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Technology

An interview with Mick Fews: The

future of Telecoms
Mick, you’ve been a regulator in three UK industry sectors including telecoms.
Tell us what you think competition and regulation has achieved for telecoms:

Market liberalisation and privatisation sought to open markets to competition,

drive efficiencies in former state-run monopolies and deliver consumer focus,
choice and lower prices.

Backed by independent sectoral and competition regulators, market Mick has held policy,
liberalisation and privatisation delivered the desired outcomes in the UK and strategy and regulation
much of Europe. Telecoms markets and operator revenues grew as investment roles in three UK economic
and new entrants delivered innovation, consumer focus, choice and lower prices. regulators. Most recently
So, what’s not to like? working in telecoms
regulation at Ofcom, on
While overwhelmingly successful for 20 years or so it’s not been plain sailing for contract at Vodafone and
regulators or the regulated. Regulated incumbent operators have fought now leading the strategy on
successful rear-guard actions to slow and dilute the effects of competition. While telecoms and digital
regulation forced the separation of fixed and mobile telecoms, incumbent connectivity for the
network operators continued to enjoy the advantages of owning last mile fixed Government of Jersey
connections - sharing their access competitors’ revenues while unwilling or
unable to justify risky investments on new technology to deliver better Mick lives in London
connectivity for which there seemed little consumer demand and less willingness
to pay.

For their part, regulated telecoms operators argued that sectoral and
competition regulation ground out the opportunities for investment and
innovation:

• The RPI-X price control formula, initially envisaged as a temporary form of

regulation became an enduring surrogate for effective competition setting
prices below the rate of inflation to drive efficiency. Profits could, it was
claimed, only be generated by reducing inefficiencies at the expense of
investment and innovation.
• Local loop unbundling slashed the revenues incumbent network operators could earn for last mile,
connection undermining profitability.
• Lower mobile termination and roaming rates stripped revenue from expensive mobile operations
just as demand for greater connectivity grew.
• Competition Law prevented or complicated mergers, acquisitions and co-investment making
business changes, and market entry and exit harder.
• Data protection and privacy regulation prevented telecoms operators monetising the data flowing
across their networks and net neutrality arguably favoured the owners of content and data flowing
across telecoms networks.
• Spectrum auctions transferred vast sums of money from mobile network operators to governments
– arguably as a form of windfall tax.

The argument has been made that investment fell in the comparatively heavily regulated, lower
profitability European markets and shifted to less heavily regulated telecoms markets where returns
were higher or to unregulated Big Tech companies. That left European telecoms operators unable to
justify the commercial rollout of risky new technology where there was no consumer demand, no
demonstrable need for improved connectivity and no consumer or shareholder willingness to pay.

You say, for 20 or so years…. what’s changed?

There’s been a fundamental shift in the role of telecoms in converged digital markets. Driven by Big Tech
and changes in consumer behaviour - value and revenue shifted away from telecoms networks towards
the content and data they carry. Content-focussed, value driven consumers began to see telecoms
operators as interchangeable almost indistinguishable providers of ever better, ever cheaper
connectivity. Mobile operator average revenue per user (ARPU) flat lined or fell while consumer and
government demand for ever greater connectivity continued apace.

Unable to monetise the data flowing across their networks because of privacy and data protection
regulation, telecoms operators responded by seeking scale and their own content – AT&T went to
Hollywood and BT went to the football.

Big Tech sought to leverage scale, scope and the network effect advantages arising from being
‘platforms’ and ‘digital gatekeepers’ to enter adjacent markets – including communications. Funded by
fortunes built on content and the monetisation of data, Big Tech could afford to be innovative, move
quickly and take risks cutting across siloed existing markets in ways immune to regulation rooted in
addressing 19th and 20th Century industrial organisation.

Governments realised that data driven digital services would continue to grow in importance to not only
become central to our lives but the key driver of growth and prosperity in data driven economies.
Without networks able to provide ubiquitous secure digital connectivity the benefits of the data driven
digital services economy will simply pass parts of society or countries by.

With that realisation came a recognition that digital connectivity is too important to be left to the
established fixed and mobile telecoms operators to deliver on a commercial basis, and that:

• As regulated, telecoms would not deliver the ubiquitous, secure, resilient and ultrafast connectivity
that successful data driven economies will depend on. Barriers to entry and innovation would need
 to be addressed to create new options for connectivity. These barriers include not only those
erected by network owners and operators but those being created by Big Tech itself.
• Government itself would need to fund connectivity in unprofitable and hard to reach areas.

So, what are governments doing?

The UK’s regulatory regime has been refocussed to support government’s desire first for superfast and
since 2018 gigabit broadband connectivity. Ofcom’s 2015 Strategic Review of Digital Communications
marked a shift in regulatory priorities from efficiency and lower prices to promoting and supporting risky
investment in new technology needed to deliver gigabit digital connectivity where demand was
uncertain or missing. Ofcom sought to make the cost of build by BT’s competitors less expensive by
opening up access to Openreach’s duct and pole network and to make Openreach more focussed on the
needs of its access customers. That refocussing of regulatory priorities has included encouraging new
entry and wireless innovation through changes to the licensing and use of spectrum.

Regulation, by nature reactive and slow moving, should be seen as just one of the tools that
governments can use to deliver greater connectivity and the UK government has sought to use other
means to deliver secure digital connectivity:

1. Taxpayer subsidisation of connectivity, recognising that commercial rollout would not deliver
connectivity into difficult to reach often sparsely populated areas the UK, government has directly
funded connectivity:
• The Broadband Delivery UK programme sought to deliver superfast broadband to 90% of
properties by 2015 and then 95% of properties by 2017 through around £1.9 billion of taxpayer
subsidy to commercial suppliers.
• Recognising the need for gigabit capability, the UK government in 2018 sought to prioritise
gigabit rollout and in March 2020 allocated £5 billion to supporting the roll-out of nationwide
gigabit-capable infrastructure to the final 10% of premises that would not be reached by
commercial rollout by 2025. As of December 2020, at least some of that £5bn seems at risk.
• In March 2020 UK government committed £500m to the £1bn Shared Rural Network with the
UK’s four MNOs to bring 4G connectivity to 95% of the UK landmass by 2025 through a
partnership with UK mobile operators.

2. Taxpayer funding of innovation necessary to deliver future visions of connectivity:

• UK government has provided direct support for 5G, seen as a critical enabler of future
connectivity and prosperity, through its £200m 5G Test Bed and Trials programme to a series of
pilot schemes; and
• The UK’s September 2020 announcement of a Telecoms Diversification Strategy and Telecoms
Diversification Task Force was followed in December 2020 by commitment to an initial
investment of £250m to drive diversification of the mobile network equipment supply chain
including the establishment of a National Telecoms Lab and funding of a SmartRAN Open
Network Interoperability Centre (SONIC).

3. Regulating to ensure that networks critical to economies are secure. The UK’s Telecoms Security
Framework to be implemented through the Telecoms Security Bill is a direct intervention dictating
 how telecoms networks are designed and operated and controlling the origin of the technology
used to construct networks. The costs imposed by the UK Telecoms Security Bill will be significant –
the Bill’s Impact Assessments estimate the costs to UK telecoms industry of high-risk vendor
restrictions alone will be £1,569.5m.

4. Addressing the wide range of barriers to infrastructure rollout, including planning and building
requirements under its barrier busting taskforce.

5. Big tech with its power to shape both the need for digital connectivity and the way it’s delivered
hasn’t escaped government attention. At first enthralled, governments have come to accept that
there are downsides to Big Tech’s power to create and shape markets and to concentrate market
power and wealth. Initial concerns about Big Tech’s ability to avoid tax and benefit from net
neutrality have given way to concerns about societal harm and anti-competitive practices. In
December 2020 the European Commission announced plans for a Digital Markets Act and Digital
Services Act which would place limits on the activities of the large online platforms – digital
gatekeepers - like Google and Amazon and give regulators the power to impose €bn fines and break-
up companies. The UK has brought forwards its own plans with the CMA publishing its
recommendations in December 2020 for a new ex ante regulatory regime to apply to digital
businesses designated as having Strategic Market Status.

A key question is then, who is going to pay?

The bulk of investment in both new telecoms technology and connectivity rollout will continue to be
commercial, coming from not only the established telecoms operators but from Big Tech, new tech
innovators and systems integrators. That investment seems to be driving telecoms into becoming just
one part of a wider digital connectivity ecosystem. The future of digital connectivity might be look like
the membership of the Telecoms Infra Project, composed of service providers, technology partners,
system integrators and other connectivity stakeholders. One outcome of that evolution seems to be the
emergence of new entrants building entirely new networks - Dish in the US and Rakuten in Japan - using
multi-vendor ecosystems with cloud native and virtualised network elements to build out 5G networks
below the cost of established telecoms operators.

For the established telecoms operators, Big Tech and the other new connectivity entrants seem to have
become a dilemma - business partners, suppliers of virtualised and cloud native services and direct
competitors capable of disaggregating, disintermediating and cannibalising telecoms businesses.
Without consumer willingness to pay for ever higher speed connectivity MNO focus has instead been on
monetisation of 5G new revenue streams from industry verticals driven by use cases that in many cases
are yet to crystalise. Unfortunately for MNOs, there is no reason why systems integrators won’t be as
able to target these verticals with or without the input of the MNOs.

Innovation, co-investment and new entrants together with the refocussing of regulation will drive better
and quite possibly lower cost connectivity allowing commercial rollout to reach further into what are
currently poorly connected areas. Nevertheless, commercial rollout on its own seems unlikely to be able
to deliver ultrafast fixed or mobile connectivity into the hardest to reach areas.

That prompts questions about who owns the infrastructure that taxpayers have and will continue to
invest in. A further £5 billion investment into fibre and £500m investment in a shared rural network on
top of the £1.9 billion BDUK investment represents a significant total investment. Should the taxpayer
retain ownership in part or full of the physical infrastructure that it has paid for through that
investment?

Where does that leave us?

Questions about the digital divide in terms of both affordability and coverage will grow in importance
over the next decade. Covid-19 has accelerated the need to answer these questions. Relatively wealthy
knowledge workers leaving cities for rural and coastal areas will expect the investment in connectivity
needed to allow them to work from home while a significant percentage of the UK’s population will
struggle to afford the costs of basic connectivity.

For the time being the UK will continue to have islands of better connectivity comprised of cities and
towns in seas of lower rural connectivity. In time these will become islands of ultrafast connectivity
connected by ribbons of tax payer subsidised ultrafast connectivity along transport corridors into seas of
lower but nevertheless improved tax payer subsidised rural connectivity. So far so predictable.

It’s the way in which the islands of ultrafast connectivity grow that might change. Private networks
provided by systems integrators and infrastructure operators might become increasingly important -
providing enterprise and public access connectivity to transport hubs, industrial estates, universities,
business districts, shopping centres, and sports grounds. New private networks might extend to local
authorities keen to provide affordable connectivity that enables the delivery of lower cost social and
healthcare services such as assisted living and home care. That seems to present an opportunity for a
democratisation of connectivity with local authorities setting the terms for connectivity to be provided
through access to their own street fibre and street furniture radio access networks.

That suggests a greater range of providers and a mosaic of connectivity that could become even more
complex if OneWeb’s Low Earth Orbit satellite’s or other systems like Alphabet’s Loon balloon are
capable of providing broadband connectivity in harder to reach parts of the UK.

A future of a greater competition from multiple providers and a mosaic of connectivity would bring new
challenges for telecoms operators facing increased competition in more profitable and higher
population density areas and for regulation that always lags technology, business evolution and
government policy.

Mick, thank you for your time and the views. It’s been very interesting