Following the launch of our report ‘A Framework’, I thought it would be worth setting down a few pieces about the benefits highlighted in the report. I’ll start with a general view of the economic impact the report sets out, which although substantial in terms of benefits, may be difficult in practice for investors to capture.

First, a brief note on the methodology. We have taken a bottom-up approach, examining where in the economy specific value could possibly accrue, rather than making general estimations of the impact of next generation broadband on productivity or GDP. For more on this in the report, it is worth looking at the section on ‘pseudo costs and benefits’. We also broke down economic value in to two categories - private value that accrues to investors and consumers, and wider economic value.

The report sets out a wide variety of categories where value would accrue. Some of these benefits would be captured upon deployment; others would take time, require transformations and would accrue in the medium to long term. In addition some of these benefits may be impacted by various policy agendas - for example, the role for next generation broadband in reducing carbon emissions is potentially significant depending on whether a carbon tax was introduced that encouraged substitution for emission-intensive activities.

The report suggests that these benefits are potentially very large, and in the long term likely to be larger than the cost of deploying the network. Particularly, there is likely to be significant private value that will be captured by investors and consumers. This does not mean, however, that the business case is made, and in reality there are difficulties for investors in trying to capture this value.

The report highlights three key constraints on investors’ ability to capture private value. First, to the extent that next generation broadband is an experience good consumers may not be willing to pay a premium for the service until they have experienced it. Second, creating this value may require the transformation of value chains, which may take time and would be disruptive. Third, investors do not yet have accurate knowledge of how much consumers are willing to pay, meaning that there will be difficulty in setting the correct pricing structures in order to maximise how much of the value they are able to capture.

Generally, the report calls for further work that would address these and other uncertainties. Resolving these uncertainties will be key to creating a business case that is acceptable to investors. The BSG is continuing its work programme that will hopefully shed some light on these and other issues. We are keen that further evidence is put forward that can help illuminate these, and would be interested to see any evidence others have to this end.

Our recent report on the value of next generation broadband created a minor debate on itWire in Australia following a good blog article from Stuart Corner. The article captures the essence of our message on next generation broadband deployment from our recent research: it is more important to do this right than to do it now.

The size of the investment required to roll out next generation broadband in any country, the irreversibility of that investment, and the likely importance to that country’s economy and society of superfast broadband mean that the costs of getting it wrong could be significant, and that investment should occur at the most optimal time possible in order to maximise the benefits.

For the UK, our report suggests, the most optimal time is not necessarily now. There are a number of uncertainities for investors that create a large value in waiting, such as a lack of evidence of consumer willingness to pay and the current regulatory uncertainty. Over time, this value will reduce as evidence emerges and some of the uncertainties are resolved - we believe over the next 18 months or so.

Ultimately, we still believe the market is best placed to decide when and how investment in next generation broadband should be made. But this doesn’t mean we should be complacent. It is important that the work that is being done continues, including Ofcom’s work to provide regulatory certainty, the Caio review, and the work of the BSG, so that in 18 months’ time we really do have a clearer picture.

We’ve been absent from the blog for a few weeks as we’ve been finalising two new pieces of research that we believe moves the debate around next generation broadband in the UK forward, and putting on our 2008 Conference ‘Beyond Pipe Dreams?’. It’s been a busy time, but now that’s past we have a lot of issues to discuss.

First of all, the conference itself produced a lively and informed debate, with representatives from a wide variety of sectors and a range of speakers including Francesco Caio, head of the governemnt’s review of broadband. To view the presentations from the event see www.broadbanduk.org/beyondpipedreams.

The first of the two reports that we launched at the conference was ‘A Framework for Evaluating the Value of Next Generation Broadband‘. This report examines the incremental economic and social value of next generation broadband over current broadband provision in the UK.

The second report was ‘Models for efficient and effective public sector intervention in next generation broadband access networks‘. This report studies next generation broadband interventions across the world, and first generation interventions in the UK, to determine good practice for interventions in the UK.

These reports contain a lot of issues, which we will discuss in more detail in future blogs. For now, I can strongly recommend both reports if you are interested in the future of broadband in the UK.

by Peter Shearman, Policy Manager, BSG