UK's connectivity dilemma highlights a global problem

The UK's Connectivity Scorecard is a perfect microcosm of the dilemma facing operators, vendors and regulators the world over - what do we do now‾

The Connectivity Scorecard, launched at the Mobile World Congress in Barcelona, is a pioneering global ICT index that measures the extent to which governments, businesses and consumers make use of connectivity technologies to enhance social and economic prosperity.

It was created by Dr Leonard Waverman, Dean of Haskayne School of Business, part of the University of Calgary and funded by Nokia Siemens Networks. Unlike other such indices, the Connectivity Scorecard measures usage and skills such as literacy, the use of enterprise software and the accessibility of women to ICT.

It also articulates the benefits of connectivity explicitly in terms of economic and social contributions taking into account varying needs in different countries.

The UK is perceived at home and abroad as having failed to invest sufficiently in its national telecoms infrastructure and lacking innovation. Surprisingly, with an overall score of 6.13 (out of ten) it ties for fifth place with Finland, behind the US, Japan and Sweden (6.83) but well ahead of European peers such as Germany, France, Spain and Italy.

The UK results highlight a business community that has identified the opportunities and potential in deploying effective ICT infrastructure and training its workforce to use it, a public sector that has been the most progressive in the world in making services available online while British businesses are leaders in e-commerce sales and its mobile users are the world's leading texters.

However, as Dr Waverman points out, the UK will struggle to hold on to its relatively good position for long. It has always been a laggard in broadband and there is evidence that history looks likely to repeat itself - the UK is not at the forefront of deploying Next Generation Networks or using 3G services. Furthermore, there is little activity in the field of providing fibre-to-the-premises and other next generation technologies.

Dr Waverman said, "The UK needs to move away from ADSL because people don't want asynchronous links any more: Ofcom's found that 56% of the UK's traffic last August was generated by the top ten social networking sites, that is, by peer to peer communication, not downloading."

Yet UK regulation is based on the principle that competition will drive investment. In many cases it won't because there isn't enough money to be made from subscribers to justify it and any improvements in the local loop that BT makes it will be obliged to make available to its competitors at a reasonable rate.

BT is already fighting a rearguard action on the definition of reasonable through regulator Ofcom - it is attempting to raise the wholesale price to those who rely on the unbundled local loop to deliver their services. In the longer term, it is clear that BT is angling for a subsidy to upgrade the access network - the approach taken by many countries, from Korea to Germany.

The idiosyncrasies of different regulatory approaches aside, the thorny problem of developing sustainable business models - from equipment makers to end-users - to pay for investment in infrastructure is far from solved.

Or as Nokia Siemens Network's CEO Simon Beresford-Wylie put it at a conference yesterday, "it's a challenge to run a profitable business as a vendor. In a mature market such as telecoms, gross profit margins are typically 30 to 35%. In high tech businesses, the gross industry OPEX rate runs at 27 to 33%, which means the profit (earnings before interest and taxes) is between 0 and 5%, which is not sustainable".

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