Deloitte comments on the Digital Britain report

Ahead of the release of the Digital Britain report this week, Deloitte sets out its key hopes for the report and how it will shape the future of the industry. Stimulating investment in a next generation broadband infrastructure for Britain has been at the heart of the Digital Britain debate. Finding the best technology and funding solution is often seen to be fundamental and while these supply-side questions are important – Deloitte believes there is a need to put the customer back at the centre of the debate.

Chris Williams, Media Partner said: “Making high-speed broadband access widely available to consumers is no guarantee that it will be taken up.  Demand and willingness to pay for services varies significantly, with some segments viewing broadband as an essential utility, and other groups choosing to opt-out even if services were free.”

“From a supply-side, there are questions over which business models will be most successful and the extent to which network capacity constraints will become an issue for the industry.  Given all these uncertainties, it is difficult to predict exactly how the market will evolve.”

Deloitte believes if high speed broadband is to succeed, there are three principles that need to be adopted – each of which starts from a customer-first perspective:

1)    Online services need to offer something new that the customer will value significantly above today’s alternatives - to drive a desire for increased bandwidth

Online gaming, social networking and online video sites such as YouTube have all grown in popularity, leading to increased demand for bandwidth. However, it is not clear which online services or applications will continue to drive demand for ever increasing bandwidth.  Many services are ‘good enough’ with current technology (e.g. PVRs for catch-up TV).  In contrast, other digital services such as DTT succeeded through offering a significantly increased choice of free-to-air channels. Given the challenges in identifying the next ‘killer application’, companies need to develop a fast mechanism for putting up and taking down services in a cost-effective manner. 

2)    The customer business model needs to be viable and sustainable -  for all parties in the value chain

Broadband will cost more to build, yet there is little evidence that the mass market is prepared to pay substantially more for it. New media companies that are set to make money from the internet in the future will need to contribute to the cost, by paying network operators to carry high-speed content and programming to their audiences.

The current model for delivering many high-bandwidth services appears broken: content providers such as Youtube and Hulu are anticipated to make significant losses, and this doesn’t take into account the huge network related costs for video delivery that telecoms operators incur but aren’t able to recover.  This means that network operators have limited incentive to further invest in network speeds.  To break this vicious circle, network operators need to create an eco-system of content and application service partners, with all parties willing to share the costs and revenues of delivering an enhanced consumer experience.

3)    New ways must be found to target segments of the population that don’t currently use any broadband services

Broadband penetration has flattened out at about 63% of households, with demand dropping off significantly amongst the remaining unconnected households.  Innovation across the industry is required to target further growth.  Lessons can be learned from the mobile industry, which overcame slowing growth in the ‘90s through the invention of pre-pay services. 

Attracting this significant minority to join the community of internet users will require creative and innovative services and concerted involvement from a much wider set of parties beyond the digital industry - such as retailers, the leisure industry, government, educational groups and local community groups.

Chris adds: “Taking these actions would have significant implications for the telecom, technology and media industry. Network operators need to work with content providers to develop enabling network based services which add to, rather than compete against existing products. 

Focus on un-met customer needs

“To be successful in this climate, service providers need to focus on un-met customer needs, such as home monitoring* and put in place a rapid testing approach, so that any failures are met quickly with real-time feedback from customers on the services they actually value.  The South Yorkshire high-speed broadband trial offers a unique opportunity to test this approach.

 “The opportunities for business and the wider economy to reap the benefits of a more digital Britain are significant.  Successful organisations will recognise the need for continual innovation, fast experimentation, a desire for increased cooperation across the industry and above all a ‘customer-first’ mentality.  By putting the customer back at the centre of the debate, the industry can avoid the ‘build-it and they will come’ mentality of many recent digital shifts, and create a competitive environment which puts Britain at the forefront of the Digital landscape.”

Notes to editors

* A complete protection system for your home that alerts you to potential emergencies, wherever you are.

Which digital products have succeeded and which have failed

Success of Digital Terrestrial Television (DTT) and DVD
DTT   succeeded due to a combination of strong industry support combined with an opportunity of increased choice of free-to-air channels.  Similarly, DVD replaced VHS because of widespread support from the studios and the marked increase in convenience and quality of the product.

Struggles of 3G and DAB 
In contrast, 3G struggled for the first 7 years due to a lack of compelling offering customer products.  Similarly DAB has struggled to establish clear differentiation over FM radio.  Many propositions, such as web-based catch-up TV services, can already be delivered via lower cost alternatives, such as PVRs. 

About Deloitte
In this press release references to Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms.  Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu (‘DTT’), a Swiss Verein, whose member firms are legally separate and independent entities. Please see www.deloitte.co.uk\about for a detailed description of the legal structure of DTT and its member firms.  The information contained in this press release is correct at the time of going to press.  For more information, please visit www.deloitte.co.uk.

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