A report commissioned by Everything Everywhere from Capital Economics claims that LTE network investment would benefit the UK economy to the tune of tens of thousands of jobs, increase GDP by 0.5% a year, connect the unconnected and give a productivity boost to swathes of business and industry. Can we trust its findings?
First, the background. Everything Everywhere is keen to get on with using chunks of its 1800MHz spectrum for LTE. The other operators are not so sure, thinking that Ofcom's willingness to give it the nod will give EE an unfair advantage over the rest of them, who have to wait for the 800MHz/2.6Ghz auction.
So Everything Everywhere (EE) has launched a website campaigning for the swift introduction of LTE. As a cornerstone of its launch, it produced a piece of research that shows how much good LTE could do for the wider economy. EE also asked for celebrities and businesses to put their shoulder to the wheel, asking them to back its campaign for a 4G Britain. The message was: Let's get rid of the delay and politicking and just get on with bringing 4G to the nation, with all the attendant benefits that that brings.
This puts the other operators in a tricky position. If they support the campaign, then they are effectively giving the nod to EE's swift re-farming of its 1800MHz spectrum, giving EE a nice lead in bringing LTE to the market. If they object, they cast themselves as "playing politics" with the nation's economic well-being, and keeping LTE from the mouths of starving rural businesses crying out for mobile broadband.
So EE gets to play politics while steadfastly insisting that if only everyone else stopped playing politics, it would be OK. Now, I don't blame EE for this. It's all in the game. EE has a key asset that it could be using to develop an advantage, and that's business and that's fair enough. But let's not buy the holy "won't someone think of the economy" special pleading. Instead, EE should be making the case for why its huge chunk of 1800MHz spectrum, for which it pays only nominal fees, can be refarmed without that being seen as being bad for competition in the market. Please, no more Suzi Perry.
Another interesting aspect of this was the report itself. Its headline findings were that operators are looking at a total investment in LTE networks of £5.6 billion. The report broke this down as £2.3 billion on base station equipment, £1.9 billion on installation and £1.4 billion on software.
The report then used that £5.6 billion number to work out how that could translate into jobs and investment within the UK. It found that the impact of that investment could lead to up to 126,000 jobs being created or "safeguarded".
That's some big numbers, so what to make of them? First off, let's look at the investment numbers, which are used to justify the whole caboodle. Mark Pragnell, the report's author, said that he arrived at the number by using specific numbers provided by EE, as well as using "other reports" to arrive at his costings. Fair enough - that looks like some specific knowledge, extrapolated and supported with some intelligent guessing. But even EE's numbers were not detailed, Pragnell said, and were more of the headline nature. In other words, the report relies heavily on EE's own headline estimate of its investment - and while we've got no reason to doubt its veracity EE does, at the least, have a dog in this fight.
Nevertheless, if we accept the investment numbers we then move on to their impact. The report's author, Mark Pragnell simulated the impact of a £5.6 billion investment in 4G LTE infrastructure using input-output tables from the ONS’s (Office of National Staistics). He found that at ONS rates for previous telco investments there could be as many as 125,000 jobs supported right through the supply chain by the LTE investment.
How were the jobs broken down? Well, at the upper end of the estimate, Capital Economics assumed that operators would channel more investment than in previous rounds within the UK — up to 20% more than in 2005, it said. Its reason for this was that operators would seek to spend more in the UK than "given current economic conditions". Why? Are our operators especially patriotic? Have the costs of doing business in the UK and, say, China, really converged so much?
No matter, using the existing ONS tables, CE's report said that there could be 57,923 jobs created within the manufacturing area, supported by LTE investment. 52,000 of these would fall within a "Computer and Electricals" sector. That looks fairly phenomenal - that the UK's "computer and electricals" sector would benefit from LTE investment to the tune of 57,000 jobs?
Given that the bulk of the investment (all but the £1.9 billion spent on installation, remember) will be in the network equipment and software area where the main players are all, well, non-UK entities, how does that translate? Just to restate that point. Any large LTE network equipment orders are likely to go to one of NSN, Ericsson, Huawei or perhaps Al-Lu, none of them, as far as I’m aware, with their main bases within the UK.
Pragnell said that it was important to remember that the bulk of jobs in the manufacturing sector are not actually within manufacturing, but in sales and other jobs. But intuition tells us there aren't going to be 30,000 UK sales engineers, marketers and "other functions" benefitting from LTE.
Where do the jobs come from, then? Are the major NEPs moving large parts of their workforce local to LTE contracts? Not at this level. There will be services teams, sales teams, post sales and the rest. But 57,000?
Perhaps these new jobs will be in all the industries providing power equipment, cooling, towers, all the passive and peripheral elements? Even in silicon and R&D companies supporting the need for increased device and equipment performance? But Pragnell said that the report didn't go to that depth. It simply looked at previous investment input (in all telco, not mobile sepcific, not in LTE as the market is currently structured) and measured output, and projected that onto LTE investment. He did concede that the mix could be different for LTE, as mobile network rollouts often revolve around one or two very major contract awards. Well, yes.
The question remains, then? How does a billion dollar network investment, made with a global NEP, benefit the UK economy to such a vast extent? The short answer is, we don't know. I'm not saying that there isn't evidence of a GDP lift from broadband. I'm not saying that there isn't evidence of a productivity boost from broadband. There may even be a case for a vast boost to the manufacturing sector. But this report only begins to make that case, and as such it provides poor ground upon which to build a case for LTE re-farming and a speeded up auction process.
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