Providers race for prize as UK users get demanding

Suppliers are battling to bring usquicker broadband, but do we want topay for it? Simon Clarke investigates

Like central heating and refrigeration, a broadband internet connection is becoming part of the fabric of modern life. Broadband is now considered a utility by most consumers, rather than the slightly geeky luxury it was just a few years ago.

One reason for this is our growing dependence on digital accessories. The proliferation of smartphones, e-readers, netbooks and games consoles has stimulated a hunger for always available web connectivity. That and the embrace of social media and on-demand entertainment, such as streaming television and online gaming, explains why survey after survey finds internet access is one of the last things consumers are willing to part with – some rather fancifully suggesting we would forego food for Facebook.

A fast, reliable internet infrastructure has also become essential for the economy. The internet is worth £100 billion a year to the UK, according to research by The Boston Consulting Group, or 7.2 per cent of GDP. This already outstrips sectors such as construction, and is predicted to rise to a 10 per cent share of GDP by 2015.

Yet, despite this, there is still a digital divide, or, perhaps more accurately, several different digital divides. This is most obvious in the number of people without broadband, which, given that only two per cent of households still access the internet by dial-up modem, means without an internet connection at all. The internet is broadband these days, it seems.

While as many as 73 per cent of households have broadband online access, that leaves a stubborn quarter of households still holding out against the internet. Mainly these are the elderly and the unemployed, who are perhaps unable to understand or afford the technology. However, given that broadband internet access is available for around £6.50 a month, lack of interest is a primary reason given by people who have not yet gone online. In response, the previous government appointed Lastminute.com founder Martha Lane Fox as UK "digital champion" in 2009, who this year kicked off the Race Online 2012 campaign to get every working-age person in the UK online by 2012.

Surveys also show Britain lagging behind other countries in so-called broadband league tables. One, the Broadband Quality Survey 2010 conducted by the Saïd Business School for Cisco, suggested Britain ranked 18th in the world, behind Portugal, Latvia and Bulgaria, with an average download speed of just 6.4Mb, while other numbers from Ofcom put broadband speeds even lower at around 5.2Mb.

Finally, many consumers still complain of an urban/rural schism, where users outside towns and cities are lucky to get any internet access at all, whether fixed-line or mobile. Some rural users have even been forced to club together to finance their own broadband networks to overcome poor local telecommunications infrastructure.

All this has important implications for policymakers, and last year's Digital Britain report featured a widely reported (and sometimes criticised) aim to establish nationwide broadband coverage by 2012, with a minimum speed of 2Mb being targeted.

A change of government and swingeing cuts to public spending will certainly take their toll on government broadband infrastructure investment, however. Despite a promise in July that "despite the economic crisis and huge deficit, we will be pressing on to support investment in the superfast network and to bring the benefits of broadband to everyone in the country", culture secretary Jeremy Hunt went on to admit that the government did not have enough money to ensure the universal 2Mb service commitment by the 2012 deadline.

Nonetheless, telecoms companies have relentlessly pushed an agenda of faster and better broadband, with BT promising 24Mb broadband to 70 per cent of homes by next year. Partly this is to enable price differentiation – faster means more expensive – and to target niche groups willing to pay for better services, such as online gamers.

One of the problems with this is that the existing copper telephone network has natural limits for speed. Phone companies are squeezing as much performance as possible from copper wires, using technology such as ADSL2+, a development of the existing ADSL technology that allows data transfer over existing phone lines. But copper only goes so far – and its performance drops the further you travel from the telephone exchange.

In response, companies are starting to roll out fibre-optic technology. The performance of fibre-optic cable does not degrade over distance, so any download performance should be more consistent, wherever a user is.

Initially, users should be more likely to have access to 40Mb broadband, as BT launched its fibre-based Infinity product in January. Other ISPs, such as Zen, will also offer broadband products on BT's network. Even so, however, this will only be available to around four million homes and businesses across the UK by the end of December.

Crucially, to cut costs, BT's fibre network only runs from the exchange to street cabinets, leaving the last jump between the street and the home to run on copper cable. Though this cuts down the loss of signal, users have complained of speeds running half as slow as the advertised 40Mb.

The alternative to fibre-to-the-cabinet (FTTC) is fibre-to-the-premises (FTTP), which offers the possibility of 100Mb speeds with no loss of signal. After a six-month delay from its original schedule of January this year, BT has trialled the technology in Milton Keynes, but has been slow to bring it over to the wider market. Instead, Virgin Media, whose network covers just over half of UK households and which already offers a 50Mb product, has gone ahead with a 100Mb service that should go live from next month in parts of London, the South East and Yorkshire and be rolled out nationwide next year. Virgin has also trialled 200Mb broadband in some homes.

And if you live in an area that hasn't been fibre-enabled, a new "line-bonding" service from BE Broadband offers to double broadband speeds by combining two phone lines at the exchange to boost capacity. However, this comes at a price: £65 a month plus an extra BT line rental.

But is this what consumers really want? According to Chris Marling, the editor of the product comparison site broadbandgenie.co.uk, consumers aren't that interested in superfast broadband. "People love broadband, but they don't really understand it – they just want it to work," he says. "Currently, what people want is what they always want – they want it to work cheaply and reliably and, when it doesn't, to have someone on the end of the phone who can fix it. While it's great to see Virgin Media and BT battling it out to increase superfast fibre broadband speeds, sales of Virgin's existing 50Mb product would suggest there isn't much of a desire from the public to pay for it right now."

Recent ICM research, for example, revealed that nine out of 10 people find broadband advertising misleading and want more transparency in ISPs' advertised "up to" speeds. It's worth noting, though, that some of the problems with traditional ADSL broadband can be caused by interference within the home from electrical wiring and airwave congestion from neighbours if you're using a WiFi connection.

The government may also play a part in that, given recent indications that it would back the end of "net neutrality". According to communications minister Ed Vaizey, internet service providers should be allowed to charge fast access fees to websites that demand high bandwidth and attract most users. The result could be that everyday 2Mb broadband could be good only for non-demanding web applications and content, leaving users who buy into superfast services to enjoy endless funny cat videos on YouTube. In the worst-case scenario, ramping up the fees that high-bandwidth services have to pay could throttle the development of new products, leaving start-up companies, such as online music service Spotify, stuck at the starting gate.

Although the vast bulk of fixed-line internet connection is through broadband these days, anyone who still wants to experience the frustration of dial-up can still do so by using a mobile broadband connection.

Consumers were lured to mobile by the promise of anywhere, anytime broadband on the move – allowing users to work, surf the web and stay connected with friends using a plug-in USB device or built in data card.

But the technology has proved something of a disappointment. Although set-up and use is generally straightforward, performance has not lived up to the hype. Consumers have complained of poor coverage and very slow connection speeds – comparable to dial-up, and sometimes even slower.

Largely this is the fault of the networks, which have failed to explain the limitations of the technology. "Consumer dissatisfaction with mobile broadband is high because expectations have been raised hugely by the marketing of peak rather than average rates," notes Caroline Gabriel, research director at mobile technology consultancy Rethink Technology Research. Other problems include battery drain, dropped calls, and a dramatic slowdown of data rates at busy times and locations.

"The limitations of mobile networks are poorly understood by, or explained to, consumers – for example that the connection is shared by any number of other people in a cell, or the problems of handing off between cells when in motion," says Gabriel. He goes on to predict that when 4G finally arrives, many operators will use the carrot of improved data rates and capacity to try to increase real prices by introducing usage-based fees.

Users can do something now to improve matters, but it involves adding something called a femtocell (a small wireless base station to boost signal), or gadgets such as the Deltenna WiBE that can create an internet hotspot in areas with weak signal strength.

However, paradoxically, the strain on the operators' wireless networks from the growth in 3G traffic may well prompt a big improvement in service. Mobile operators are already investing in fibre technology to shift part of their traffic from the airwaves to fibre networks run by companies such as Virgin Media. In addition, Ofcom aims to open up areas of the wireless spectrum for something called Long Term Evolution (LTE) of broadband. If the technology lives up to its promise (always a big question), it promises 100Mb download speeds, comparable to the fastest fixed-line technology in the UK now. 02 is already testing 4G technology in Slough, though if the auctions for these frequencies are held in 2012 to plan, next-generation 4G networks will only be up and running by early 2014.

For now, mobile broadband users are stuck with unreliable and generally slow connections that cost a lot more than fixed line per megabyte of data used. Added to which, most pay-as-you-go deals put a time limit on your allowance, meaning that any spare capacity is wiped off your account at the end of the month. Mobile users can make use of Wi-Fi hotspots to get online, but provision can be patchy and expensive.

We're at an impasse, where until faster broadband services are available, companies will not develop mass market high-bandwidth applications; and in turn, until those applications are there, consumers will be reluctant to pay much more for the fastest connections.

Despite consumer conservatism, however, many believe the development and take-up of faster broadband technology is inevitable, driven by a sea change in the way we consume entertainment. The arrival of streaming television and access to programme archives will inevitably require a faster and much more robust broadband network to be put in place. "We will see a change in how content is consumed," says Sebastien Lahtinen, founder of broadband consultancy ThinkBroadband. "Rather than setting your set-top box to record a television show, we will stream it live from a central server when we want to watch it, and we will have the ability to go back in the archives over years at the click of the button."

The BBC's iPlayer is the most prominent of this technology, but Sky has just unveiled its Anytime+ video-on-demand service and Virgin also offers pause-and-rewind access to its programming. In the pipeline for next year (barring a legal challenge by other ISPs) is YouView, another on-demand service set up by BT and TalkTalk with all the terrestrial broadcasters.

Finally, the move towards cloud computing will also drive improvements to our broadband network, as people start using software over the internet, rather than installing it on a desktop machine. Heavy reliance on smartphones and tablets such as the iPad that use downloaded apps will also force consumers to decide whether their dependency on broadband internet is really worth paying a proper premium for.

The online timeline

1991 – Pipex is the UK's first ISP

1992 – BT trials first ISBN 'broadband' connection in Inverness

1994 – A 28.8Kbps modem costs £399 (plus VAT).

1996 – BT trials ADSL in Ipswich. Abandons it to protect ISDN

1998 – UK electrical retailer Dixons launches first free ISP, Freeserve

1999 – Wifi standard is established

1999 – Nokia launches UK's first Wireless Application Protocol (WAP) phone (NK7110), offering basic mobile internet access.

1999 – NTL trialls first cable internet service in Guildford

1999 – Ofcom requires BT to implement local loop unbundling – allowing ISPs to use the BT network

2002 – NTL offers first 1Mb service

2003 – Trade and industry secretary Patricia Hewitt makes a landmark 3G call to launch the 3 network in the UK.

2008 – BT launches 24Mb broadband

2010 – Virgin Media launches first 100Mb broadband service

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