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The September 23, 2003 Issue Provided by System Dynamics Inc.
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Catching Up on "Broadband Britain"

It has been three years since we last spent time immersing ourselves in Britain's broadband scene, and it would be an understatement to say that things have changed radically since then. In August 2000 we wrote about that visit in an article called "Broadband in the UK -- Focus on the TV". At the time, there was a widespread belief in the UK that "the TV rather than the PC will be the primary interactive platform in many households."

Using a PC on the Underground --> Click for larger pictureDave at a Wi-Fi hotspot--sip but no surf --> Click for larger pictureToday, broadband in the UK unequivocally means the PC, which arrived in force over the past few years. According to Oftel's May 2003 residential survey, 58% of UK homes have a PC and 47% UK homes have Internet access. It's not that interactive TV has gone away, but rather that PCs have been added into the mix. We saw them in use everywhere, including on the underground. Department stores had large sections full of them and cafes and fast food spots with Wi-Fi access were quite common in London (picture).

Before we travel outside the U.S., we try to contact some of our readers in the area we'll be visiting. It gives us a great opportunity to learn what others are doing and thinking and about some regional and cultural differences that affect broadband adoption and applications. Here's a brief rundown on three out of the many meetings we had with our readers during our stay in London and Cambridge.


Telewest - Getting the Most From Their Assets

British cable operators Telewest and ntl had to restructure their finances after making heavy investments in buying and upgrading cable networks during the height of the market; last week, Telewest announced that it had finally reached agreement with the ad hoc committee of its bondholders to allow the company to go forward with a debt-for-equity restructuring. Against this squeezed financial backdrop, we had the opportunity to meet with a couple of our readers, Ed Allfrey and Fergal Butler, at Telewest's Technical Strategy department in Woking, outside of London. Our visit included seeing Telewest's home of the future, where they demonstrate the products and broadband services they are looking to bring to market in the future.

Ed Allfrey demonstrating Telewest's new ITV interface --> Click for larger pictureDuring our several hour visit we buzzed through multiple topics. In the TV services arena, the focus was on what Telewest can do to differentiate themselves from satellite. We saw the new user interface for their Digital TV service (see picture) and some upcoming digital TV services.

Broadband in the UK is very competitive, with the cable operators and BT sharing the market nearly equally. Telewest noted that BT currently offers only 512K service, while Telewest's "blueyonder broadband" gives the user a choice of 1/2, 1 and 2 Mbps service. Of their 340,000+ customers, approximately 40,000 are now subscribing to the premium 1Mb and 2Mb services.

Home Networking

In our discussion with Ed, and also in a session at BWF with Chad Raube, Telewest's Director of Internet Services, we heard about their range of offerings for home networking to address what they say are the 22% of consumers who now have more than one PC. Their offers start at the lowest rung aiming at digital TV subscribers who haven't yet upgraded to broadband.

Telewest has 1.2 million digital set-tops with embedded DOCSIS cable modems, and now offers a "wireless broadband self-installation pack" which enables users to upgrade to broadband without any truck roll. It includes a Netgear wireless access point and costs £35. The access point plugs directly into the customer's cable set-top box, creating a Wi-Fi link between the set-top box and a desktop or laptop PC; the current kit only allows one device to be connected.

Other networking packs include one for on-line gamers which connects an X-Box or PS2. Their more complete home networking proposition is "coming soon".

DVB-IP

One interesting subject we didn't have time to fully pursue was the DVB-IP plans they are currently formulating. Telewest believes the provision of downstream IP data over DVB-IP can dramatically reduce cost, release huge downstream bandwidth, and enable the provision of new services in a cable network. It is based upon the observation that "the advent of cheap IP QAM modulators for the delivery of VoD type services in a cable network has produced downstream data that is between 10 & 20 times cheaper than traditional cable-modem bandwidth. The encapsulation of IP into this bandwidth means that bandwidth which is today utilised for Analogue TV may be utilised for the delivery of IP data services (such as internet access) to the home, at extremely high speed and low price."

Their work rests upon the premise that customers will want and continue to have need for a highly asymmetric network. The goal is to migrate from today's world where VoD and broadband internet are carried over different channels and technologies to tomorrow's platform in which everything is carried over one set of IP resources. We were intrigued with the discussion and intend to delve deeper into its plausibility. We'd be glad to refer anyone interested directly to Ed Allfrey at Telewest.

While we saw lots of good work in our meeting, other analysts expressed doubt that Telewest has the financial wherewithal to invest sufficiently in both infrastructure and the customer service that will be needed to overcome some of users' reactions to their cable operators. Since we're fans of competition, we wish them well.

( www.telewest.co.uk ) ( www.ntl.com ) ( www.netgear.com )


BT - Late, But Moving Now

Paul Blacker, BT --> Click for larger pictureBT was late in bringing broadband to its customers, and the cable companies got most of the early subscribers. BT is now making a real impact in the UK. It offers ADSL on a wholesale basis, with more than 100 ISPs selling at retail. It also sells at retail, and earlier this month announced a joint effort with Yahoo! to launch BT Yahoo! Broadband.

During a meeting with Paul Blacker, head of Broadband Strategy at BT (another reader of this report who also spoke at BWF), we learned that BT may have now passed cable in terms of number of broadband subscribers in England. It reached one million wholesale users in June and is adding 25,000 lines per week. Although their announcements indicate that broadband DSL is available to "exchanges serving 80 per cent of UK homes", we don't know how that translates to the actual percent of homes which can get the service. From the number of people we met who are unable to receive any broadband service, it appears they still have some way to go.

BT currently has two home networking packages to choose from; Home Networking 1200 (which looks like a 2Wire Gateway) and Voyager 2000 which provides wireless home networking. They said they are "working on" new home networking solutions but were reluctant to share specifics with us.

Marker at BT HQ in London --> Click for larger pictureBT Broadband Booth --> Click for larger pictureOutside BT Headquarters in London, we were struck by the long heritage of BT when we noticed a plaque commemorating the site as the location from which Guglielmo Marconi made the first public transmission of wireless signals in 1896. Just a few steps away was one of BT's new broadband phone booths, where a video crew was filming BT's promotional campaign to encourage their use. We heard lots about how much BT has moved beyond the past and into the broadband future. We were impressed with some of the BT people we met, but are waiting to see how their next steps match up with their customers' needs and competitors' services.

( www.bt.com )


SatDrive - Broadband over Satellite

We have been rather skeptical of broadband services delivered over satellite. A satellite transponder is a great way to deliver television to lots of people simultaneously, but its limited capacity (typically around 36 Mbps) makes it difficult for an individual user to get much bandwidth as more and more users sign up and share it. Cable modems have a similar problem, but satellites have a "footprint" measured in countries while cable modems cover neighborhoods. And it's easy for a cable operator to add another channel, while another transponder typically costs millions of dollars a year.

So we were quite intrigued when David Brunnen of ABFL pointed us to SatDrive, a UK satellite service (offered in other parts of Europe under the name SkyDSL) and suggested we look at the way they allocate satellite bandwidth, allowing individual users to pay for higher priorities and therefore faster operation.

We had exchanged email with Eoin Lambkin, the Managing Director of SatDrive, before we left for the UK, and were delighted to have dinner with Eoin and David in London during our visit. Eoin (pronounced "Owen") told us that he had been involved in the development of the SkyDSL satellite service for TELES AG, based in Berlin, and had decided to market the service in the UK and Ireland under the "SatDrive" name.

SkyDSL now has 6000 subscribers of which 500 are in the UK and Ireland, mostly located in areas that cannot receive ADSL or cable broadband service. Since the satellite is "one-way", the return path is by dial-up modem or ISDN (which is widely available in Europe).

SkyDSL/SatDrive has a very clever way of allocating satellite bandwidth. First, it divides the users into priority groups ranging from 1 (lowest) to 6 (highest). For all users in group 1, it uses a "Fairness Guarantee" to allocate bandwidth among the users; within this group, "Fair Surfers" get a higher priority than users attempting to "hog" the bandwidth with heavy downloads. Users with priorities 2 through 6 get increasingly higher priority in use of the satellite bandwidth.

SkyDSL provides a real-time monitor showing the actual average available bandwidth in each priority on a per-customer basis. These are shown on both a 24-hour basis (updated every 5 minutes) and a weekly basis (updated every hour).

The standard monthly service fee for SatDrive is priced at 14.99 BP/month with unlimited use of priority level 1; this is intended for web surfing with "light downloading". When users want to download, they can purchase higher priority levels, at an incremental price of 3 to 19 pence per Megabyte; the priority level can be adjusted up or down at any time.

This combination of discrete priority pricing with a real-time display of available bandwidth at each priority level acts as an instantaneous auction of the transponder capacity. Users with low willingness-to-pay can shift their downloads to the middle of the night when more bandwidth is available at level 1. Users who want to complete downloads fast can pay to push their priority up in steps until they get the speed they want.

Here's an example of how this worked during peak periods last week: "Fair surfers" in priority 1 generally averaged about 500-600 Kbps during the week and about 300 Kbps during the weekend, while "Heavy Downloaders" averaged about 50-100 Kbps. Priority 2 averaged about 600-900 Kbps, while Priority 6 averaged 10-14 Mbps. The longest and heaviest peaks are over weekends, with shorter peaks on weekend evenings. All speeds are higher in non-peak periods.

Eion says the monitor site has become a great sales aid: "Don't believe me I'm a salesman go look at this site to see what you will actually get". We asked whether transponder capacity would be an issue, and he told us that they expect to be able to obtain additional transponders as required to meet user demand.

We have not seen a "bandwidth auction" scheme like this before, and think it's a very nice way to give users a choice when competing for broadband resources. It would work equally well for other shared resources such as cable and wireless.

( www.abfl.co.uk ) ( www.satdrive.com ) ( www.skydsl.de )

We'd like to thank others we met with, including Jason Mauricio and his colleagues at Arete Research; James Brocklebank of Advent International; Steve Semelsberger and his colleagues at Motive; Mark Main of Ovum; Russell Haggar of Prelude Ventures; and Rod Newing of the FT. We had interesting discussions with all, and thank them for their insights into broadband progress in the UK and Europe.

( www.arete.net ) ( www.adventinternational.com ) ( www.motive.com ) ( www.ovum.com ) ( www.prelude-ventures.com ) ( www.ft.com )