2Where we are today
10.BT is the largest fixed broadband provider in the UK with a retail market share of 36%6, Sky has 23%, Virgin Media 19%, and TalkTalk 17.5%.7 At present, the majority of investment in superfast fibre and cable connections to a cabinet or premises comes from BT and Virgin Media—both are investing in upgrading their existing networks—but smaller providers are investing in fibre deployments, too, such as CityFibre, Gigaclear, Hyperoptic and ITS Technology.8 In addition, wireless, mobile and satellite technologies provide alternative options for accessing high speed broadband services. This commercial investment has been complemented by public investment through the UK Government’s Broadband Delivery UK programme (BDUK). The UK’s record on broadband coverage compares favourably on a number of counts with the other leading European Union countries:9
- The UK is equal first for standard broadband coverage, second for take-up per 100 households and first for choice.
- For superfast broadband, the UK is first for coverage, first for take-up of connections with headline speeds exceeding 30Mbps and second for choice.
- The UK is equal first for mobile broadband coverage and first for take-up.10
The UK also ranks as one of the cheapest for prices of communication services in comparison with the USA and leading European Union countries.11
11.While the UK has benefited from healthy competition in communication services, there are geographic areas where the market has not met the needs of consumers and businesses. This has been primarily, but not entirely, because it has not been commercially viable for communications providers to provide access or coverage in some areas. There are several reasons why this has been the case but the most significant one is to do with population density. Other issues that can affect costs especially in towns and cities include access rights and planning considerations, in the absence of a Government commitment to Universal Broadband.
12.A key focus for us in this inquiry has been to examine what progress has been made to achieve near-universal access to good and reliable broadband connections and comprehensive mobile coverage across the UK. When we started our inquiry last year 2.4 million premises were unable to access speeds above 10Mbps, which included over 130,000 SMEs.12
BDUK programme
13.At the start of the last Parliament, the Coalition Government set out its main commitment for broadband in a new strategy, Britain’s superfast broadband future.13 The Government set out to ensure the UK had the best superfast broadband network in Europe by the end of the Parliament in 2015 and to ensure that virtually all homes had access to broadband at a minimum of 2Mbps. In 2013, the Government increased its ambition and allocated additional money to provide 95% of the UK with superfast broadband by 2017. Some of these targets were subsequently put back slightly but the current ones are given in the box below.14
|
Broadband targets
|
14.Rather than have one national contract, DCMS decided that delivery would be delegated to local bodies in England and to the devolved administrations. BDUK was established to run the broadband programme centrally and to oversee the local bodies’15 delivery of their own plans.16 Its early tasks were to design a national programme for publicly-subsidised broadband to rural areas, to negotiate an umbrella scheme for clearing State Aid rules with the European Commission, and to establish a national procurement framework of suppliers. In the end, despite several companies showing an initial willingness to bid for contracts, only BT and Fujitsu were appointed, and then Fujitsu dropped out.
15.The BDUK programme has used public funding alongside the supplier’s commercial investment, principally BT’s, with ‘the investment gap’ in the commercial model covered by a combination of central Government, local authority and EU development money.17 Central Government has directly committed over £780m in broadband infrastructure and this has been matched by funding from local authorities and the devolved administrations.18 In addition, the Government has provided £10m to fund pilot projects to test out ways to extend superfast broadband to the final 5% of hard-to-reach premises with technologies such as satellite and wireless and to experiment with new financing models.
16.We understand that BT is contracted to provide £348m of capital expenditure across all Phase 1 contracts and that up to December 2015 it had contributed £268m, at which point the programme was still being delivered.19 There is a mechanism in place in all local contracts that ensures that if the network build actually costs less than BT’s estimated bid, then BT is obliged to return the underspend to local bodies.20 As of March 2016, BT had committed £66.5m of capital expenditure to phase two contracts.21 BT eventually won all the Phase 1 BDUK contracts, and a substantial proportion of the Phase 2 projects.
17.Criticisms over the design of the programme have been widespread and vigorous.22 The main one was that the original programme failed to encourage competition and consequently all Phase 1 contracts went to BT. In its recent Digital Communications Review, Ofcom was notably silent regarding any assessment of the performance of the BDUK programme to date. The Committee of Public Accounts (PAC), however, was particularly scathing about BT’s insistence on confidentiality clauses which prevented local authorities from publishing or sharing information on BT’s costs or details of where BT would be installing superfast broadband.23 Despite PAC’s heavy criticisms, the Government did not take up this issue and BT continued to insist on strict confidentiality terms for its Phase 2 contracts, with a take-it-or-leave-it attitude.24 Consequently alternative suppliers have had insufficient information to develop plans for their own projects in the final 5 to 10%. In 2014, PAC determined that:
BT’s monopoly position should have been a red flag for the Department as it finalised its framework contract with BT, placing greater importance on the other value for money safeguards. But we see the lack of cost transparency and BT’s insistence on non-disclosure agreements as symptomatic of BT’s strong negotiating position resulting from the lack of competition.25
18.Three and a half years on since the EU Commission gave State Aid approval, the programme has provided superfast access to nearly 4 million premises.26 In March 2016, Chris Townsend OBE, Chief Executive of BDUK, wrote to us providing an update indicating that only three of the 44 BDUK Phase 1 projects were behind schedule: two of these were in Cumbria and Lancashire, where delays had occurred due to extreme weather and flooding, and the third was in Wiltshire which was running behind schedule by approximately 3,000 premises at that time.27 However, the latest coverage figures from BDUK show that performance across parliamentary constituencies varies greatly and that coverage in some has been extremely poor despite overall coverage across the country reaching 90%.
19.The remaining holes in coverage may be all the more difficult to fill. West Yorkshire Combined Authority explained that they had situations where the roll out meant that one half of a village had received superfast broadband, and the other half had not, when all the residents had been ready and waiting for it.28 This was by no means the only example of such a baffling pattern of rollout under the BDUK programme encountered during our inquiry, including similar cases in the constituencies of Members of the Committee. We were also told that the incentive to achieve 90% coverage as quickly as possible had favoured enhancing the services of premises that already received some degree of broadband connectivity at the expense of the more remote with little or no coverage. There was also the question as to what extent BDUK funding had subsidised deployment that would have taken place anyway on a purely commercial basis. 29
20.BT has continued to refuse to allow local bodies to publish information on costs, speeds and coverage. Connecting Devon and Somerset (CDS) told us that BT had made non-disclosure a “redline issue” during their Phase 2 negotiations. This has made their relations with residents extremely difficult. For example, CDS had no agreement to show superfast areas on their deployment maps, only fibre delivery or next-generation coverage. This meant that those homes able to connect to a cabinet were shown as receiving a service regardless of whether they were actually able to experience any improvement in broadband speed.30
21.In CDS’s experience, the “homes passed” approach31 had the impact of driving the wrong behaviour from the suppliers as it allowed BT to tackle the easy areas first and leave the more rural areas to last, running the risk that the harder-to-reach areas would not be reached at all. In Devon and Somerset there was evidence of much lower take-up rates across urban and suburban areas when compared to rural and very rural areas where there was poor connectivity.
22.CDS explained that attracting a supplier to invest alongside the public sector to fill in the gaps left by Phase 1 rollout would now be a real challenge. In its opinion, addressing a whole community approach from the outset would have resulted in more efficient use of public resources. However, Ed Vaizey, Minister of State for Culture and the Digital Economy, argued that an “outside-in” approach, where the more difficult-to-reach properties had been tackled first, would have been unjustifiable. He said that it had been right to get to as many people as possible in the fastest possible time and learn on the job—as a result this represented the most effective use of taxpayers’ money.32
23.Given the concern over transparency and control over BT’s costs and capital expenditure, we raised this issue with Chris Townsend. He told us that an open-book accounting process33 was in place to ensure that BT did not overstate its actual network build costs. This was operated by BT and administered by local bodies with support from BDUK.34 In 2014, the Cabinet Office Major Projects Authority described this system as an exemplar of best practice and recommended that it be promoted across Whitehall.35 The ‘Milestones to Cash’ process, as it is known, has identified that so far BT has spent £124m less capital expenditure than assumed across contracts.36 This means that if the network build had now finished, BT would be required to repay £124m to local bodies.37
24.The local contracts are set on a baseline prediction of take-up being 20%. So where take-up is higher, BT is obliged to return £129m for every 10% achieved above the baseline during the contract.38 To date, BT has set aside £258m of funding to be returned to local bodies as a result of higher take-up than expected than at the bid stage (and has made £129m of this available already).39 This is funding that will be provided by BT to local bodies to support additional network build. This clawback is a key component of the gap-funding model where the costs of network build are balanced against future revenue. The window for sharing future revenue is in place for seven years after which point BT receives 100% of the revenue earned from its fully-owned infrastructure. There is a question whether the 20% original take-up prediction in all contracts was set too low. In 2013, neither the Department nor BT could tell the PAC what additional sum the Department had paid for transferring the risk of low take-up to BT.40 Tom Mockridge, Virgin Media’s CEO, described the arrangement put in place as being “a bit of an interest-free loan to BT”.41
25.We have also heard a lot of evidence of overbuilding and market sterilisation arising from both the inflexibility of BT Openreach’s and local bodies’ rollout schedules and BT’s reluctance to share future deployment plans.42 Some local bodies appeared to have more success in directing BT’s plans than others.43 But the prevailing pattern, we heard, has been that County Councils involved as partners in BDUK only learn whether connections are to take place at individual address level when BT tells them this has happened. This has led to widespread dissatisfaction about the transparency of the programme and the ability of local bodies to give meaningful information to residents and their representatives, including MPs.
26.Regarding overbuilding, Gigaclear estimated that about 45% of all its networks had been partially or substantially overbuilt by BT’s superfast broadband networks, either before Gigaclear had started to launch a network or within a few months of its doing so.44 Under the State Aid rules, publicly-funded projects are required to undertake an open market review and consultation before procurement, to determine which postcodes may be covered. Gigaclear cited 24 incidents to us in Oxfordshire where its networks had been overbuilt by BT’s BDUK deployment. In response, Oxfordshire County Council (OCC) explained that when the Council had signed a contract with BT in 2013, although it had excluded some areas from BDUK deployment, as a result of Gigaclear’s existing and planned fibre network, some areas were not excluded owing to uncertainty over Gigaclear’s size and viability as a relatively new market entrant.45 Later, once Gigaclear had secured additional investment, OCC explained that de-scoping BT’s planned deployment would have been expensive and difficult. When planning Phase 2 areas, and after a second open market review, OCC then excluded any areas being planned or already covered by Gigaclear.
27.OCC also told us that as Gigaclear operated a demand-driven implementation plan, they met regularly so that any areas where Gigaclear had not hit its target rate for deployment, could be modelled instead by BT. This seems necessary, as following our visit to the Chilterns, the local Member of Parliament, John Howell, told us some villages in his Henley constituency were excluded from the BDUK rollout as Gigaclear had expressed an interest in making provision. However, when Gigaclear had not mustered sufficient demand to guarantee a return, it had not proceeded with these villages.46 While we have no criticism of Gigaclear’s financial model, we observe that these villages could also have lost the chance to obtain public subsidy through the BDUK programme.
28.During our inquiry we also heard that, in response to economic difficulties following the 2008 financial crash, Openreach reduced investment in its broadband network. This has resulted in many new housing estates being left without coverage, but it is not the sole reason. In several instances, we heard from BT that neither housebuilders nor planning authorities liaised with them during the planning stage. Given that homes are covered by the Universal Service Obligation for basic telephony and internet access, we were not satisfied with this explanation. While we recognise the progress that the Minister has made personally, we consider there may be scope for the provision of new statutory planning guidance for new developments for broadband installation given it is now viewed as an essential utility.
29.The progress made since 2010 in providing superfast broadband access has on balance demonstrated that the Government was right to go with the BDUK scheme which principally involved BT and deployment of its fibre-to-the-cabinet solution. The Minister was adamant that this decision was key to the programme’s rapid rollout. Without doubt, the alternatives would have been unaffordable in 2010 and would have taken very much longer to deploy. Clearly there has been a trade-off between competition, comprehensive coverage, speeds, costs and future proofing the network. Notwithstanding the problems and criticisms, BT and the local bodies are to be congratulated on reaching the 90 per cent coverage target.
30.The UK is currently doing well in comparison to similar EU countries on superfast broadband deployment: geographic coverage and take-up of superfast broadband in the UK are the highest of the five largest EU economies, while prices are among the lowest. In spite of this, the UK scores very lowly on fibre-to-the-premises deployment and there are growing concerns that an over-reliance on Openreach’s copper access network, and its supposed lack of ambition for driving fibre to the premises across the country, could result in a hard-to-solve digital divide beyond 2020.
31.As the BDUK programme enters its next phase, it is important that lessons are learned from the performance so far. Given its importance to the future of connectivity in the UK, its significance in addressing market failure and the lively debate about progress with superfast broadband rollout, we were surprised that Ofcom has not yet provided any detailed analysis or verdict on how the BDUK programme has performed so far as part of its ten-yearly strategic Digital Communications Review. This was a significant omission on Ofcom’s part.
32.An unmistakeable downside of the BDUK programme was the lack of transparency in BT’s costs and deployment plans, the apparent effect of which has been to stifle competition and thwart other network providers’ planning. It is clearly unacceptable that BT has been allowed to get away with using such commercial secrecy in Government contracts when it may potentially have been the recipient of some £1.5bn of public funds to expand its own network base. Whether by accident or design, this has had the effect of reducing transparency and increasing uncertainty. Many households and businesses have been forced to hang on indefinitely to find out whether they would be covered, while competing network providers have been discouraged from making investments and capital commitments.
33.One consequence of BDUK’s and BT’s rapid rollout is that the programme appears to have tackled the easier-to-reach premises first and has not delivered coverage to whole areas as such. This has left a patchwork of premises that have not been reached, and much uncertainty among local residents as to whether or not they will be connected or receive improved speeds and in turn has been compounded by repeated failure by BT to give accurate information on timing of deployment to consumers. Many counted as covered still appear unlikely to receive superfast speeds owing to the poor quality or length of the copper lines. It is yet to be shown whether and how far BT’s development of new technologies such as ‘Long Reach VDSL’ will improve the situation for those at some distance from a cabinet.
34.Given the nature of the deployment, it is now absolutely essential that BT publishes full broadband speeds and coverage at a premises level, giving full transparency of those who are and who are not receiving superfast speeds so that other providers can, if needed, step in to pick up gaps in coverage. In its current negotiations with BT over the future of Openreach, Ofcom must insist on publication of this data, at the very least, for those BDUK intervention areas which have been covered using public money.
Connectivity for small businesses
35.Households seem to have been the primary focus of the BDUK rollout, but we consider it is vitally important that small and medium-sized enterprises’ (SMEs) needs are also sufficiently met, particularly given that SMEs are likely to offer the biggest productivity and economic benefits. Several witnesses have highlighted the fact that business parks have often been missed out by BT’s own superfast commercial programme.47 It is unclear how far this reflects accidents of the rollout, and how far the commercial priorities of BT. In either case, the present system is unacceptable. Businesses often may already be using relatively expensive dedicated leased lines and so there is a motive for the supplier not to make more generic provision available to surrounding businesses, even though FTTC may be an ideal and cheaper solution. This may be a powerful reason why these business parks appear to have been bypassed.
36.There remains a serious problem in reaching small businesses in cities and towns. For example, while the City of Westminster is deemed commercially viable under State Aid considerations for superfast broadband, we were told that the four telephone exchanges that serve its most densely populated business areas have not been upgraded by Openreach. Together they serve up to 58% of the 20,000 business in Westminster.48
37.Openreach told us that it is developing a new Fibre to the Premises (FTTP) product specifically for SMEs, offering ultrafast speeds of up to 1Gbps.49 The rollout is part of a wider plan to make ultrafast broadband available via FTTP and G.fast technology to up to one million businesses by the end of 2020.50 The first areas to be covered will include parts of Bath, Bradford, Bristol, Liverpool, Manchester and Salford, as well as Westminster, Holborn and the City of London. Openreach has said the new FTTP product will provide an alternative for SMEs to expensive leased lines. The expansion of the FTTP footprint could also eventually benefit adjacent residential homes in the targeted areas.
38.It is essential that the Government and Ofcom ensure that SMEs have access to reliable and affordable broadband and are not discriminated against by providers. The Government must prioritise delivering superfast broadband to new and existing business parks and fully connect enterprise zones, many of which still do not have superfast connections. The present system is not working for many businesses and we are concerned that BT is being perversely incentivised not to invest in FTTP in business parks by its present revenue income from dedicated lease lines.
39.As part of a Super-Connected Cities programme the Government invested £150m to support selected UK cities in the development of their digital infrastructure. As part of the programme, businesses were able to benefit from broadband connection vouchers in 22 cities across the UK. The BDUK scheme granted vouchers of up to £3,000 to cover the cost of small business installing faster and better broadband. The voucher scheme proved very popular where coordination and aggregation of eligible recipients was possible. In 2015, following an extension of the coverage to the counties around the cities where vouchers could be used, there was a surge in demand. In the end, over 50,000 businesses across the UK qualified for a voucher.51
40.However, whilst many businesses were in the process of getting together to pool demand for a voucher application, the scheme was suddenly frozen without notice in October 2015.52 In response to our query, Ed Vaizey explained that when the Chancellor announced a widening of the scheme in 2014, it had been made clear that it would be available to SMEs from April 2015 on a first come, first served basis and it had always been the case that it would close when the money was fully allocated. He pointed out that demand for vouchers had grown rapidly over 2015, and following a huge hike in demand last autumn, BDUK had acted quickly to close the scheme to new applications in order to protect public funds and make sure the Government could honour the thousands of vouchers issued. The Minister told us that he remained a fan of the scheme and wished to revive it but this was unlikely to be supported by the Treasury:
I have lobbied the Treasury very strongly to revive the scheme. The Treasury regards the scheme as a sunk cost because they think that people who take advantage of the voucher would buy broadband anyway, and I disagree with them on that. I think what the voucher scheme did was it took businesses over the hurdle of quite a high headline figure, potentially, of getting a business broadband connection, £2,000 to £3,000.53
41.Others, however, took a different view. the Super-Connected Cities Programme by definition failed clearly to include many cities in the scheme and the extension of eligibility for vouchers to counties around the cities selected was inadequately publicised. Dido Harding, chief executive of TalkTalk, told us that there were better ways to spend Government money:
If someone wants to do a promotion for my customers it is hard to say no, but as a customer and as a taxpayer I would rather see that subsidy go direct into driving investment in areas where currently it is not commercially viable for any of the competing networks to build than to think that the demand-pull on an investment business case that is maybe 10 to 20 years is going to drive those investment decisions.54
42.The broadband connection voucher scheme appears to have been very successful in pooling demand and facilitating better connectivity for SMEs. We share the Minister’s enthusiasm for an extension of the scheme and see a strong case for further vouchers to support those businesses in areas not likely to be reached by superfast broadband or affordable commercial products, such as the many small businesses in remote rural areas in the “final 5%”. We regret the ending of the scheme without due notice. This should not be repeated.
Connectivity in the devolved Nations
43.Overall progress in delivering superfast broadband has gone well in the three devolved Nations. Coverage levels are slightly behind that in England, but this is largely due to the higher proportion of rural terrain and more challenging topography in each nation. BDUK is responsible for managing the Government’s broadband funding, while the individual programmes are the responsibility of the respective devolved administrations.
|
Superfast broadband coverage by Nation as at end of March 2016 |
|
|
Percentage of premises covered |
|
|
England |
90% |
|
Northern Ireland |
83% |
|
Scotland |
83% |
|
Wales |
86% |
Source: Based on data produced by BDUK.
Northern Ireland
44.Northern Ireland has some of the most challenging issues in the UK when it comes to deploying telecoms infrastructure with a widely dispersed population largely living in rural areas. It had a good head-start in next generation coverage, given early intervention there through European structural funding which has supported BT’s deployment of FTTC and other initiatives. Since 2004, the Northern Ireland Executive has been working with the EU Commission, the UK Government and BT to deliver a number of initiatives to improve its communications infrastructure. By the end of 2015, £64m of public money had been invested in these initiatives.55 The Executive explained that the collaborative projects taken forward in Northern Ireland had levied substantial industry match funding. However, as the intervention area for recent projects has targeted the most rural and more expensive to reach areas, the level of supplier funding provided has substantially reduced.56 While this is understandable from a commercial perspective, the Executive wants the communications industry to be challenged to consider their social responsibilities and look beyond commercial issues when tendering for government contracts. Accordingly, they foresee that subsidy-only funding models are no longer likely to be a viable option.
Scotland
45.In the Scottish Government’s experience, the broadband programme has been positive. This was largely because budgets, and responsibility for delivery, were devolved.57 The Scottish Government considers that more public investment will be needed in future to provide for those not yet reached. They see Ofcom continuing to have a key role to play in assessing whether the regulated players, notably BT, were investing an acceptable amount of their own resources in upgrading and extending telecoms infrastructure. They pointed to other sectors, such as energy, water and rail, where there is more transparency around planned infrastructure investment and the regulators are more prominent in overseeing delivery.
Wales
46.Superfast Cymru is the Welsh Government’s delivery body for its superfast broadband programme. The Superfast Cymru project is bringing superfast broadband access to premises in Wales where it was not commercially viable to do so, estimated at around 727,000 premises.58 In July 2012, the Welsh Government signed an agreement with BT Openreach for the provision of access to superfast broadband infrastructure for 95% (691,000) of the premises in the intervention area. In May 2015, the Wales Audit Office reported that the Welsh Government’s Superfast Cymru contract was “making reasonable progress” in rolling out access to superfast broadband services. However, as can be seen in the coverage map above, two of the counties in mid-Wales, Ceredigion and Powys, have among the lowest superfast coverage of any regions in the UK.59
47.It was an important step to devolve operational responsibility for improving connectivity to the devolved administrations. They have all made good progress despite their more rural and challenging geographies. All three nations have experienced similar challenges and appear to share a recognition of the imperative to drive more investment from the private sector into the UK’s telecoms infrastructure. It will be important that DCMS and Ofcom fully involve the devolved administrations in future policy making and the design of future interventions for broadband and mobile, given that a one-sized approach is unlikely to work for all.
Mobile coverage
48.The four primary UK Mobile Network Operators (MNOs)60 are investing in their networks to expand coverage and capability. In December 2014, following a threat by the then Secretary of State, Rt Hon Sajid Javid, to legislate to introduce national roaming to improve mobile coverage, the Government agreed a new deal with MNOs for voice coverage. Under the agreement all four of the MNOs collectively agreed to:
- a guaranteed £5bn investment programme to improve mobile infrastructure by 2017;
- guaranteed voice and text coverage from each operator across 90 per cent of the UK geographic area by 2017, halving the areas currently affected by patchy coverage as a result of partial “not-spots”;
- increase full coverage from all four mobile operators from 69 per cent to 85 per cent of geographic areas by 2017;
- provide reliable signal strength for voice for each type of mobile service whether 2G, 3G or 4G;61 and
- make the deal legally binding by accepting amended licence conditions to reflect the agreement.62
There is also a licence obligation on O2 (following the 2013 4G auction) to deliver indoor 4G coverage to 98% of UK premises (95% in devolved administrations) by 2017. This should significantly improve data coverage for UK households. It is encouraging that the other MNOs have indicated that they will match O2’s coverage. In addition, EE has been selected by the Home Office to provide the Emergency Services with a national mobile network, giving 300,000 critical emergency workers access to 4G voice and data for the first time.63 EE will no doubt benefit from the synergies that should be possible from its deployment of this £1bn Government contract but so too should mobile coverage.
|
Summary of outdoor mobile coverage from all operators in the UK in 2015 |
|||
|
Percentage of premises covered |
|||
|
Technology |
2G |
3G |
4G |
|
England |
94 |
91 |
50 |
|
Northern Ireland |
83 |
73 |
0 |
|
Scotland |
90 |
79 |
37 |
|
Wales |
84 |
67 |
20 |
|
Whole of UK |
93 |
88 |
46 |
Source: Ofcom’s Connected Nations Report, 1 December 2015
49.While the £5bn headline figure appears impressive, the Ofcom Advisory Committee for Scotland (ACS) has noted a widely held view that it simply amounted to a re-statement of previous investment intent by the MNOs.64 ACS argues that the deal negotiated to provide 90% coverage could have a negative impact on the “last 5%” in Scotland. The deal could help resolve partial “not-spots”, rather than improving the situation for complete “not-spots” in very rural areas.
50.It is widely recognised that the DCMS sponsored Mobile Infrastructure Project (“MIP”) failed. Under this the Government had intended to invest up to £150m in mobile infrastructure to improve coverage for voice calls and text messages for the final 0.3–0.4% of UK premises that did not currently have it.65 The project had been expected to deliver several hundred masts, but there has been little progress since 2013. The reasons cited include a long delay in getting State Aid clearance, planning problems, lack of access to power and backhaul66 connections in rural areas, difficulties in locating suitable sites, and probably most of all the fact that the State Aid rules had stipulated that all four MNOs had to be connected to all MIP masts. In addition, network operators are left in a position of having to cover all the higher ongoing operating costs associated with running and maintaining remote masts where they might never see a return on their investment. As a result, very few masts have been built. The Minister told us that MIP had got 75 masts into rural areas which had provided coverage for about 8,000 premises and that he would like to see if BDUK could potentially get a further 10 to 30 masts built but that would depend on whether the Treasury had an appetite to subsidise the capital costs.67 Industry representatives also recognised a case for further public support for tackling mobile “not-spots”.68
51.As highlighted by the DCMS when it considered mobile coverage in late 2014, partial “not-spots” affected 3% of UK premises, 10% of A roads, 16% of B roads and 21% of the UK’s landmass.69 These figures have a disproportionately high impact in rural areas and can give rise to serious safety issues.70 Several witnesses supported full or limited roaming agreements for rural areas, as one practical way to get at least a basic voice service working in remote and rural locations, where neither private sector investment nor public sector intervention has generated much success. Yet it was generally recognised that there would be significant network engineering and commercial interest hurdles to cross.71 The MNOs see rural roaming as a disincentive to investment in rural areas. An alternative approach which could improve coverage is for more sharing of masts between the MNOs in rural areas where access to backhaul to the different networks allowed this.
52.Ofcom is now preparing to auction additional spectrum which is likely to be used by mobile operators to improve rural mobile data capacity. The 700 MHz band is currently used for digital terrestrial television but is expected to become available for mobile broadband use from 2022 or possibly sooner.
A new Electronic Communications Code
53.The Electronic Communications Code governs the rights of network providers to install and maintain infrastructure on public and private land. There has been broad agreement for several years that the Code is in need of reform. The DCMS asked the Law Commission to review it in December 2011 and in February 2013 the Commission issued a report making recommendations for a revised Code. In January 2015, the Government tabled an amendment to the then Infrastructure Bill substantially based on the Law Commission’s recommendations but then withdrew it. The Minister told us that Vodafone had in effect told DCMS that it was the “wrong solution”.72 A new draft Code is being included in the Digital Economy Bill this summer.73
54.The new Code has been drafted to put digital communications infrastructure in a similar regime to utilities like electricity and water.74 For example, it will provide an automatic right to allow operators to upgrade and share apparatus without prior agreement or payment to landowners where there is minimal adverse visual impact, as recommended by the Law Commission. The Government is also proposing to change the land valuation of the rent system based on compulsory purchase principles as for other utilities.75 At present, Vodafone told us the cost that it paid in rent for a mobile site was more than 20 times what a water or energy utility would pay for the same size of plot and usage.76
55.The new Code will allow disputes to be heard in a tribunal system rather than the more expensive and lengthy process of going through the courts.77 Nonetheless, the Wireless Infrastructure Group emphasised the importance of a new Code not losing the voluntary support of the land sector for supporting telecoms infrastructure deployment:
In many ways, like other utilities—[communication providers’] services are as important as water and power—but we are not like other utilities in terms of the job that is ahead of us. We have years and years of network building ahead of us, and the voluntary support of the land sector is absolutely crucial to that. If we lose that, we might as well all go home for the next four or five years … 78
56.Planning policy also requires rapid reform to enable the industry more easily to provide the infrastructure required to give better coverage. O2 were encouraged that the Government were considering the extension of permitted development rights to taller mobile masts in England. Temporary amendments were made to the existing Code in 2013 as part of the Growth and Infrastructure Act to promote economic growth by speeding up the deployment of broadband infrastructure.
57.The Government and Ofcom have worked well together to secure investment from the mobile network operators to achieve agreement on reaching a 90% geographical coverage by 2017. Ofcom has successfully designed spectrum auctions so that coverage obligations are a key part of these exercises. The Government will undoubtedly achieve better coverage for mobile through the release of 700 MHz band and others once they become available. When these bands are auctioned there will clearly be a trade-off between spectrum price and the obligations on the licence holders. To facilitate investment by the operators, the Government may well need to place additional emphasis on achieving coverage, and on the role that mobile will play in meeting the universal service obligation for broadband, rather than primarily maximising revenue from the auction.
58.Given the progress being made and the undertakings agreed by the mobile network operators in 2014, the Government should, as it has acknowledged, continue cutting red tape, reform the Electronic Communications Code and take further steps to provide a conducive environment to investment, and easy access to fairly-priced backhaul connectivity.
6 Including EE’s share. Figures from 2015.
7 Enders Analysis—UK broadband, telephony and pay TV trends Q2 2015.
8 Sky, TalkTalk and CityFibre have link up for ultra-fast network deployments in York.
9 Italy, France, Germany and Spain
11 Cost and value of communications services in the UK, Ofcom, January 2014
12 Connected Nations 2015, Ofcom, 1 December 2015
13 Britain’s superfast broadband future, BIS & DCMS, December 2010.
14 The original target for Phase 1 broadband was May 2015, i.e. at the end of the Parliament.
15 A local body refers to a local authority or a group of authorities working in partnership, devolved Government, or local economic partnership. Devolved governments are accountable for their own projects.
16 BDUK was originally housed in BIS but transferred to DCMS in January 2011.
17 At the outset, BDUK estimated that commercial superfast broadband delivery across all available networks would reach 72% of premises in areas covered by the programme by 2015.
18 £600m of the Government’s contribution to superfast broadband was expected to come from a top-slice of the TV licence fee. In addition, central Government has contributed £150m to a SuperConnected Cities Programme.
20 This mechanism is known as the underspend clawback.
21 In addition to capital expenditure, BT is expecting to incur £450m of operational expenditure under the BDUK programme.
22 There have been two NAO and two Public Accounts Committee (PAC) reports in the past three years on the rural broadband programme.
23 Committee of Public Accounts, The rural broadband programme, Twenty-fourth Report of Session 2013–14, HC 474, see conclusions 3 and 6.
24 BT has stated that its costs are commercially sensitive due to the assurance it gives of consistency between costs in its publicly funded and commercial programmes. It argues that any information released about its publicly subsidised programme would allow commercial competitors to understand its technical solutions and costs.
25 Committee of Public Accounts, The rural broadband programme, Fiftieth Report of Session 2013–14, HC 834 para 15.
26 3.84 million premises covered as at the end of March 2016.
28 Q533 [West Yorkshire Combined Authority]
29 Q353 [Tom Mockridge]
31 DCMS and BDUK measure superfast coverage by a premises passed metric.
32 Q1125
33 Open-book accounting is a type of supply-chain assurance where suppliers share information about the costs during a specific contract with their client.
34 Nevertheless, a difficulty with the system is reconciling Openreach’s labour costs, which make up a significant part of the capital costs of deployment.
35 Q296.
36 This was the position as at 31 December 2015.
37 Letter from Chris Townsend OBE, Chief Executive Officer, BDUK, to the Clerk of the Committee, dated 25 April 2016.
39 Broadband Delivery, presentation by Chris Townsend, SuperConnected Business Conference, 7 June 2016.
40 Committee of Public Accounts, The rural broadband programme, Fiftieth Report of Session 2013–14, HC 834, para 19.
41 Q384 [Tom Mockridge]
42 For example see: Gigabit Broadband Community Interest Company (EWC0100); County Broadband Ltd (EWC0074).
43 Q534 [West Yorkshire Combined Authority]
46 A critical factor in some providers’ business models is that they typically rely on a 50% or 60% take up in order to get payback on their investment.
47 West Yorkshire Combined Authority (EWC0103); British Chamber of Commerce (EWC0091); TalkTalk (EWC0056); TalkTalk (EWC0056); and Tees Valley Unlimited (EWC0011) .
49 Q758
50 G.fast is a digital subscriber line (DSL) standard for local loops shorter than 500m, with performance targets between 150 Mbps and 1 Gbps, depending on loop length.
52 Q11
53 Q1060
54 Q386
55 As part of Phase 1 of the superfast broadband programme, Northern Ireland was allocated £4.4m through BDUK, and under Phase 2, BDUK allocated a further £7.2m. The £7.2m was set to be matched by the NI Executive and BT has agreed to commit £3m to the project.
56 Jonathan Bell MLA, Minister, Department of Enterprise, Trade and Investment, Northern Ireland Executive (EWC0082).
58 Wales Audit Office, “Welsh Government investment in next generation broadband infrastructure”, 28 May 2015.
60 The four primary MNOs are EE, O2, Three UK and Vodafone. In January 2016, BT acquired EE for £12.5bn after the Competition and Markets Authority gave its clearance for the acquisition.
61 Currently many people frequently lose signal or cannot get signal long enough to make a call.
62 It is enforceable by Ofcom.
63 ‘EE selected to deliver critical new 4G voice and data network for Britain’s Emergency Services’, EE Press Release, 10 December 2015.
65 Under MIP the DCMS funded both the sites constructed by Arqiva and the radio and transmission equipment used by the MNOs.
66 In a telecommunications network the backhaul portion of the network comprises the intermediate links between the core network and access network, mast or base stations.
67 Q1139
68 Q433 [Wireless Infrastructure Group]
69 DCMS: Tackling Partial Not-Spots in Mobile Phone Coverage: Government Response to Consultation.
70 The RAC Foundation found that Just under 4,600 miles of the UK’s roads lack any 2G coverage, with almost 29,000 more enjoying only partial cover, meaning only drivers who are with certain networks can get a signal and call for help.
71 Ofcom Advisory Committee for Scotland (the ACS) (EWC0012); Jonathan Hines, Managing Director of Architype (EWC0093); The Communications Consumer Panel (the Panel) and the Advisory Committee on Older and Disabled People (EWC0088); Welsh Government (EWC0077); and Federation of Communication Services (EWC0037).
72 Q1144
73 The Digital Economy Bill was announced in the Queen’s Speech on 18 May 2016 and introduced in the House of Commons on 5 July 2016.
74 A New Electronic Communications Code, DCMS, 17 May 2016.
75 This means the value of the land will be assessed on its value to the landowner, not on its value to the network operator as it is currently.
76 Q99 [Vodafone]
77 The Law Commission recommended that the disputes be referred to the Land Chamber of the Upper Tribunal rather than the current range of bodies that deal with disputes.
78 Q447 [Wireless Infrastructure Group]
© Parliamentary copyright 2015
18 July 2016