Government response
Introduction
1. This response has been agreed by the Department
for Environment, Food and Rural Affairs (Defra) and Department
of Trade and Industry (DTI).
2. The Government welcomes this report and is
pleased that the Committee recognises the continuing development
of Defra's role as the advocate of the needs of rural areas. Although
much progress has already been made in taking steps to improve
the availability of broadband in rural areas, the Government endorses
the Committee's view that more can be done. Following the setting
up of the Rural Broadband Team in DTI in early May 2003, bringing
together officials from DTI and Defra, a strategy for rural broadband
is being developed which will set the framework for action. This
is being developed with stakeholder engagement and will be delivered
in partnership with others. In particular, the Unit is working
with Rural and Information and Communications Technology (ICT)
teams in the Regional Development Agencies.
3. The Committee has rightly identified specific
areas for action and the report will be extremely helpful in taking
this process forward.
4. Where appropriate, related recommendations
have been considered together.
Recommendation 1
5. We agree with the Countryside Land and
Business Association that setting trigger levels for all exchanges,
no matter how high they might be, would help rural communities
to gauge their prospects of accessing broadband via ADSL. We therefore
strongly urge BT to set trigger levels on all exchanges. (paragraph
23)
6. This approach was advocated by Ministers at
meetings with BT to discuss the rural broadband issue last year.
Having encouraged BT to be more transparent in providing information
on trigger levels and likely enablement of rural exchanges, the
Government has welcomed BT's pre-registration scheme and in particular
the setting of trigger levels which has led to 900 exchanges meeting
their demand trigger of which more than 500 are already live for
broadband and the rest are in the process of being upgraded. Ministers
will write to BT to put forward the view that it is in their interests
as a company as well as in the local public interest, for them
to be open and transparent about trigger levels, but this must
be a commercial decision for the company .
Recommendation 2
7. We recommend that Oftel and BT meet to
clarify whatever confusion persists about the degree to which
BT is able to cross-subsidise the enablement of exchanges with
money made in profitable areas. (paragraph 24)
8. This is an issue for Oftel and BT, but the
Government is pleased that Oftel has met BT to clarify the degree
to which BT is able to cross-subsidise the enablement of exchanges.
The Government understands that there is no regulatory rule which
requires BT to recover the costs of upgrading an exchange from
revenue generated in the area served by that exchange. However,
in setting the prices of its broadband products (which it sets
on a national basis), BT must comply with competition law and
its regulatory obligations. This means, for example, that the
products must not be priced below cost with a view to excluding
competitors.
Recommendation 3
9. By offering good quality services online
the Government can make a vital contribution to stimulating demand
for broadband services, which will in turn encourage investment
in such services. We recommend that the Government move quickly
to offering all of its own services online, including those services
particularly directed at rural communities. We also recommend
that the Government encourage other public sector bodies to make
services available online as quickly as possible. Encouraging
demand should not stop once broadband has been made accessible:
take-up of the service is also important. (paragraph 25)
10. The Government accepts this recommendation.
Government is committed to ensuring that central government services
are made available electronically by 2005 and that key services
achieve high levels of use. The latest Electronic Service Delivery
survey shows that 63% of services were e-enabled at the end of
2002 and departments have forecast that they are on track for
getting all government services on line by 2005 target.
11. The Government's strategy includes the creation
of a mixed economy for the supply of public services, where consumers
(citizens and businesses) will be able to access e-government
services via intermediaries in the public, private or voluntary
sector. The Office of the e-Envoy published a consultation document
on the framework for intermediaries on 29 May 2003 that aims to
ensure that all departments involve intermediaries. This means
people will be able to access services in a way which suits them
best and through organisations they know and trust. Benefits to
rural areas would stem from intermediaries' wider yet focused
reach, helping to mitigate issues of social and economic exclusion,
IT literacy and poor rural infrastructure. There has already been
some success. For example the British Cattle Movement Service
(BCMS) allows intermediaries to supply cattle movement data from
agents directly into the BCMS validation system.
12. Government agrees that take up of services
is important. As part of the Spending Review 2002, the Government
recognised the need to look beyond simply getting services online
to making sure they bring about a real improvement in the quality
of services and that people want to use them. To push this forward
the Government's target of getting all e-Government services online
by 2005 has been enhanced to include a commitment "with key
services achieving high levels of use". In order to achieve
this, the Office of the e-Envoy is currently developing a methodology,
definitions and targets for each of the key services.
Recommendation 4
13. We recommend that the Government, in conjunction
with regional and local authorities and local Business Link services,
work to encourage and support local groups and businesses campaigning
for broadband provision in rural communities. Such support should
include advice and small grants to facilitate their activities.
(paragraph 26)
14. Government agrees that supporting local campaign
groups is an important way of facilitating more extensive broadband
rollout and this has been encouraged by Ministers.
15. The Rural Broadband Team set up at the beginning
of May within DTI will focus on the problems and issues of broadband
for rural areas including supporting local campaign groups. Working
closely with Defra, a strategy is being developed that will concentrate
primarily on demand stimulation. One of the DTI Rural Broadband
Team's first actions will be to develop a publication that identifies
engagement options for rural businesses and communities. The publication
and associated resources will aid understanding of the issues
surrounding access to broadband in the rural environment. Defra
and the DTI's Rural Broadband Team will explore with partners
the possibility of small grants to facilitate campaigning activities.
16. Activity currently exists on supporting groups.
The Committee's report identifies one of the most successful examples:
the East of England Development Agency's Broadband Brokerage established
in June 2002. A website allows companies, public sector organisations,
communities and individuals to register their interest in using
broadband. Once a cluster of demand has been identified, possible
suppliers are approached and given the opportunity to provide
a service. There have been over 14,000 registrations to date.
The first two clusters (Diss in Norfolk and Felaw Maltings
in Ipswich) were announced for commercial bidding to 40+ suppliers
in February 2003. The supply is underway and the next top 10 clusters
of unfulfilled demand have been identified and are being issued
to potential suppliers over the next three months.
17. Coupled with the EEDA brokerage is the Connecting
Communities Competition. 21 winning communities announced on 23rd
July 2003 are obtaining a substantial contribution to the provision
of broadband services. Over 200 expressions of interest were received
by the initial closing date, which was more than expected. Entries
ranged from small villages to entire districts and even whole
counties that were unlikely to be commercially viable to connect.
Consultancy was offered to the most promising entries, and 87
detailed business cases made it to the final judging. In addition
to the winners, a further 25 entries overlapped with some of the
areas in the winning entries, which are being encouraged to subsume
these within their broadband network plans. Several other communities
have had trigger levels set by BT and EEDA will be supporting
them where possible.
18. Government also supports those groups that
go further than campaigning, to actual service provision within
their communities. An example is the Alston Cybermoor Social Enterprise
Model which is supported by the UK Broadband Fund.
Recommendation 5
19. We recommend that the Government continue
to work to make more frequency bands available for use by providers
of wireless broadband services. We further recommend that the
Radiocommunications Agency be formally directed to set the price
of radio spectrum licences at a level that actively encourages
the development of wireless broadband. (paragraph 27)
20. The Government has allocated a number of
bands for the full range of broadband services and will continue
to make more available. Fixed Wireless Access (FWA) licences,
in the 3.4 GHz band, were auctioned this June and all 15 were
sold. At 5 GHz, licence exempt (no fee) Bands A and B were opened
for Wireless LANs (Local Area Networks) and FWA in February, and
Band C will be opened for light licensing (low fee) as soon as
other users of the band can be accommodated by alternative arrangements.
21. Government agrees that work should be done
to make more frequency bands available where relevant. Officials
in the Radiocommunications Agency (RA) are working with the Broadband
Stakeholders Group to explore the case for the release of further
spectrum.
22. The price of radio spectrum must be determined
by reference to the matters set out in the Wireless Telegraphy
Act 1998. These include the availability of and demand for spectrum
and desirability of promoting its efficient use, the economic
benefits arising from the use of wireless, the development of
innovative services and the competition in the provision of telecommunications
services. Within this framework, the RA sets fees that Government
feels reflect the need to deliver broadband services effectively.
23. Management of the radio spectrum and the
level of spectrum license fees will, under the new Communications
Bill, be a matter for Ofcom. Ofcom will be independent of Government.
The Secretary of State will reserve power to direct Ofcom on spectrum
matters but, with limited exceptions, only with the express approval
of both Houses of Parliament.
24. Although allocation and pricing of spectrum
will in future be for Ofcom, the spirit of the Committee's recommendation
has been met by the inclusion within the Bill of duties on Ofcom
to have high regard to the desirability of encouraging the availability
and use of high speed data transfer services throughout the UK,
and to the different interests of the people living in rural and
in urban areas. Moreover, in setting licence fees, Ofcom will
be required to balance various considerations including the desirability
of promoting innovative services and competition, both of which
are relevant here.
25. In carrying out their spectrum functions,
Ofcom will need to have regard to, and to balance a number of
factors. That is not to say that the needs of rural areas for
broadband can necessarily always be paramount where there is a
conflict with other objectives. Ofcom however will be operating
within a statutory framework that duly acknowledges and reflects
the need in general terms of extending broadband to rural areas.
Recommendation 6
26. Given the particular importance of demand
aggregation in the provision of broadband in small towns and villages,
we urge the Government to ensure that Defra is strongly represented
on the aggregation project team. (paragraph 29)
27. Defra is represented on both the Ministerial
Steering Group by Alun Michael MP, Minister of State (Rural Affairs
and Local Environmental Quality), and on the Project Board itself.
The Ministerial Steering Group provides the policy direction to
the Broadband Aggregation Project. Defra is therefore in a position
to ensure that its views are fully taken into account in this
key project which seeks to lever the Government's expenditure
on broadband connectivity for its own purposes to secure more
broadband availability for rural communities. These two groups
will continue to operate.
28. The Rural Broadband Team as part of DTI will
have a strong influence in the governance of the Regional Aggregation
Bodies whose responsibility it will be to deliver the project.
Recommendations 7 and 8
Recommendation 7
29. We recommend that the Government work
closely with regional and local authorities and broadband suppliers,
as well as with consumers, to develop imaginative means by which
private sector consumers can 'piggy-back' on public sector infrastructure.
(paragraph 30)
Recommendation 8
30. Nevertheless we recommend that the Government
strike a balance between ensuring that educational and healthcare
facilities are connected rapidly to broadband and allowing individuals
and small and medium-sized businesses to benefit from aggregation
and 'piggy-backing'. In principle we believe that public sector
investment should have a secondary aim of making broadband more
accessible to the wider community as well as to schools and hospitals.
(paragraph 31)
31. Government accepts these recommendations.
32. A fundamental aim of the Broadband Aggregation
Project is to lever public sector broadband expenditure to secure
wider broadband availability for the citizen and Small and Medium
Sized Enterprises, especially in rural areas. The faster that
broadband is extended to meet the needs of educational and healthcare
facilities, the faster the beneficial effects for communities
will be felt.
33. The Regional Aggregation Bodies being set
up as part of the DTI's Aggregation project will work closely
with Regional Development Agencies and other partners and will
seek to let contracts for public sector connectivity in a way
that increases wider community access to broadband technology.
Government will encourage this through the National Aggregation
Body.
Recommendation 9
34. There is a proportion of the countryside
- generally the most rural and remote areas - where the provision
of broadband cannot reasonably be left to the marketplace. In
order not to disadvantage such areas intervention is essential.
We therefore recommend that the Government rapidly identify those
areas in which its intervention is needed, develop policies, in
conjunction with Regional Development Agencies and local authorities
which ensure that broadband is made accessible in remote areas;
and back those policies with adequate funds. It should, for example,
make specific funds available under the England Rural Development
Programme to subsidise the cost of broadband in the most remote
areas. (paragraph 32)
35. The Rural Broadband Team set up at the beginning
of May within DTI will focus on the problems and issues of delivering
broadband into rural areas. The team is exploring the issues raised
above, including where intervention may be required with a variety
of partners including the Regional Development Agencies, local
authorities and other intermediary bodies. This is feeding into
a strategy for rural broadband which the Government hopes to be
a position to announce later in the year.
36. Support is already potentially available
under the England Rural Development Programme. Projects under
the "basic services" measure of the Rural Enterprise
Scheme could include investment in broadband access. However,
the Government does not propose to make available specific, ring-fenced
funds. That would limit the flexibility of regions in using the
funding available to them to tackle regional and local needs.
Further subdivision of the overall budget would also make budgetary
management more difficult, and increase the risk of not maximising
our use of EU funding. When regional targeting statements for
the use of the Rural Enterprise Scheme and the other project-based
schemes are next revised, however, we will consider whether Defra
centrally should encourage regions to place particular emphasis
on broadband services.
Recommendation 10
37. We recommend that the Government clarify
in its response to this report its understanding of European state
aid rules as they relate to public sector support for broadband.
We are keen to ensure that such rules, or current misunderstanding
of them, do not affect public support for broadband provision
in the most remote communities. (paragraph 33)
38. The Government agrees that a proper appreciation
of the EU State Aid rules is important for understanding the constraint
on the public sector's involvement in broadband rollout.
39. The traditional way to provide support for
broadband is through aid given under the regional aid rules. However,
for large firms this is only an option in UK Assisted Areas. Small
and Medium Sized Enterprises can be assisted in all areas as long
as the aid complies with the terms of the Small and Medium Sized
Enterprise Block Exemption (Commission Regulation (EC) 70/2001).
40. There is however potentially a further state
aid compliant way to support business access in non-Assisted Areas.
This is through funding of what are known as Services of General
Economic Interest (SGEI). An SGEI is not defined in the Treaty
and it is for individual Member States to determine what constitutes
an SGEI, with the Commission only having a role in case of manifest
error. In general an SGEI is a service that the market does not
provide or does not provide to the extent or to the quality which
the Government would like. An SGEI must also serve the generality
of economic interest and not the interest of one particular group.
An SGEI can be set by any level of Government. Broadband in for
example rural areas could be seen as an SGEI. There is a market
failure in that the market will not quickly provide universal
access to broadband.
41. The state aid status of funding for SGEI
has been clarified recently. Under a recent Decision from the
European Court of Justice (ECJ) ( C 280/00 Altmark) funding will
not count as aid if it meets four strict conditions.
i. the undertaking must actually have been
given a public service obligation (SGEI) to perform and this must
have been clearly defined in advance;
ii. the parameters of the basis of which
the compensation is calculated must be established in advance
in an objective and transparent manner;
iii. the compensation cannot exceed what
is necessary to cover all or part of the costs incurred in the
discharge of the public service obligations, taking into account
the relevant receipts and a relevant profit;
iv. where the undertaking is not chosen
in a public procurement procedure, the level of compensation must
be determined by comparison with an analysis of the costs which
a typical undertaking in the same sector would incur.
42. If these tests are satisfied then there has
been no advantage in state aid terms to the company aided.
43. The Department of Trade and Industry will
clarify this area of policy in October by guidance for local authorities.
There are no plans to make broadband an SGEI on a national basis.
Recommendations 11 and 12
Recommendation 11
44. We believe that Defra can play a vital
role locally in providing advice to rural businesses and other
members of rural communities, as well as to infrastructure providers
and others, about broadband. The Department should also take on
greater responsibility for co-ordinating those agencies charged
with delivering broadband in rural areas. We strongly recommend
that it makes arrangements to do so. (paragraph 35)
Recommendation 12
45. At a time when the Government is attempting
to encourage diversification in the rural economy, to persuade
farmers and others in the rural economy to access Government services
electronically and to facilitate social inclusion for rural areas,
it is counter-productive that its has allowed a 'digital divide'
to open up between urban and rural areas in terms of access to
broadband. It is precisely to stand up for the interests of rural
communities in such policy areas that the Department for Environment,
Food and Rural Affairs was created. Although we heard evidence
that it has begun to act for rural areas in relation to broadband
we strongly urge it to do more. (paragraph 36)
46. In the response to the Committee's report
into Delivery of Education in Rural Areas, Government explains
that Defra's role is to identify the particular interests of rural
areas, and to represent and promote these interests to the relevant
lead Department or Agency - in this case the Department of Trade
and Industry - to ensure that delivery is as good as it can be
in rural areas. From the outset, Defra Ministers have stressed
that it would undermine rural delivery rather than strengthen
it, were policy for rural broadband - or for education and skills
or planning policy or housing or transport or health - to be divorced
from the mainstream.
47. Defra is playing a key role in relation to
broadband in rural areas. Defra officials work closely with the
DTI policy team, and these contacts have been strengthened by
the inclusion of a Defra official in the recently formed Rural
Broadband Team in DTI. As part of this cooperative approach, Defra
has agreed to fund key research into the impact of broadband availability
on economic performance and productivity of rural areas, in order
to develop and strengthen our understanding of the rationale for
intervention promoting broadband in rural areas. The Rural Broadband
Team will ensure as part of its strategy to support broadband
rollout in rural areas, that both DTI and Defra resources are
harmonised within the regions to ensure that relevant advice and
funding issues are well co-ordinated. Defra also works with other
government departments, public sector organisations and stakeholders.
Government Offices have a key role to play in ensuring a joined
up strategy at regional level. Both centrally and through the
Government Office rural directors, Defra has close links with
the Local Government Association, it has regular meetings with
stakeholders and it has also met a number of local authority representatives,
community groups and project managers.
48. In October 2002, Defra invited a number of
representatives of stakeholder organisations to a "rural
broadband brainstorming" session. The results of the brainstorming
have been made available via the internet on a specially established
discussion forum, hosted on behalf of Defra by UK Villages. The
forum has been valuable in connecting rural broadband interest
groups and has recently been extended to include the outputs from
a Yorkshire Forward workshop organised by a Defra official on
secondment to the Regional Development Agency to assist in developing
a broadband strategy.
49. Whilst Defra is closely involved with all
this work, a key principle of rural proofing is that the Government
Departments themselves do it and deliver their policies in rural
areas with their own resources. An important part of Defra's central
role is to represent and promote the interests of rural areas
to the relevant lead Department or Agency and to make sure that
Departments get delivery in rural areas right. As the joint evidence
by Ministers to the Select Committee showed, this is a partnership
approach reflecting the Government's belief that Departments can
achieve more together than they can alone.
Recommendation 13
50. We recommend that the Government now reformulate
its objectives in respect of broadband to reflect the need for
broadband to be accessible in all areas of the country. We further
recommend that the Government back its new objectives with practical
policies which will ensure that broadband is accessible to all
at affordable rates as soon as practicable. (paragraph 37)
51. Defra and DTI Ministers confirmed in oral
evidence to the Committee and in a press notice of 23rd
May 2003 a joint aim that every community in the UK, irrespective
of location should have the opportunity to access affordable broadband
from a competitive market.
52. Government does not believe that there is
a case for general subsidy. In the main part we believe that the
competitive market which has brought about the current level of
availability should be allowed and encouraged to rollout services
where it believes this to be economically viable and to develop
innovative approaches to doing so. The Government has some powerful
levers where the market will not deliver. These include the £1
billion investment by Government on public sector connectivity
through the Broadband Aggregation Project. Regional Development
Agencies have £1.8 billion to spend next year on regional
economic development. Where broadband is a significant barrier
to development it would be legitimate for them to spend money
on this. Regional Development Agencies have already been given
£30 million for pilot broadband projects to learn what will
work in extending availability (UK Broadband Fund) and European
Structural Funds can be another source of funding where applicable.
53. The Rural Broadband Team will make sure that
these levers have maximum impact in rural areas.
54. As part of the work to develop a rural broadband
strategy, both departments will explore the scope for setting
specific quantified targets for rural broadband provision if appropriate
parameters sufficiently susceptible to Government influence can
be identified.
Recommendation 14
55. We hope that time will be found to debate
the resolution [in the Annex to the report], and we invite the
House to support it. (paragraph 38)
56. Government notes this recommendation.
Department for Environment, Food and Rural Affairs
September 2003
