When IT Meets Politics

May 11 2015   4:50PM GMT

What difference will the election result make to the Digital World?

Philip Virgo Profile: Philip Virgo

Tags:
4G
5G
apprenticeships
BDUK
BT
Capita
dwp
European Union
HMRC
IPv6
MITIE
NAO
Serco
SME
Socitm
Universal Credit

The first and most obvious difference that the election has made is that sterling and the stock market have both risen: with telecoms (BT and Colt) and outsourcing companies (Capita, MITIE and Serco) rising above the trend. The general rise indicates that the pressure on public finances is unlikely to be worse than that predicted in the budget – i.e. the pre-election “strike” of overseas investors, caused by the prospect of the SNP holding the balance of power, is unlikely to continue. Government borrowing costs will not therefore rise in the short term.The  current ‘austerity’ is therefore unlikely to get worse, be compounded by stagflation or be further prolonged – as those voters who changed their minds after talking to the pollsters clearly feared.

A general rise in the value of outsourcing companies is, however, not rational. If  ‘Lord Maude of Horsham’ returns to continue his unfinished business we can expect central government framework contracts which have failed to produce competition, improve quality of service or deliver value for money, such as Civil Service Learning,  to come under much sharper scrutiny than if there had been no majority government. Meanwhile the programmes of DWP and HMRC to rebuild their in-house skills in order to enable incremental change (as with the Universal Credit) appear to be gathering pace. We may well therefore be seeing the start of a general trend towards ‘right sourcing’ with a new generation of more broadly based framework procurement contracts, designed to make it practical for SMEs to actually win profitable business, not just break their hearts with futile bids.

The area where share price rises might well be justified is with regard to those who have structured their cloud-based offerings in such a way as to help local authorities make incremental savings on positive cash flow. I met several just before the election, at the SOCITM Spring conference, as well as some of those looking to use 4G mobiles (accessing cloud-based services) to strip out further layers of cost while delivering better front-line services. The success of those, like Capita, who are helping organise lower cost, shared services across local authorities, also makes them more attractive to investors.

The rise in the share price of BT after the election also appears odd. I would expect ministers to wish to collect their pound of flesh after the earfuls they have received during the election campaign over the performance of BDUK – with MPs standing for re-election also well aware that the service gap between rural Conservative constituencies and Labour urban seats has widened over the past year. We can therefore expect to see local authorities encouraged to enforce the small print of the BDUK contracts and perhaps even co-operate with the EU regarding the potential claw back of ‘state aid’ if BT does not “up its game”.

We can also expect action to expedite the implementation of Digital Communications Infrastructure Strategy. The “map” of national networks, released at the same time,  should be seen as indicating those publicly funded networks which central government would like to put in play to help pull through investment in the inter-operable, next generation, IPV6/5G networks (local as well as regional and national) that need to be ubiquitous within the decade if the UK is to be a globally competitive player in the on-line world. Virgin has already benefited from HMG underwriting for its investment plans and we should expect a repeat of the invitation to others to apply, as part of the plans to use infrastructure investment to help pull through recovery while neither increasing public sector borrowing nor mortgaging the future with more PFIs. The reference to 5G standards in the Conservative Manifesto is also most apposite.

BT’s share price rose after it reported rising profits on falling turnover before jumping again after the election result. A quick look at BT’s accounts shows that over the past three years capital investment has been static with revenues falling faster than volumes are rising in all areas, except for its Broadband TV business. The profit rise is because of overall efficiency improvements but most particularly because operations and maintenance costs fall as fibre (even if only to the cabinet) replaces crap (copper, rust and associated pollutants).

But BT has barely begun the transition from its thirty year old 21CN (fibre to the cabinet) architecture and is stuck with a mortgaged exchange network. Unless it changes strategy, to actively collaborate with those planning next generation “community” networks (all sizes from hamlets, through business parks and commercial centres to whole cities), it is likely to come under serious competitive pressure, with revenues ebbing away as others leapfrog it, providing better cheaper services, using different investment models.

Hence plan Plan B, which I presented to the SOCITM Spring Conference a couple of weeks ago. I did, however, say afterwards that within 5 – 10 years I would expect most of the community networks to not only feed into BT but be operated by BT, just as Stokab is now run by the Swedish incumbent. For that happen the netowrks must, however, have been built to the latest “futureproof” international standards. That is not difficult because the necessary equipment and training are now globally available, unlike that to maintain some of the legacy networks still operated by BT.      

There are welcome signs that BT it gearing up for the scale of change necessary over the next few years. Not only are its attitudes towards working with local authorities beginning to change (with a variety of pilot offerings of support) but the scale and nature of its apprentice (including and post-graduate apprentice) intake is impressive. So too is the content of that training. For example, BT is now probably the largest UK trainer of information and network security technicians and professionals outside GCHQ and has overhauled the security training it provides to ALL staff.

That leads me into one of the most public changes that I expect as a result of the election result. David Cameron’s “thank you’ e-mail to supporters begins with a reference  ‘3 million apprenticeships”, before mentioning childcare, cutting taxes, building homes and a referendum on our future in Europe. Giving our children the skills they need for the jobs of future emerged as a key theme during the campaign, perhaps second only to affordable housing. The idea that we should import skills and talent because we have not properly educated our own children and retrained our own workforce went down like a lead balloon on the doorstep. The universities who depend on overseas students, as well as those tech companies who operate global career paths, have to find ways of better leveling the playing field and preventing abuse. If not, they will be caught in the middle as government acts to fulfill the commitments t hat have been made with regard to getting immigration under control.

During the run up to the election we also saw some very public commitments regarding the need to level the tax playing field between the on-line world and the ‘real’ world. Well known technology players have been named alongside bankers and non-doms as tax avoiders. We can therefore expect concerted action, in co-operation with the rest of the G20, against those who route their UK sales through Luxembourg or Ireland in order to reduce tax, It is too soon to tell whether this will be linked to a rationalisation of regulation in time to preserve the UK Fintech industry. Hopefully the threat that HSBC might leave the UK, almost certainly to be followed by Standard Chartered and others,has helped concentrate minds on the choice between maximising net tax take and gesture politics.

That rationalisation needs to include making it easier for those based in the UK to take action against on-line impersonation and other on-line abuse. This could turn out to be a critical factor in persuading some major financial services players to remain based in London. As yet, has been neglected in debates over ‘Internet Governance’ that have been dominated by those whose objective is to make money by selling internet addresses at the highest price. The pressures for action to protect the vulnerable came out very clearly during the election. The patronising response to those who raise such issues is beginning to put on-line revenues at risk, as the CEOs of major advertisers start asking awkward questions.   

Finally there is the question of Europe, to be more precise for this audience, the question of the Digital Single Market. The consultations over the practical implementation of the Commission Strategy, published the day before the election, offer an opportunity to help bring about some of the reforms necessary to help ensure a ‘Yes” vote in the referendum that has been promised. Many of areas where action is proposed by the Commission should have common support across the IT industry. But some are deeply divisive – such as action on geo-blocking and on copyright reform.

The call for action to reduce ‘the VAT related burden’ will, in practice, link tightly to the ‘Action Plan on a renewed approach for corporate taxation in the Single Market” – aka the EU implementation of actions agreed at the G20 (which i mentioned above). Effective action in this area is likely to be electorally popular, particularly among the millions of SMEs and those working in traditional businesses, who feel they are carrying a disproportionate tax burden, while major on-line and outsourcing players are seen to pay little or no UK tax.
             
I took time out of electioneering to attend a Digital Policy Alliance DSM Group meeting, chaired by Malcolm Harbour on the morning that the final (as opposed to draft) Commission Communication was published. The report of that meeting will be published soon on the DPA website. The group agreed to focus on those areas where members could agree to work together, including a couple where there appear to be vacuums in the Commission thinking. One of the latter is skills. This is a “national competence’ but the Commission could exercise practical thought leadership to help led our digital skills debates out of ground hog day  and gain a popularity with voters that is sadly lacking.         

This leads me back to the answer to the question in the heading.

The biggest difference the election result will make is that we will not have a short term government funding and sterling crisis. We therefore have time for innovative IT players to make viable businesses out of using inter-operable cloud-based services to help public sector organisations bring about incremental change, on positive cash flow.  Those who were still hoping for a return to the world of PFI based outsourcing and consultant planned, delayed big-bang projects, will have had their hopes dashed.

But cloud-based operations depend on ubiquitous broadband that is fit for purpose. Hence the importance of locally driven variations on Plan B … read on for a the slide presentation on this to SOCITM, whose members will have a critical role in helping bring the change about – so that they can, in turn, use the results to achieve their own objectives as well as help pull through local prosperity and jobs.  


Plan B: A Future ProofDigital Communications Strategy for your locality (and for the UK)

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The Interlockingchallenges

Deliveringbetter public services at lower cost

Overcomingsocial and geographic exclusion

Meetingexpectations that are evolving over time

Planningfor the unexpected and unknown

Fundingchange in an age of deepening public sector austerity

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FromLegacy Mishmash to Internet Age mesh

Converging Operators            Converging Infrastructures

BT/EE                                     Arqiva

Vodafone/C&W                         Babcock/DFTS

2/O2/HutchisonWhampoa        Janet/NENS

VirginMedia/Liberty                  Networkrail, NRTS, N3, ECHO

Sky                                         COLT,Reuters

UKBroadband/HK Telecom       City Fibre, Hyperoptic,Gigaclear

Easynet/MDNX                         DECC, ITS, TfL

Etc.                                         Etc.                  .

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One size does not fitall

Diagramfrom DCIS  report showing that differentindustries and applications have different needs for speed, latency,reliability and resilience. Business already needs fibre to the premises althoughfibre to the cabinet may be adequate for most consumers for the next 4 – 5years.

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Plan B The VictorianStrategy

·        From canals, through railways, water, gas andelectricity to telegraph and telephone: “local and municipal enterprise” inpartnership with those expected to gain most (local business and propertyowners)

·        Government procurement (e.g. Admiralty and PostOffice mail contracts to pull through reliable, high speed services on keyroutes)

·        Inter-operability standards

·        Re-active regulation to address safety andabuse

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Support Coalitions ofthe Willing

·        Use the creation of “A dummies guide tocollaboration” to identity who is willing to work with who, to build what andwhere

·        Help would-be suppliers identify thoseauthorities who will help pool both funding and demand and cut cost and risk bystreamlining local processes for planning, infrastructure sharing andinter-operability

·        Help authorities organise realistic, informedand sustainable co-opetition between suppliers to better meet local needs(including use of Social Values and State Aid)

·        Work together to provide user (local business,residents and public service delivery) local inputs to Government andRegulators

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The role of SOCITM?

Ifso, in co-operation with who?

INCA,LEPs, Digital Policy Alliance, Broadband Stakeholder Group, Country Land andBusiness, Countryside Alliance, Smart Cities (group and Trade Association),RICS …

NetworkOperators 

InfrastructureOperators

Technologysuppliers

InfrastructureBuilders

Etc. 

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