The UK's current broadband network will not be able to deal with capacity demands from new online services like internet TV, regulator Ofcom warned on Wednesday as it called on the telecoms and media industries to decide how to come up with the billions of pounds that must be spent on new infrastructure.
Launching a two-month public consultation, Ofcom head Ed Richards said the arrival of next generation access networks "will probably be the most fundamental change to the country's core infrastructure for the next 20 years".
Over half the UK already has broadband and over 60% of homes can choose to take their service from at least four companies. The average speed of these connections, meanwhile, has trebled over the past year-and-a-half and is now 4.6 megabits per second - or more than eighty times the speed of old fashioned dial-up connections.
But, he warned: "Today's access network, at some point in the future, will run out of steam as consumers demand faster and faster access. Very few people agree on exactly when this is going to happen but many people do agree it is only a matter of time."
"That's why we see both the opportunity and the drive now for investment in next generation access networks."
Countries such as France, Germany, the US, Japan and South Korea have already started investing in networks that can deliver up to 100 megabits per second, enough for a dozen high-definition TV channels or ultra-fast downloading of music and videos.
Ofcom envisages a "mixed economy" emerging in the UK with some areas having ultra-fast fibre optic connections either directly into houses or into the green street cabinets that act as the first gateway into the nation's homes. Other areas will use BT's existing copper phone lines with new technology increasing speeds, with other areas relying upon wireless broadband or even satellites for ultra-high-speed access.
The regulator sees Openreach, which operates BT's network of local exchanges and phone lines, playing a key role but also expects new entrants to invest in their own ultra-fast connections.
It will regulate next generation access, to ensure BT cannot monopolise on its dominant network position, but any regulation will take into account the high risk of investing in new technology - suggesting BT might make a higher return than it does on existing broadband services.
It expects competition in next generation networks to appear in two areas. Some companies may choose to connect their networks directly to BT's roadside cabinets - which typically hold about 300 individual lines - in a move that would greatly increase broadband speeds. Such a move would be similar to the 'local loop unbundling' process which has happened in about 2,000 of BT's 5,500 local phone exchanges with over 3m phone lines passing into the control of BT's rivals.
Other companies, meanwhile, may choose to take a wholesale next generation access product from BT, in a move similar to the way the UK's broadband market was initially opened up to competition.
This second option would involve BT investing an estimated £7bn to £10bn putting fibre optic cables from its exchanges to its cabinets. Putting fibre optic cables all the way to the UK's homes would cost a further estimated £15bn.
BT is already installing fibre directly into houses at Ebbsfleet in the Thames Valley where Land Securities is building 9,500 new homes. The current generation of fibre technology, however, does not yet allow BT to pass ownership of these lines - or 'unbundle' them - to other operators. Ofcom stressed that it has not, as yet, decided how fibre to new homes will be regulated to ensure competition. It plans further consultation on this issue shortly, with a focus on what wholesale product the rest of the industry wants Openreach to provide in places like Ebbsfleet.
It is highly unlikely, however, that every home in the UK will ever have a fibre optic connection, raising concerns that the country faces a widening digital divide.
Mr Richards, however, reckons the fact that not everyone will benefit from day one is not a reason to hold off investing in next generation broadband as soon as possible.
"There will be an issue of differential delivery but let's get it under way first," he said. "It will start in urban areas, it will start in rich ones but we had the same conversation when we talked about first generation broadband."
First generation broadband - a high-speed, always-on internet connection - is now available to over 99% of UK households.
The regulator, however, shied away from forcing Virgin Media, whose cable network passes more than half the homes in the UK, to allow its rivals to use its infrastructure. The company, created by the merger of NTL, Telewest and Virgin Mobile, is already testing broadband at 50 megabits a second.
Mr Richards stressed that Virgin Media is not a regulated business as the regulator has never found it to have 'significant market power' - a test which must be passed before Ofcom can take action.
But he believes Virgin will play a very important role in the arrival of next generation broadband access because its competitive advantage will spur other players on to invest in new infrastructure.
Ofcom has been working on today's 115-page consultation document for more than a year and anyone interested in commenting has until December 5 to make their views known.
Mr Richards made it plain that he wants more than just the usual telecoms companies to get involved.
"Every single company, small or large, has an interest in this, every investor in this sector and arguably in the whole UK economy has an interest in this, every community in the UK has an interest. Millions of individual households each have an interest in how this debate unfolds and we would like to hear from as many of these people as possible," he said.
During its work, Ofcom even looked into using the sewer system to carry fibre optic cables - as has been done in European cities such as Paris - but concluded that most British sewers were not expansive enough.
But Elfed Thomas, managing director of H2O Networks, a technology firm based in North Wales that specialises in using sewers for telecoms networks, disagrees.
"We have already deployed fibre into the UK sewer system and have agreements with water companies. Our dark fibre networks build is being utilised by several councils and universities across the UK, including Aberdeen University, Bournemouth Borough Council, Dundee Council and Bath University.
"We will be deploying in excess of 1,800km in the UK sewer systems over the next three years."
In answer to the Ofcom consultation, BT said it "welcomes the chance to discuss this issue of high speed broadband with Ofcom, the government and the wider industry".
"We are totally committed to providing our customers with the services they want both now and in the future," BT said. "We already provide fibre connections to 120,000 businesses and we will continue to deploy fibre where it makes commercial sense. Of course we will take an active part in the debate about how regulation in the future can encourage further investment".
