Can the Digital Economy Bill make broadband more competitive?

broadband speed race

THE Local Government Association (LGA) have urged internet service providers (ISPs) to be more honest about the broadband speeds they can offer customers.

They've called on ISPs to end the practice of advertising "up to" speeds that cover whole areas. Instead, they want providers to offer speed estimates specific to particular home addresses.

Their call comes at a time when the Digital Economy Bill has just cleared its second reading at the House of Commons.

The bill promises to establish a "universal service obligation" (USO) to bring speeds of at least 10Mb to the entire UK by 2020. It also seeks to give greater power to Ofcom to force ISPs to provide information regarding the exact quality of the services they provide their customers.

However, while this will in theory help make the broadband industry more transparent for customers, it has to overcome a number of obstacles.

These include the near monopoly BT has on broadband networks, the reluctance of customers to switch providers, and the fact that there's never any guarantee a regulator will actually use the powers invested in them by legislation.

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Nonetheless, the LGA are hopeful that broadband providers will soon be more open when it comes to the speeds they offer the public.

In particular, they want ISPs to allow third parties to have direct access to "live data" on the household speeds they offer.

With this access, these third parties will then be able to build comparison websites that contrast every broadband service on the market, comparing each service in terms of the particular speed they offer particular addresses.

At the moment, no such service is available, leaving customers with only two estimations to go by when choosing a broadband provider.

The first of these - the 'up to' estimate provided in ads - can be extremely vague, with ISPs able to publicise them after having proven only that they can supply the advertised speeds to at least 10% of residences in an area.

The second is the estimate that potential customers receive when about to sign up with a provider. These offer measurements of broadband speed at the area or post-code level, and while they're more reliable than 'up to' estimates they still fail to supply the degree of accuracy the LGA are demanding.

Because of the insufficiency of both estimates, providers can often get away with supplying their customers with speeds significantly lower than those advertised.

For example, in 2011, it was discovered by Ofcom that the national average broadband speed was less than half (45%) the average advertised broadband speed.

Even worse, there were some packages in the "20-24Mb" range that, on average, provided speeds only 29% (6.2Mb) of those advertised.

Unfortunately, in the face of this marked underperformance, Ofcom have so far been unable to eradicate the practice of advertising misleading "up to" speeds.

The only thing they've been able to do so far for customers is to give them more power to switch ISPs in the event that the speeds they actually receive are significantly lower than those advertised.

This ruling was introduced in 2015. Despite its good intentions, it allows people to leave their contracts quickly only if they've received a speed lower than the Minimum Guaranteed Access Line Speed, which is the speed attained by an ISP's slowest 10% of customers.

As such, people can still receive speeds distinctly lower than those advertised and not be able to quickly change their broadband provider. This means that the broadband providers are effectively given legal permission to mislead their customers, so long as they don't mislead them too much.

Network competition

It's in the context of this anti-competitive vagueness that the Digital Economy Bill [pdf] enters.

First introduced on July 5th by then-Secretary of State for Culture, Media and Sport, John Whittingdale, this bill aims to make ISPs more accountable for the claims they make regarding broadband speeds.

Aside from legislating on digital piracy and spam, it will endow Ofcom with "a broader information collection power that the government envisages could be used to obtain address level data on broadband line speeds."

More specifically, it will provide Ofcom with the remit to collect information for the purposes of fostering competition, as opposed to being able to collect data only to prevent serious violations of consumer rights.

In theory, this will permit Ofcom to collect the data that could be used for comparison services that compare the broadband speeds offered to particular addresses by ISPs.

The potential of such a measure to introduce transparency and competitiveness into the broadband industry is huge, since it would allow customers to see whether the actual speeds offered by ISPs really live up to those advertised.

That said, there are a number of unresolved issues concerning the measure, all of which raise doubts as to its feasibility.

To begin with, there isn't much chance of making sure ISPs improve their speeds when the networks they use are owned and maintained by another company.

This applies to all the providers who pay to use BT's Openreach network, rendering them unable to actually improve their services without having to go through BT first or having to take the drastic step of laying their own cables.

As pointed out by CityFibre's co-founder, Mark Collins, this dependency makes it "unlikely for those with slow speeds to be able to access much faster services without costly upgrades."

Since BT controls the network of most ISPs, they'll have a distinct advantage in responding quickly to protests from Ofcom or others that they're not matching their advertised capacities.

As for those providers who rely on them, they'll most likely have to renegotiate with BT if they want to enhance or fix the parts of the network they use.

This means that it will be more expensive for them to react to demands to bring their services up to speed.

What's more, it potentially means that competition will decrease, insofar as some ISPs will be at too much of a disadvantage to be able to keep up with expectations on broadband speeds. In a worst case scenario, they'll perhaps fall by the wayside, leaving BT and Virgin Media as the sole major providers able to sufficiently ensure the performance of their services.

Surely, such a distant possibility of reduced competition isn't at all what Ofcom or the architects of the Digital Economy Bill want to happen.

Inactivity

Beyond this gloomy possibility, there are also two question marks relating, not so much to the guiding assumptions of the bill, but to whether the bill will actually have the desired effect.

On the one hand, just because Ofcom will be granted the discretionary power to demand more information from ISPs doesn't mean they'll use it.

For instance, Ofgem haven't gone so far as calling for a cap on standard variable tariffs despite being able to do so. Similarly, the Financial Conduct Authority had it in their power to investigate banking culture in December of last year, but instead they chose to shelve their plans for an inquiry.

In both cases, regulators stopped themselves, for various reasons, from exercising their powers fully. Just as they stopped themselves, so too may Ofcom stop themselves from exercising the powers they'll soon receive, perhaps because of pressure from the industry they're meant to regulate.

If so, it wouldn't be the first time a regulator has bowed to lobbying pressure. Also, it wouldn't be inconsistent with Ofcom's longstanding battle against "up to" adverts, which after several years of indecisiveness still hasn't managed to bear any fruit.

Still four million

Part of the reason why it hasn't met with success, however, isn't just because ISPs are still using "up to" declarations of the speeds they offer.

It's also because, despite publicising the widening gulf between advertised and actual capacities, customers haven't really flocked to the faster providers and therefore haven't put commercial pressure on the slower ISPs to up their game.

Despite being told in 2011 and in 2014 that, say, TalkTalk could only offer average speeds of between 7.7Mb and 9.8Mb after having advertised "up to 24Mb", customers didn't flee the provider for the slightly faster BT.

On the contrary, TalkTalk have seen their customers remain stable at around the four million mark since 2011, despite BT offering an average speed in 2014 that was at least 1Mb faster than theirs.

This suggests that, if customers have seen the figures Ofcom annually make available, they haven't been particularly swayed by them.

Whether this is because it's too burdensome to switch provider or because many people are actually happy enough with a sub-par service, it doesn't bode well for the Digital Economy Bill's plans to enable comparison services working at the address level.

It implies that they won't have the effect they'd like to have, despite providing customers with a more accurate estimation of the speed they can expect from different ISPs.

If this proves to be the case when the bill is passed and Ofcom have the power to collect the relevant data, then the regulator will have to consider doing more.

Much like the CMA proposed in the context of the energy and banking sectors, they might have to establish a database of 'disengaged customers' who've been with their ISPs for several years.

Via such a database, customers will receive prompts and invitations to change to a faster ISP.

With this, they'll be able to overcome their inertia and take advantage of the information the Digital Economy Bill looks set to offer them.

Otherwise, the obligation on ISPs to collect masses of data at the address-level may end up doing nothing but adding extra cost to their bills.

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