Financial Assistance to Industry
The Committee consisted of the following Members:
† Bacon, Mr Richard (South Norfolk) (Con)
† Birtwistle, Gordon (Burnley) (LD)
† Blackwood, Nicola (Oxford West and Abingdon) (Con)
† Campbell, Mr Ronnie (Blyth Valley) (Lab)
† Colvile, Oliver (Plymouth, Sutton and Devonport) (Con)
† Doyle-Price, Jackie (Thurrock) (Con)
Godsiff, Mr Roger (Birmingham, Hall Green) (Lab)
† Goggins, Paul (Wythenshawe and Sale East) (Lab)
† Goodman, Helen (Bishop Auckland) (Lab)
† Grant, Mrs Helen (Maidstone and The Weald) (Con)
† Hemming, John (Birmingham, Yardley) (LD)
† Hepburn, Mr Stephen (Jarrow) (Lab)
† Hillier, Meg (Hackney South and Shoreditch) (Lab/Co-op)
† Jones, Graham (Hyndburn) (Lab)
† Morris, James (Halesowen and Rowley Regis) (Con)
† Shannon, Jim (Strangford) (DUP)
† Vaizey, Mr Edward (Parliamentary Under-Secretary of State for Culture, Olympics, Media and Sport)
† Vara, Mr Shailesh (North West Cambridgeshire) (Con)
Alison Groves, Committee Clerk
† attended the Committee
Second Delegated Legislation Committee
Tuesday 10 July 2012
[Katy Clark in the Chair]
Financial Assistance to Industry
4.30 pm
The Parliamentary Under-Secretary of State for Culture, Olympics, Media and Sport (Mr Edward Vaizey): I beg to move,
That the Committee has considered the motion, That this House authorises the Secretary of State to undertake to pay, and to pay by way of financial assistance under section 8 of the Industrial Development Act 1982, in respect of the Mobile Infrastructure Project, sums exceeding £10 million and up to a cumulative total of £150 million.
I am grateful for the opportunity to serve under your chairmanship, Ms Clark. The motion for which the Committee’s approval is sought was laid before the House on 28 June and is being made under the Industrial Development Act 1982.
It was clear to me as soon as I took up the post of Minister with responsibility for communications that the communications economy is a hugely important area that we need to support in order to build a truly 21st-century economy. Communications is a key sector that will drive growth in the UK economy. Research has shown that the internet contributes to almost one quarter of GDP growth in the UK. Without a vibrant communications sector, that growth would be stunted. In the past year, almost two thirds of mobile handsets sold were smartphones. That highlights a pent-up demand for more data services.
Good connectivity and mobile connectivity are becoming increasingly important. It is the necessary foundation for engaging with the modern world. It allows people to access a wide range of local and central government services more easily and, from a Government perspective, more efficiently. It allows people to manage their bank accounts and pay bills, and it allows children to do their school homework. It allows businesses, particularly in rural areas, to work more efficiently and effectively.
However, some things need to be done to enable the sector to continue to grow and to ensure that UK consumers continue to enjoy the benefits of our communications market. As the Committee well knows, my Department is committed to delivering the best superfast broadband network in Europe by 2015. That includes the allocation of £530 million during the current spending review period to stimulate commercial investment to roll out high-speed broadband in rural communities. It also includes investment of £150 million in super-connected cities.
However, we must not forget that there is a continuing clamour for new technologies, and unfulfilled demand for voice services. In certain areas of the country, there is still little or no coverage, even for basic mobile services. I am sure that hon. Members have experienced that problem in their constituencies and when travelling around the country as hard-working MPs. I am talking
about the straightforward frustration of being unable to contact, and be contacted, in the way that we have all become used to. Let us imagine, then, what it must be like to live and work all the time without that basic service.Ofcom has been monitoring the problem of lack of mobile coverage for a number of years. Its term for an area where there is no mobile coverage is a not spot. A reduction in not spots has the potential to increase economic activity and support an increase in GDP. Coverage obligations imposed in the allocation processes for the 2G—second generation—and 3G mobile operating licences have been met, yet still the not spots persist. Changing the licence terms is difficult and comes with its own costs attached. In the 4G auction, the focus is expected to be on looking forward to provision of new services, rather than back at basic services, and it is very likely to be bound by the same economic constraints as the 2G and 3G markets.
The reasons why voice not spots exist can be numerous. Sometimes there are topographical difficulties. Sometimes there are difficulties with planning permission. Sometimes the community is simply too remote. However, they have one unifying basic cause: it is not economically viable for mobile network operators to jump the hurdles needed to provide a service in those areas.
One of the most obvious features of rural areas is a lower population density. From the perspective of a mobile network operator, that means lower revenue-generating potential. For example, Moray in Scotland has a population density of just 0.39 people per hectare. That has led to 548 premises being in a not spot. Hertfordshire, however, has a population density of 6.44 people per hectare and just 46 premises in not spots. London, with its population density of 47.3 people per hectare, has none.
Unfortunately, the lower revenue-generation potential in rural and remote areas is matched with a higher cost base. The cost of building the necessary mast and aerial infrastructure for mobile phones is almost fixed. However, the cost of connecting mobile phone masts with power supplies and hard-wiring connection back to central networks can be exponentially more expensive in remote areas. On a Birmingham high street, for example, it might be possible simply to connect to a power supply under the pavement; but in rural Wales a trench might need to be dug for a cable to go five or 10 miles to the nearest power supply in order to provide coverage to a remote roadside. In some areas, the network connection could be even worse and a road might have to be built to access a rural site for routine maintenance.
That would lead to a combination of high and uncertain capital costs. The risks faced by mobile network operators in sourcing sites, seeking planning permission and identifying connection sources are simply not matched by the potential revenue. Intervention is, therefore, the only option in order to increase coverage.
In order to try to counter that double bind and bring the benefits of mobile connectivity to unserved communities and businesses, the Chancellor announced last autumn the £150-million mobile infrastructure project —MIP—which is simply intended to shift the economic calculation for the mobile network operators in providing coverage to unserved areas. Since that announcement, my Department has been working closely with Ofcom to define the scope of the problem and identify where
the not spots are. As my hon. Friends will understand, there is a great deal of commercial sensitivity with regard to the precise location of the not spots in question. [ Interruption. ] That sound of a mobile ringtone indicates that this Committee Room is clearly not a not spot. The mobile network operators generally guard this information closely, but for reference purposes we have published an indicative map—although it does not include the House of Commons—on the Department’s website. The map will enable hon. Members to get a sense of where the project will focus.That work allowed the Chancellor to announce in the Budget our aim to extend mobile coverage to up to 60,000 rural premises and along at least 10 key roads. However, despite the project’s aim to extend coverage as far as reasonably possible, we as a Government also need to consider the value-for-money aspect of any intervention. We are currently working to develop a threshold cost above which, even with the MIP objective, the number of people or premises covered by sites simply would not warrant the expenditure. Where that is the case, sadly, we will not build them.
As the Committee will be aware from the wording of the motion, the Government seek to rely on the powers of the Industrial Development Act 1982 as the most appropriate route for the investment, because of their potential to support economic growth and the diversification of the rural economy in remote communities. To that end, and since the ambition of the project is such that spending in excess of £10 million is envisaged, I am seeking Parliament’s authorisation to provide the funding in accordance with the Act.
The Act allows the Secretary of State,
“with the consent of the Treasury, to provide financial assistance where, in his opinion—
(a) the financial assistance is likely to benefit the economy of the United Kingdom, or of any part or area of the United Kingdom; and
(b) it is in the national interest that the financial assistance should be provided on the scale, and in the form and manner, proposed; and
(c) the financial assistance cannot, or cannot appropriately, be so provided otherwise than by the Secretary of State.”
I can confirm that the Treasury has given its consent to that approach and that the Secretary of State is of the opinion that the Act’s requirements are met, such that this is an appropriate provision of financial assistance to support economic growth.
The Committee may also be aware that section 10 of the Act allows us to seek the advice of the Industrial Development Advisory Board in exercising functions under the Act. I can confirm that we will seek the board’s advice at its July meeting on Thursday, and I will ensure that its advice is taken into account in the further development of the project. In addition, we are in communication with the European Commission to ensure that the project meets the requirements of state aid regulations.
The definitional phase of the programme is nearing completion. Hon. Members can rest assured that we will begin to engage more closely with the devolved Administrations and the local authorities that are affected in the near future. That engagement will allow their voices to be heard in the design of the overall solution.
Jim Shannon (Strangford) (DUP): On the Government’s intention to work with the devolved Administrations, could the Minister provide some detail on how that will work?
Mr Vaizey: We have identified not spots in Northern Ireland where the money could be spent, as well as key trunk roads. We want to engage with the devolved Administrations to ensure that the build-out can run as smoothly as possible. We will work with them on issues such as planning, and check where the investment is going. It is important that we work in partnership, but I am sure that the hon. Gentleman will understand that the Chairman would not want us to engage in a dialogue on this issue in Committee. I would be happy to meet the hon. Gentleman afterwards to engage in further detailed discussion about his concerns.
As I was saying earlier, and in response to the hon. Gentleman, the engagement with the devolved Administrations and local authorities will allow their voices to be heard in the design of the overall solution, ensuring that where there are choices the project can meet local needs. It will be the beginning of the engagement—fruitful engagement—and consultation throughout the life cycle of the project that will allow local considerations to be taken into account.
We will also ensure that the project is additional to the industry’s own work to improve mobile coverage, which is continuing apace. Getting the industry on board is a crucial part of delivering the project. We took the first step in the procurement process, by issuing a prior information notice before Christmas. The responses to that and a further industry consultation document issued in January have allowed us to get a clear picture of what industry are expecting to see through the process. We followed up with a series of meetings and workshops to ensure that what we are doing will be fit for purpose and that the capital infrastructure provided can be used to best effect.
The willingness of the industry to occupy sites built under the mobile infrastructure project will be a requirement of building the sites; it goes without saying that there is absolutely no point in building a site if the mobile operators are not prepared to put their technology on it, because coverage would not be extended. We are working with the operators to make sure that all sites built are supported by mobile services.
Mr Richard Bacon (South Norfolk) (Con): I am delighted by the tenor of the Minister’s remarks. Can he explain the extent to which those infrastructure projects will be driven by the mobile telephone operators, who will plainly need to be involved and supportive? Also, to what extent will people in the local community who would like to see an improvement in the quality of the service or the removal of a not spot have the opportunity to take part?
Mr Vaizey: We have driven the project in that we identified the not spots, where there is no mobile coverage at all. We will also work with the mobile industry to ensure that were we to build the infrastructure, it would use it. Clearly, there might be the odd issue that will be subject to negotiation. The mobile companies might say, “Well, you can build the mast if you like, but we are
simply not going to put our technology on it because, even though you have stripped out a great deal of the cost by building infrastructure, it will still remain uneconomic.” That, however, is how we plan to work with them.At this stage, it is important to highlight to my hon. Friend our difficulty in ensuring universal coverage for all mobile phone users. There is a difference between a not spot, where there is no coverage at all by any operator, and a partial not spot, where one operator might be providing coverage but other operators are not. At that point, we get into sticky territory in terms of competition, because it would clearly be unfair if one mobile operator had made the investment to put in base stations to provide coverage, and then the Government come along and write a cheque for the other operators to put in equal coverage.
My hon. Friend and other Members might still be contacted about partial not spots by constituents who cannot get mobile coverage. They do not get coverage, however, because their operator does not provide coverage, while another operator does. In those circumstances, I am afraid that the advice would be that they should either switch operators or challenge the operator that is not providing coverage as to why it thinks that it is uneconomic not to provide coverage in an area where a competitor is providing coverage. I hope that covers all the issues that, I suspect, were at the back of my hon. Friend’s mind when he made his intervention.
To sum up, this is an important project to ensure that all parts of the country share in a modern communications infrastructure to support economic growth. I will be grateful for the views of the Committee on our proposed approach.
4.44 pm
Helen Goodman (Bishop Auckland) (Lab): It is a pleasure to see you in the Chair this afternoon, Ms Clark.
Labour Members support the investment of £150 million in mobile infrastructure, and we were pleased with that announcement by the Chancellor of the Exchequer in the autumn. We regret that the Government roll-out of broadband has been slower than it would have been had they taken on the previous Labour Government’s plans, and we regret the delay in the 4G auction. None the less, the £150 million is to be welcomed.
I have some questions for the Minister about how decisions will be taken on the way in which the money is to be spent. I am particularly pleased to see the hon. Member for South Norfolk on the Committee, because the Public Accounts Committee, of which he is a highly esteemed member, will no doubt want to find out whether the money has been properly spent.
The Minister’s timetable, as for the roll-out of rural broadband and the 4G auction, has already slipped. In the autumn, we were told that the Government would begin their procurement of new mobile infrastructure by spring 2012. It is July and we are just agreeing to the spending of the money. Ofcom was going to produce its “best in Europe scorecard” on mobile infrastructure this summer; when will it be available?
Will the Minister say a little more about how the money will be allocated? Who will get the £150 million? Will he hand the money over to the individual mobile phone companies, and, if so, will he hold a beauty contest? Alternatively, will the state spend the money, with the mobile phone companies using the infrastructure for their kit, so that people can get on to their networks? If the money will be allocated directly to the mobile phone companies, what checks will the Department make to ensure that it will indeed be spent on infrastructure and will not go on other things, such as very high salaries?
The Minister said that the most efficient coverage will be ensured through a value-for-money test. Has he any sense yet of how many not-spots will be reached? I think that he said somewhere that it was 99%, but I would like confirmation. Can he guarantee that everyone will get the same quality of coverage from the infrastructure?
On accountability, I would like to know whether the Minister or some other organisation will report to Parliament on how the money has been spent, so that the Public Accounts Committee can indeed check that we have had all the bang for our buck that we should.
We welcome the spending. It is important at this time of double-dip recession that we have some counter-cyclical infrastructure spending—it is the right thing to do—but there seems to be a certain vagueness about how the money will be spent, which I am sure the Minister can clear up for the Committee.
4.48 pm
Mr Bacon: I shall be brief. It is a pleasure to follow the hon. Member for Bishop Auckland, who was for some years a member of the Public Accounts Committee. We miss her.
Mr Vaizey: You can have her back.
Mr Bacon: She would be very welcome at any time, I am sure.
Last year, I met the finance director of Vodafone, Andrew Halford. In fact, the hon. Member for Bishop Auckland knows this because I kicked her out of a room so that we could take it over for a meeting. I want to ask the Minister one question about the use of the infrastructure by mobile phone operators. Plainly, if no one will use it, it is pointless to spend public money building it. Andrew Halford told me in our meeting that an agreement has been reached recently with another mobile telephony operator—I think it was O2—to share a mast. That raises a broad and deep policy question about the extent to which those bodies—those providers in the market—are providing a service in a free and competitive market, which they should be allowed to get on with without being interfered with in the way that the Minister described, and the extent to which they are providing a utility.
Many of my constituents would say that now—even if years ago it was not so—a mobile phone is a utility, which is essential for them in the same way that electricity, gas and water are, although, because my constituency is so rural, many of my constituents do not have gas.
Helen Goodman: The hon. Gentleman makes a powerful point, and he draws, intentionally or not, a parallel with the Post Office’s universal service obligation. Another
route that the Minister could take would be to put requirements for wider coverage into mobile phone company licences, which might shift the balance of the burden of spend between the private sector and the public purse.Mr Bacon: The hon. Lady makes a good point. As I was listening to the Minister, I half thought that he had read my ten-minute rule Bill on the subject, which would have been an impressive achievement since I do not plan to introduce it until November. The hon. Lady’s intervention has given me the time to divide 46 by 0.39, and it turns out that London’s population density is 117 times greater than that of Moray in Scotland. It does not seem unreasonable to tell a mobile telephone operator, “We expect you to provide a higher level of service in return for the revenue stream and the profits that we know you are getting from the 46 people per hectare in London,” or wherever. The 4G licenses regime ought to take account of that in how it is shaped, to produce the right results.
Given that we do not think it odd to require banks to share their cash machines, so that anyone can get money out of any cash machine regardless of who they bank with, surely it is not a huge stretch to say to mobile phone operators, “We require you to share your masts—your infrastructure.” Of course, there would have to be a washing and brushing up to take account of who had paid for the infrastructure in the first place, but that is not beyond the wit of man, or woman. It would be in the interests of all users, as well as the public purse, if any money put towards infrastructure were used to increase to the maximum the use of mast infrastructure by as many operators as possible.
4.52 pm
Mr Vaizey: I will just get the answers to the questions handed to me, so that I can sound intelligent and thoughtful. By the way, if it sounded unchivalrous when I said to my hon. Friend the Member for South Norfolk that he could have the Opposition spokesman back, I was really saying that, because the hon. Lady holds me so often to account, my life would be a lot easier if she went back to the Public Accounts Committee. It was intended as a compliment, even if it did not come out as one.
The hon. Lady asked the valid question of who will get the £150 million. Broadband Delivery UK has undertaken a procurement—tender—exercise to allow companies to come forward to bid for the money to roll out the infrastructure. Six companies are now shortlisted, out of which we will choose one supplier to be responsible for the £150 million and for the roll-out. Broadband Delivery UK is part of the Department for Culture, Media and Sport, so accountability is ultimately with Ministers at the Department, and through Ministers the company is accountable to Parliament and the Public Accounts Committee, should they wish to question whether the money has been spent efficiently. For our part, looking downwards, we will work through Broadband Delivery UK to ensure that the money is spent effectively.
On how the money will be used, as I said, 10 trunk roads have been identified across the country—in Wales, Northern Ireland, Scotland and England—to benefit from the roll-out.
Mr Vaizey: A list of them is available in a public notice, but I can read them out if the hon. Lady really wishes to bore the Committee. They are the A2 in Northern Ireland, the A29 between Coleraine and Armagh in Northern Ireland, the A591 between Keswick and Sizergh in England, the A169 between Whitby and Norton in England, the A57 between Liverpool and Manchester in England, the A470(T)—I think the T means trunk road—between Llandudno and Cardiff in Wales, the A82(T) in Scotland, between Inverness and Glasgow, the A360 in England between Devizes and Salisbury, the A143 in England between Great Yarmouth and Haverhill, and the A352 in England between Sherborne and Wareham. In addition, we have identified 80,000 premises that are in not spots, of which we anticipate covering at least 60,000. Is the Committee still awake?
Turning to the questions asked by my hon. Friend the Member for South Norfolk, we enter seminar mode, rather than Committee mode. We have a great deal of time; I think we have one and a half hours, so I will take as many interventions as are necessary. We are now debating the future regulation of mobile phone companies, which is a fascinating subject to me, because I have been the Minister with responsibility for communications for two years, before which I shadowed the brief for four years. On mast sharing, my hon. Friend the Member for South Norfolk was absolutely right; we have seen some real progress, driven by commercial pressures.
First, we had Orange and T-Mobile merging; clearly, those two infrastructures will come together as one and part of the significant cost savings they are anticipating will come from integrating their two mobile mast networks. Indeed, as the finance director of Vodafone vouchsafed to my hon. Friend, Vodafone and O2 have—as far as I am aware, it is public knowledge—come to an agreement to bring their two infrastructures together to integrate their own masts into one company. There will, in effect, be two mobile phone infrastructures in terms of masts and that will produce great cost savings; we may even see some masts coming down. In the future, we may have femtocells—small base stations literally the size of my fist that can help extend mobile coverage. Some people call for mobile phone roaming within the UK; that is not something that we anticipate introducing any time soon, but certainly it would be a live debate, to allow a customer of one operator to use another operator’s mast. Clearly, there would have to be some transfer of funds, but that is not something that is live on our desk at the moment.
All that leads us again to the philosophical point about the universal service obligation. My hon. Friend the Member for South Norfolk made the point that a mobile phone is more and more like a utility—something that we depend upon as we depend on our gas, electricity and water. We have decided not to call for a universal service obligation at this stage. It was looked at by the European Commission and, perhaps surprisingly for those of us in the House who assume that the default position of the European Commission is to increase regulation obligations, it, too, decided that it was too soon to impose a universal service obligation. I agree with that decision because we are still, even at this stage, very much in the investment phase for mobile phones. It is worth remembering that the entire mobile phone infrastructure we have today has been invested in by private companies.
Indeed, mobile phones have generated revenue for this country, not just from the sale of spectrum, but also, naturally, the tax revenues that come from mobile phone companies—
Mr Vaizey: When it does. And from the many thousands of people they employ. To impose a USO at this stage would confuse those investment decisions. At this point, when the mobile phone investment story has been one of great success, we should allow that investment story to continue. However, as the hon. Member for Bishop Auckland pointed out, it is possible, through licences, to impose coverage obligations.
There are coverage obligations in licences and, again, this is mildly problematic because it is always difficult to measure coverage obligations. As far as we are aware, they have been met and, indeed, exceeded, but, of course, mobile coverage at 9 o’clock on a Monday morning may be very different from mobile coverage at 12 o’clock on Monday lunchtime. As we all know, mobile coverage can also be affected by how many people are using the network at any one time, so it is quite a difficult measure. However, following the revision of the auction rules by Ofcom, it is anticipated that one of the 4G licences will include 98% coverage, and that also reflects the work we have done in the mobile infrastructure project. We will be getting as near as possible to universal coverage.
There is much more we can do—to continue the seminar. We should work much more closely with Network Rail, for example, which has its own fibre infrastructure in place to help with its 21st-century signalling programme,
which is £1.6 billion of investment. It may be possible to work with Network Rail in the future to allow mobile operators to piggyback on the back of that network in order to provide mobile coverage for railways.The point of mobile is that it is ubiquitous and universal. We know how to provide universal coverage for gas, electricity and water, because they come into the home; but universal coverage for mobile is much more problematic because, obviously, although one definition is that it comes to people in the house, other definitions are that it comes to people when they walk down the street, drive down the motorway or travel along the great western line to visit Wantage and Didcot in my fantastic constituency.
I absolutely understand what my hon. Friend the Member for South Norfolk said, which is a live debate. My view is that it is too early to consider imposing a USO, but I would not rule it out in years to come.
I hope my response is helpful. I realise that I have rambled slightly and ranged widely, but I think the quality of the interventions was such that they merited a full and frank response. I hope that I have not set any hares running, and as I said in my opening remarks, I am grateful for the Committee’s contribution.
That the Committee has considered the motion, That this House authorises the Secretary of State to undertake to pay, and to pay by way of financial assistance under section 8 of the Industrial Development Act 1982, in respect of the Mobile Infrastructure Project, sums exceeding £10 million and up to a cumulative total of £150 million.