Broadband - Business, Innovation and Skills Committee Contents

Examination of Witnesses (Question Numbers 160-179)


24 NOVEMBER 2009

  Q160  Chairman: We are not clear and you have not made it clear this morning.

  Mr Timms: With respect, I think I have made it fairly clear. Certainly from the customer's point of view, what this service will provide is access to the kind of—

  Chairman: You sound a little bit like a dodgy Internet Service Provider yourself over claiming for speeds! You have promised us a note and we will have to have it, but we are not currently very impressed.

  Q161  Mr Binley: I think if you were selling to me I would be very worried, Stephen! Let us go on to the Network Design Procurement Group because they have a lot of work to do and they have a lot of work to do very, very quickly. For instance, we talk about under-served communities. How will they determine the location of under-served communities? What do they actually mean by that?

  Mr Timms: The first priority for them will be those communities that do not have access to the service we have just been talking about, and I think the current estimate is something like 10% or 11% of UK households fall into that category. So that will be the first priority, to identify where those are, and then to devise means by which the funding that we are providing will enable those communities, those households, to be provided with that service.

  Q162  Mr Binley: I do not wish to hark on this but you cannot define an under-served community until you define the target at which you are looking, quite frankly; so the two are connected and it is important. I recognise that you are coming back to us and I am perfectly happy that should be the case.

  Mr Timms: I do think there is more clarity about this than the Committee is suggesting. 10% or 11% of households at the moment do not have this service and that is a fairly well defined group.

  Q163  Mr Binley: Do not have any service at all?

  Mr Timms: Do not have the service that we are talking about, the 2Mbps.

  Q164  Mr Binley: We will look forward to your response to us, which is important. I am a businessman, or was, and I am still very proud to say so, and I would be horrified if my people were working when they procured services on the basis of a reverse auction process. I would be horrified if the major criterion was the lowest price. Can you reassure us that I am being over-pedantic in looking at words and that the whole thing will be a much wider assessment and it will not necessarily be the lowest price in a reverse auction process?

  Mr Timms: I will ask Rachel to comment on this. Clearly this will be a very important issue for the group to address once it is in place and I do think it is going to be important for them to secure good value for money for the funding that is provided. Precisely what mechanism they will use for that, I agree there is space for debate, and quite an important debate, but I think that value for money is certainly an important consideration.

  Ms Clark: What we have said is that a reverse auction is one option that ought to be considered. As the Minister says, it is clearly important that we get best value for money, but we will need to set very clear quality of service parameters and the technical specification that we talked about earlier will be a part of that. The procurement process will need to explain absolutely clearly fundamentally what it is we expect bidders to deliver and within that we need to look at value for money as we make decisions.

  Q165  Mr Binley: The government records of both parties have not been very good in terms of this area of purchasing, and I talk about some of the government computer purchases which have been disastrous, quite frankly. How can you confirm to me, give me confidence that this process will come out with the best possible provider irrespective of the bit that it is going to be a reverse auction process, which frightens me to death?

  Mr Timms: We will certainly have to apply the highest standards of good practice in procurement of this kind of service and, as you point out, there are some projects that have not gone very well and, of course, there are other projects that have gone extremely well.

  Q166  Mr Binley: Thank God!

  Mr Timms: And there is a growing body of well-understood good practice for procurement in this area and we will need to make sure that those best practices are rigorously applied in this case.

  Q167  Mr Binley: You might keep us in touch with that because it is a pretty important part of the process. Is £200 million enough to deliver the Universal Service Commitment?

  Mr Timms: I think we will need to supplement that with other forms of support and we may well be able to secure industry support; there may be funding available from Regional Development Agencies and perhaps from local authorities of the kind that has already been deployed on some of the existing next generation projects that have already secured funding. I think the £200 million will give us the central resource that we need to deliver the commitment.

  Q168  Mr Binley: Again, I do not understand how you can arrive at that decision when you have not confirmed the other parameters that we talked about earlier, so I think that there is some concern and doubt here and there is a fear that this budget will run away with government, as many budgets do. So there is a need to reassure the general public that will not happen. Let me leave it with you because I recognise that we are talking early stages, but you will note that, I am sure. Can I ask why the Government is separating the Universal Service Commitment and the next generation access into two separate projects?

  Mr Timms: That is a really good question. In our mind and the thinking behind the Digital Britain White Paper was that there is a need quite urgently to make sure that there is access to a broadband service for everybody. We are not there yet—we are quite close to it but we are not there yet—so we want to move quickly to fill in the current gaps in the availability of the service and we can do that by 2012 with the 2Mbps level. We recognise as well that technology is moving on apace. There are already almost half of UK households able to access next generation services through the Virgin Cable Network at 50Mbps, and they are talking about higher speeds. BT says that it will be providing next generation broadband services to ten million homes by 2012, a quarter of them with fibre to the homes, so things are moving quickly. If we take no action we will be left in a position where perhaps two-thirds of UK households would have access to those services and the remaining third would not. We do not think that is a satisfactory outcome and so we think it is necessary to intervene to speed up the rollout of next generation broadband services to those parts of the country which otherwise would not be reached any time soon. I think there are two stages to it. There is making sure that everybody has the safety net of the basic minimum level of service as quickly as possible and then apply additional resources to speed up the rollout of next generation services beyond that.

  Q169  Lembit O­pik: Let us talk about next generation as it is something you have already touched on, Minister. I understand that there are various providers like Virgin developing a 200Mbps service, which is a huge step forward compared to what we have now, but it begs the question what for? I am not expecting you to be a fortuneteller. The demand for the next generation access currently is really only essential for video. For example, the BBC iPlayer, which is a pretty sophisticated service, requires less than 1Mbps. I do not want to sound like a Luddite, but so that we understand where we are heading what evidence is there that we will need these kinds of colossal steps forward in speeds?

  Mr Timms: I think that is a very good question and I am grateful to you for not expecting me to be a fortune-teller. There clearly is a fair amount of uncertainty about all this. I recall, as I am sure you do, that when first generation broadband was being introduced people then were saying, "What on earth are people going to use this for?" and it turns out that there are lots of things that have been very heavily used. I think wherever you look the trend is towards increasing demands on bandwidth and one could take the view that this trend is suddenly going to stop, but my view is that that is unlikely and the likelihood is that trend of growing demand is likely to grow. Another point is that we are seeing, as you say, Virgin investing quite substantial sums to enable its customers to have 50Mbps at the moment and, as you say, higher speeds in the future, and BT is committing something like £1.5 billion to the commitment that it made, so clearly some quite hard-headed commercial assessments have concluded that there is demand in the near future for these services. I think the question is are we going to be satisfied with just two-thirds of the country getting that and the remaining third not doing so, or not? My view is that we do need to take steps to make sure that we achieve the 90% goal that I have described. One can certainly talk about increasing needs in education, in health, in public service, applications of tele-working, video conferencing from home and all of these things that are emerging which may well generate the demand that we are talking about, but I think we can be pretty confident that in one form or another that demand is going to emerge.

  Q170  Lembit O­pik: Forgive me for a brief digression, but Calvin Mckenzie said to me when he brought his astrologer in to be fired he said, "I am afraid I am going to have to let you go, but you probably knew that already"!

  Chairman: Name-dropping and a very bad joke!

  Q171  Lembit O­pik: I apologise for one of those. There is no accounting for senses of humour, Chairman. Moving swiftly on, though, you have mentioned access a few times now and every time you say that I think of my own constituency as generally the other third. We have a very high proportion of inaccessibility—we are under-served quite substantially—and while not being parochial I recognise that in a geographical context it will be much more than 10% or 11% of the country which is under-served in the way that you say. This really risks creating a two-tier system. The first question is how did you come to the conclusion that the two-thirds target was the right one? Who did you consult, for example?

  Mr Timms: Two-thirds is not the target, two-thirds is our view of what would happen without public intervention and we want to do better than that, hence the proposal for the levy. There was some quite substantial analysis underpinning that conclusion and I will ask Rachel to describe what was done.

  Ms Clark: Some extensive work was done by the Broadband Stakeholders' Group, an analysis made last year—maybe a little further back than that—on the costs of rolling out broadband, and because it is the Broadband Stakeholders' Group it brings together pretty much the whole of the industry, so it has a strong industry consensus behind it, which shows that the costs of rolling out NGA, going out to just over 60% of the population tends to be around £137 per home passed, which is a figure that looks absorbable within the investment case. Then it starts to climb quite steeply and for the next 30% it climbs at around a one in two rate until it hits £337 per home passed and then at 90% it veers off straight. That is a graph which we can certainly make available to the Committee if you want to see it, it is in the public domain. This gives us a clear sense of what the investment case is going to look like and you can use those figures and various analysts have used those figures to then compare with population densities and forecast take-up rates and you can see what the likely deployment is and, in fact, the announcements that companies have made so far about rollout tends to bear that out at the moment.

  Q172  Lembit O­pik: So there is a rationale based on costings as well and what you are implying is an exponential increase except in the last group.

  Ms Clark: Yes.

  Q173  Lembit O­pik: That really ties in to the final question that I want to ask you in two parts. First of all, having established those criteria how have you as a Government indicated to the procurement groups which communities are to be prioritised? Is it purely a financial consideration, for example?

  Mr Timms: We have not indicated that yet. That will, as I was saying earlier, be an early task for the procurement group that is being set up. We have simply said that we think the priority should be those who do not have an adequate service at the moment. How beyond that the priorities are set will be a matter for them to determine and a very important judgment for them to make.

  Q174  Lembit O­pik: I will tell you a case study. As it happens there is a very small community of about two dozen houses in Staylittle in my constituency and they do not have any access at all. I have been working with other technologies to see if we can get something going and so forth. What would be the process to determine whether, for example, this community of two dozen houses, some of whom want to run broadband-based businesses, would be a priority or not? Is it fair to admit that if it is not the case you have not yet established the kind of criteria to determine that?

  Mr Timms: We have not yet worked out the detailed criteria. One important point is that we would envisage that quite a number of those small communities, households, that do not have any kind of broadband service at the moment, could get the Universal Service Commitment delivered by a next generation solution and go straight from nothing to a very high speed service. As I said in my opening remarks, we think that maybe a million homes could benefit from that. So the fact that a particular community does not have a service at the moment does not mean that it is going to be in the 10% that will not have a next generation service after 2017. I imagine that quite a number of communities will be able to leapfrog from nothing at all to a next generation service.

  Q175  Lembit O­pik: Which would make mid-Wales the Silicon Valley of Britain—I like the idea. Chairman, just one final question about technology. We have already established that it is very hard to crystal ball gaze about what the applications would be and what we need in the future. Is there any risk that in pursuing, for example, land-based solutions at the moment we are ignoring the possibility of having, for example, the satellite-based solution with the big breakthroughs in satellite technology and so forth and so we are investing in the wrong thing. I accept that we have to invest in something, but just what consideration has been given to be flexible to other solutions which could be wireless, for example?

  Mr Timms: I agree. I think that satellite and mobile could well be part of the solution and that will be a product of the tendering process where people will be invited to come forward with solutions for particular areas and particular circumstances and it may well be that non-fixed solutions will be offered and will prove to be the most cost-effective available. We are certainly not excluding those at all.

  Q176  Lembit O­pik: What is the process of looking at alternative technologies?

  Mr Timms: What the Procurement Group will need to do is to divide up the target group that we are talking about and it will be for them to judge how large the groups that they want to tender will be, how large the areas they want to tender will be, and then when they have decided the packages that they want to attain, they will need to go to the market and providers will bid to provide a solution for whichever packages that are of interest to them. So at that stage I would anticipate that we will have a variety of technologies being proposed and it will be for the Procurement Group to decide which ones to select.

  Q177  Lembit O­pik: Will you in that process be considering ensuring a level playing field for costs? Taking Staylittle as an example, if you found a solution that involved satellite but is much more expensive than, for example, a new town, will there be any redistribution of cost between the cheaper and more expensive versions? Will you be subsidising, for example, the expensive solutions, or is that not something that you have considered?

  Mr Timms: We have committed £200 million to this so clearly that will be used to purchase some of the solutions. Precisely what terms the service would then be offered on I do not believe we can say at this stage, but there will be a significant amount of public funding to reduce what otherwise would be the costs.

  Q178  Mr Oaten: On that point. It would be a shame though, would it not, if the potential of satellite was lost because the Procurement Committee were very narrow minded and were treated this in pure, narrow financial procurement means?

  Mr Timms: I certainly see significant potential for satellite solutions to help us in this and the technology is moving on and we will get better satellite solutions in the future than perhaps have been available in the past, so I would hope that we can take advantage of that.

  Q179  Mr Oaten: Just a few basic questions, if I may. Imagining that I was a constituent and I did not have broadband at all, when will constituents of mine who do not have broadband get broadband?

  Mr Timms: By 2012.

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