barrier. However, this remains a small proportion of the overall internet population and although Continental Research is predicting significant growth over the next year, UK internet users still seem to have an attachment to their dial-up connections.

UK Internet Penetration
Households	Number (millions)
Total	24.4
Connected To Internet	10.0
With Faster Connection Speed	1.2
Connecting Via Regular Phone Line	8.8
Likely To Upgrade To Faster Speed	0.7
Source: Continental Research, August 2002

This Government has committed itself to making the UK the best place for broadband by 2005 but, given current growth rates, this would appear to be optimistic at best. Dan Stevenson, a leading analyst at Jupiter Research, recently dismissed the objective, describing it as “completely unrealistic”. While it is true that the likes of BT, NTL, AOL and Freeserve have been successfully promoting cut price broadband packages, they were starting from a low base and much work needs to be done to convince the British public of the benefits of upgrading.

According to Nielsen//NetRatings, fewer than 10% of internet connections in the UK are made via broadband, compared to 39% in Germany and 33% in Sweden. The UK also lags behind in terms of the proportion of internet homes connected to broadband.

European Internet Connection Speeds, % By Platform
	56k modem or less	Cable modem	High-speed telephony (ISDN, DSL etc.)
UK	86	5	9
Italy	79	2	18
France	77	5	17
Spain	75	7	18
Netherlands	58	21	20
Sweden	57	10	33
Germany	55	6	39
Source: Nielsen//NetRatings, September 2002

Encouraging signs On the plus side, Oftel has found that approximately one-third of dial-up internet users in the UK are interested in subscribing to high-speed services. Moreover, broadband growth now exceeds that of France, Germany and Italy. Nonetheless, it is clear that it will take more than aggressive marketing and discount offers by the ISPs to bridge the broadband gap between the UK and other European countries.

The Government is keen to promote broadband as it has the potential to increase productivity by making communications more efficient and should provide a major boost to e-commerce. As a result, this administration has initiated the ‘Broadband Britain’ programme which aims to create the “most extensive and competitive” broadband market in the G7 and to make high-speed internet access widely available in remote areas.

Regional deficiencies Despite the good intentions, broadband penetration remains low and rural economies are largely disenfranchised due to the reluctance of BT to invest in areas where profits are likely to be minimal. Rivals such as the cable operators Telewest and NTL have also cut spending after running up huge debts establishing services in the UK.

Statistics from Kingston Communications showed that by the end of May, only 1,115 of the country’s 5,500 exchanges had been upgraded to ADSL. This partly accounts for the fact that only one in ten SMEs have broadband services.

Content is the key However, infrastructure limitations tell only part of the story as it is claimed that at least 67% of households and 75% of businesses now have the potential to access ADSL services. The fact that only a small proportion have signed up for broadband should set alarm bells ringing among ministers and service providers alike.

The current market growth is due largely to the price cuts made in the spring and a recent report by netimperative claimed that this will level off unless further steps are taken. It is argued that broadband needs more selling points than speed alone and there is considerable consumer demand for better applications, services and content.

Unfortunately, we are standing at something of an impasse as content players are reluctant to commit further funds until broadband penetration has reached a level that would guarantee return on investment. Increased competition could help to break this deadlock and BT’s broadband business is already under scrutiny following complaints from rivals that the organisation holds too much sway in the market.

Government initiatives The Government’s priority is to increase awareness of the benefits of broadband in the business sector. Stephen Timms, the e-commerce minister, has already announced the creation of a new network of regional broadband advisors and is looking at ways in which services can be rolled out to areas outside high demand.

In addition, having taken upon itself the task of converting the country to broadband, the Government now has a responsibility to lead by example. The Broadband Content Coalition has already highlighted the lack of interactive content on Government sites and the Office of Government Commerce (OGC) is now looking at ways in which internet services can be integrated more openly with the public sector.

Conclusion Having been one of the late arrivals at the broadband party, the UK is now making up for lost time. The fact that there are now more than a million homes with high-speed internet access is testament to the success of recent price promotion and marketing efforts. However, broadband is still considered to be a ‘niche’ product and the Government and the industry need to ensure that the technology reaches a wider audience and is considered indispensable by consumers and businesses alike.