Conclusions and recommendations
1. We remain concerned that following the resignation of Lord Carter, the Ministerial structure which created a part-time Minister for Digital Britain provides neither the appropriate ministerial oversight nor the weight to match the importance of this policy area. Furthermore, we do not consider it appropriate that a single Minister should be both the champion of digital innovation and responsible for tax revenue. This is no reflection on the current Minister, but given the importance of the digital economy to the United Kingdom, we believe a full-time post is required and one which is unencumbered with potential conflicts of interest. We recommend that the Government again appoint a full-time Minister for Digital Britain at the earliest opportunity.
Universal Service Commitment
2. Given the case made for 2Mbps by Government and Internet Service Providers, and the services which 2Mbps will deliver, we agree that the Government has set the Universal Service Commitment at an appropriate level. However, our support is contingent upon a clear definition of what 2Mbps represents.
3. We are concerned that the Government is committed to a Universal Service Commitment of 2Mbps, with a budget of £200 million, without a clear definition of what it means. The criteria upon which any significant spending is based must be made clear. Together with the Network Design and Procurement Group, the Government needs to address this issue as a matter of urgency.
4. We believe that the Universal Service Commitment should deliver a minimum
2 Mbps under normal circumstances, to all users. This achievable objective would provide a greater range of services to all areas of the United Kingdom.
5. Currently, the Network Design and Procurement Group will define its own targets, delivery mechanisms and terms of reference. This is not acceptable for the delivery of the Universal Service Commitment. The Government must publish a set of publicly available guidelines, defining what the targets are and the best practice for delivering them.
6. While we accept it is appropriate that the Network Design and Procurement Group be consulted in designing the procurement process, the Government needs to state expressly that value for money will be a cornerstone of its procurement model rather than proceed with a purely cost-based reverse auction.
7. In order to maximise the benefits of the Government's ambition to provide the Universal Service Commitment through Next Generation Access networks, we believe that where possible the economic data of the upgrade should be placed in the public domain. This offers the opportunity to use the USC as a testing ground for the roll-out of Next Generation Access.
Next Generation Access
8. We share the Government's enthusiasm for the swift development of Next Generation Networks and for maximising access to those networks. We believe that the United Kingdom's competitiveness is, to a significant effect, dependent on its telecommunications network. However, we have doubts about aspects of the Government's policies to achieve an objective with which we entirely agree.
9. The evidence we have heard suggests that there is no pent-up pressure for super-fast broadband from consumers, due both to a lack of new applications and an unwillingness to pay higher bills for internet access. We do not believe that the Government has yet made the case for intervening in the market to provide NGA access to consumers who already receive a reasonable quality of service. Furthermore, we conclude that achieving a universal service of 2Mbps should be the priority.
10. We accept the analysis that, given the current public policy framework, an entirely market-driven approach to NGA roll-out is unlikely to deliver NGA to every home. Therefore, if there is to be near-universal access to NGA, changes to public policy or some form of Government intervention will be necessary. Changes in public policyfor example to allow competitor access to BT's ducts, or to the rating of fibre optic networksmight prompt the market to deliver, and technology itself is changing rapidly. Whether this is the right time to intervene with public money and what form this intervention should take remains an open question.
11. Premature intervention by the Government in the NGA market could prove unnecessarily costly. We believe it would be unwise for the Government to intervene until the market has established what it is capable of delivering by itself, something the telecommunications companies are still in the process of doing. Fifty percent of the United Kingdom already has potential access to high speed broadband and that proportion will grow as investment increases and technologies develop. These processes could accelerate if they are provided with an appropriate public policy framework.
12. We believe that if public intervention is to occur then where it begins geographically is of critical importance. We recommend that the Government act cautiously in any intervention it may make, and that any such intervention should be in areas where the private sector is least likely to venture. This would allow the market time to assess the economic case for further roll-out beyond 66%, decrease the chance of private investment being crowded out and decrease the possibility of contravening EU state aid rules.
13. While optical fibre may often be the correct technology to deploy in the delivery of NGA, the Government must not lose sight of alternatives which are already able to deliver results. The speed of technological development in this industry is fast, and solutions which appear to be too costly or complex today may quickly become the most appropriate option in the near future. We believe, therefore, that technological neutrality should be a cornerstone of any Government intervention. Furthermore, we recommend that any Government-funded infrastructure should be able to support services offered by multiple internet service providers. If not, it runs the risk of establishing local monopolies.
50 Pence Levy
14. We believe that a 50 pence levy placed on fixed telecommunication lines is an ill-directed charge. It will place a disproportionate cost on a majority who will not, or are unable to, reap the benefits of that charge. The levy is a regressive tax under which a minority of users will receive enhancements to their services paid for by a majority who appear unlikely to access these services. The Government must look again at this proposal. If the Government persists with its proposal for a levy, it will need to set out, in unambiguous terms, whether or not the levy will be hypothecated and proceeds used to fund solely Next Generation Access. The fact that this remains uncertain undermines the credibility of the Government's position.
15. We do not support the 50 pence levy as a means of raising revenue to assist in the roll-out of Next Generation Access. The programme for delivering Next Generation Access is important, but if public funds are required, they should be raised in the same way as for any other national infrastructure programme. We reject the proposal for a 50 pence levy and recommend that Next Generation Access, to the extent that publicly funded support is necessary, be supported out of general taxation.
16. We have already made clear our opposition to the 50 pence levy. It would therefore follow that we see no need for a debate to take place at a later date on the merits of continuing an unfair levy to complete the last 10% of the NGA infrastructure. Taxes have a habit of enduring; if the Government presses ahead with the levy it must set an end-date for it.
17. The application of VAT to the levy should have been made clear at the outset. The Government should not have relied on its argument that VAT will apply "as it does to all other excise duties". The 50 pence levy is an unusual proposal and as such it should have been made clear from the start that VAT would be applied. We believe the application of VAT represents a tax on a tax that is itself unfair, and its imposition only serves to reinforce our opposition to the levy.
18. We strongly support the aims and objectives of the Digital Inclusion Task Force. However, we are concerned that the drive towards NGA roll-out could be at the expense of the Digital Inclusion agenda. The contrast between the method and funding of NGA and the sums available to address the problems of digital exclusion only serves to highlight this concern. The digital inclusion task force will spend £1 per year on each of the four million people it has identified as being within the most disadvantaged groups, while the 50 pence levy will impose a charge of £6 per year on that same group. The levy will last until at least 2017 but the task force will finish its work in 2012.
19. We recommend that greater attention and resources be given to digital inclusion given the proven social and economic benefits to the individual and the cost saving benefits to the Government. We believe that digital inclusion should take priority over Next Generation Access at a time of great stringency in public expenditure.
20. We congratulate the Government on the Home Access Programme which we believe shows early signs of success. We therefore welcome its extension as a national programme. We recommend that the programme be used to educate and inform the whole household on the benefits of internet use and computer literacy. Furthermore, we call for early research on the effectiveness of its roll-out to ensure that its early promise is maintained. This is the sort of intervention the Government is well placed to make in support of the objectives of both Universal Service Commitment and the Digital Inclusion Task Force.
21. BT does not merit a method of taxation which differs from other providers, and one which appears to deliver to that company more favourable terms than its competitors. We conclude that the current arrangements hinder the delivery of investment in NGA, which is being championed by Government. We recommend that the Government review the application of business rates to fibre optic networks as a matter of urgency, and develop a uniform system for all providers.
22. We acknowledge that the Government has offered a measure of support to the industry, through the increase of capital allowances. However, we believe that using business rates is a better way of using the tax system to encourage investment in the NGA infrastructure. Indeed, we believe that the importance of NGA warrants consideration of either a reduction, or even a temporary removal, of business rates on fibre optic cable to encourage NGA roll-out. This would be a more effective use of limited public sector funds than either the recent changes to capital allowances or direct intervention.
23. We are concerned that in its application of business rates to fibre optic networks, the Valuation Office Agency has not taken into account the use of internal fibre optic networks used privately by companies. Applying business rates to these networks on the same basis as commercial networks runs the risk of having a significant detrimental effect on companies with their own networks. We recommend that the Government instruct the Valuation Office Agency to review this area of business rates.
24. Under its existing statutory duties, Ofcom is required to give regard to investment in its decision making. Therefore extending that duty to include the promotion of investment in communications infrastructure does not appear to be a major departure from its current duties. That said, Ofcom will need to be alert to the risks of balancing this duty with its existing duty of promoting competition in the NGA market. Furthermore, the Government will need to provide Ofcom with explicit direction to ensure that its new statutory duties do not cause it to get bogged down by legal interpretations and challenges.
25. We welcome Ofcom's intention to produce a second report on duct access. The report should shed further light on the feasibility of duct sharing as a lever for increasing competition and investment in the market. That said, any report should not concentrate solely on the BT network. Other infrastructures, including access to municipal ducting (for example CCTV ducting) and access to canal and railway networks should also be considered. We also welcome the announcement by BT that it is in favour of opening up its network to competitors. This is a positive development. The Government should make removing the barriers to duct access a high priority as it would do much to encourage investment in Next Generation Access.
26. We believe that local and regional networks have the potential to deliver NGA to areas which internet service providers have yet to consider economic. We welcome the work of the Commercial, Operations and Technical Standards Project to promote standardisation between large service providers and local networks. For that reason we recommend that any Government subsidy should be made conditional on meeting those technical standards.
27. We welcome Ofcom's Report on broadband speed. It provides an interesting insight into the market as a whole. We recommend that Ofcom repeat this study on an annual basis. We also welcome the increased level of information of broadband speeds provided by comparison websites. This has the potential to make a positive impact on the market in the same way price comparison websites have for fuel bills. We recommend the Government allow Ofcom the freedom to monitor the accuracy of these websites to ensure the customer is well informed; and for it to consider the value of a voluntary accreditation scheme.