BSG Study is Optimistic About Initial UK Demand for Superfast Broadband

The Broadband Stakeholders Group (BSG), a government think-tank, has published a new study that examines the predicted demand for superfast broadband ISP products. The good news is that it “gives cause for optimism and confidence“, with the UK comparing well on the international stage, but big challenges remain.

At present the government aims for 90% of UK people in each local authority area to be within reach of a superfast broadband (25Mbps+) service by March 2015 and it’s investing around £1bn in order to achieve that. As a result it’s important to understand how much demand consumers have for related connectivity as this will eventually reflect its economic viability.

The BSG’s Demand for Superfast Broadband (PDF) report uses public data on superfast broadband demand across various markets and finds that the UK is a “solid mid table performer” in Europe that has already managed to outperform major peers in France, Germany and Spain. At the same time we’ve also made gains against the Netherlands, Denmark and Sweden but are still behind them.

The UK also compares well with the USA, which is said to be “experiencing a relatively low” uptake of superfast services, and we have a similar “initial growth curve” as was seen before in Asian countries like Japan (where fibre optic services are now more common).

But the UK subscriber estimates for 2020, when the EU expects 100% of European households to have access to speeds of at least 30Mbps (Digital Agenda), vary dramatically between around 7 million and 13 million. Some 4 to 5 million of the above figure will almost certainly be Virgin Media subscribers (their minimum speed packages are already set at 30Mbps), while the rest will predominantly come from BT’s FTTC (VDSL) and FTTP based platform (BT Retail alone currently has around 800,000 superfast subscribers).

The report warns that it’s difficult to predict the outcome at such an early stage of deployment, although it notes that “superfast broadband demand builds slowly in every market – even in Asia“. Meanwhile demand for superfast in the UK is said to be slower than it was for first generation broadband (ADSL), which is partly because of the difficulty with convincing customers to move from often cheaper but slower unbundled (LLU) ADSL2+ services.

This is an especially big problem during the early stages of superfast deployment as operators tend to focus on the urban markets, where good connections are often more readily available, as opposed to more rural areas that cost more to reach but where demand is often highest due to years of neglect (this will change as state aid boosts the services reach). On top of that the new generation of superfast services still lack the competitive flexibility of their unbundled ADSL equivalents, which helped BT’s rival ISPs grow so fast (e.g. Sky Broadband and TalkTalk).

Pamela Learmonth, CEO of the BSG, said:

“Our analysis suggests that the UK has made a solid start on its next generation journey but, as in all markets, no one has a crystal ball to predict how this will evolve.

The BSG believes that the most important factor in evaluating broadband is usage: how are people using broadband and what benefits result from this. If we are working towards having the best broadband in Europe by 2015 it is these demand side issues that are as important as concerns over infrastructure. In publishing this report we hope that we can engender greater debate and interest in demand side issues so that the UK can reap the greatest benefits from investment in improving broadband networks.”

The report also expects Pay-TV services, such as BTVision and TalkTalkTV (IPTV), to help improve demand for superfast broadband, although it remains sceptical about how much of an impact they will have in the UK where the most dominant TV solutions from Sky and Virgin Media already exist and don’t strictly rely on superfast connectivity.

Ultimately there are still many unknowns, such as whether superfast connectivity will remain at a premium price. But eventually ISPs will move on from the old ADSL and ADSL2+ platforms as customers are migrated to the latest fibre based broadband solutions, although that could take a few years. The important point is that demand does seem to exist but its strength is still debateable, yet it should get stronger.