59.As coverage maps show, the final premises with the poorest broadband services are scattered throughout the UK. While a greater proportion of these will be in rural areas, a significant number are also likely to be homes categorised as being in a commercial zone at the edges of towns or in suburbs. With little or no commercial incentive to connect them, these properties can find themselves left in limbo. Under the existing State Aid rules, postcodes can be ineligible for BDUK coverage if even a single home receives a superfast service. There are also a number of gaps on the periphery of BDUK contract areas, particularly between neighbouring counties.
60.Last November Ofcom found that even where the local infrastructure had been upgraded, for technical reasons associated with longer copper lines, many premises could not receive superfast speeds. This is a problem that BT suggests could be solved by its development of long-reach VDSL technology. Others receive poor connections due to the dilapidation and poor state of repair of their local access network. Around 2 million (or 7% of) UK premises are connected to upgraded networks but still cannot receive superfast download speeds; on average download speeds are around 18Mbps.
61.It is possible to improve coverage in the final 5% with a range of existing technologies, including fibre to the premises or fibre to a remote node, satellite, fixed wireless and 4G. However, given the location of some these premises, certain solutions are likely to be prohibitively costly, either for the supplier, the consumer or both. In addition, depending on the technology chosen, the quality of service will vary, in terms of speed, capacity and reliability. So far BDUK’s pilots trialling alternative delivery models have found that a ‘hybrid’ technology approach, particularly using fibre with wireless, has proved effective in remoter areas, delivering high coverage while demanding relatively low public subsidy.
4G mobile. The mobile network operators are rolling out 4G networks which can provide broadband services: speed and service are subject to the demand on backhaul transmitters and/or and local cells.
Fixed wireless access. Fixed wireless has the advantages of low cost-of-entry and flexibility. Options range from conventional Wi-Fi and WiMAX, based on free spectrum through the use of 4G technologies and “white space” spectrum.
Satellite. The latest solutions appear to offer superfast speeds of over 30Mbps for downloading, but there are capacity and latency (delay) constraints and data caps can make a service expensive. Given the physics of a satellite being 30 thousand miles away, this option works less well for two-way services such as voice services, video-conferencing and gaming.
62.In December 2015, the Government launched a new satellite broadband subsidy scheme, which aims to help 300,000 of the most remote rural premises to get a better connection. The scheme offers individual grants of up to £350 that can be used to reduce the initial satellite cost as a quick-fix solution for meeting the Government’s 2Mbps universal service commitment. Developments in fixed-wireless can also provide higher access speeds in certain locations. It is encouraging that the Government decided to widen its subsidised scheme to cover wireless solutions too.
63.In addition, the mobile network operators are using 4G to connect rural communities. Vodafone told us it is supporting a community-led programme that delivers mobile voice and internet coverage to rural communities who have fixed broadband (not necessarily superfast), but no mobile signal. The technology employed enables calls to be made via a broadband line with connection speeds of more than 4Mbps.
64.Nevertheless, there are questions over the suitability of satellite broadband for some households. We heard several concerns about the impact of the relatively low data caps in tariffs for satellite broadband and the expense of exceeding those caps. For instance, regular downloads of high definition television can quickly use up a limited allowance. There were also significant concerns about the impact of time delays caused by two-way communication to a geostationary satellite. This causes problems for those using video-conferencing services such as Skype or for computer gamers. However, David Williams of Avanti Communications, argued vigorously against the idea that a significant percentage of satellite broadband customers experience real problems with time delays. He argued that the only major challenge facing satellite and other alternative technology solutions was the lack of public awareness of their availability.
65.We consider that there is an important, but limited, role for satellite provision in meeting the overall challenge of delivering affordable broadband services. Satellite providers are particularly relevant for extreme rural provision, which might incur supplementary costs beyond a potential standard USO tariff structure. They are also relevant for expedient provision to bridge a gap until terrestrial services gradually extend through to most of the premises as yet beyond the BDUK roll out.
66.During our visit to the Chilterns, we experienced at first hand the very high levels of frustration experienced by the “final five per cent”. Clearly it is important, especially in the context of a potentially legally binding USO, to address this deficit. Reaching these areas with, for example, fibre to the premise is likely to be a very lengthy and costly task, but we heard cogent arguments for the deployment of potentially interim technologies, for example Fixed Wireless Access or Cells on Wheels, to bridge the gap to longer-term, more sustainable solutions. By their nature, stop-gap systems must be replaced in the longer term, and especially with the inevitable rise in speed demands.
67.We heard excellent examples from local groups and rural businesses which aimed to bring local resources, such as farmers’ diggers and access to land wayleaves, to bear on minimising the cost of both fibre and radio provision. The success stories of community initiatives such as the B4RN fibre network in rural Lancashire and Cybermoor in Cumbria are relatively well known. Communities can play a valuable role in securing and extending superfast broadband, especially in their ability to stimulate demand and to reduce costs through undertaking some of the engineering work themselves.
68.William Perrin, Director of Talk about Local, based in the Chilterns, told us that people needed better advice on their options for broadband campaigns. If a premises is off the gas mains or the sewerage network, he pointed out, then there is typically plenty of information available about consumer options, but not for broadband. To help provide support in Scotland, the Community Broadband Scotland service offers a small network of advisers who work with broadband community campaigns across the Highlands and Islands to help connect them with technology providers and finance. It is an initiative which supports communities in those areas least likely to benefit in the current 95% coverage programme.
69.Mr Perrin told us there was a demand for this kind of service to be replicated at a county or regional level in England, perhaps through BDUK, as an efficient way of sharing expertise. Clearly, in supporting community action in the final five per cent, Government and local authorities will need to consider how best to advertise available solutions to those with poor connectivity.
70.The challenge of reaching the final five per cent is likely to demand the active and willing co-operation of local communities wherever possible. BDUK should offer guidance and support in relation to key areas such as: choosing the right technology solutions, raising finance, stimulating demand and minimising other costs of provision.
71.For non-satellite projects, suitable backhaul remains a costly problem. Ofcom has announced that it will require BT to provide access to its fibre network for providers from next year. This will mean that BT will have to give competitors physical access to its ‘unlit’ fibre-optic cables, allowing them to take direct control of the connection. This will no doubt help provide backhaul for both alternative network providers and also mobile network operators. Some gaps will inevitably need to be filled by other network operators such as Level 3, Virgin Media and Vodafone. To assist with possible deployments, a potential role for Ofcom could be to oversee the mapping of national availability of fibre and infrastructure together with a schedule of rates. This should also cover spare capacity in public-owned fibre and infrastructure assets such as masts, for example those owned by police forces, Network Rail and the MoD.
72.Developments such as fibre to a remote node and micro-trenching are likely to be transformational for rural areas. In particular, a remote node can bring fibre closer to a village or cluster of premises, which can help greatly. Such deployment can provide superfast broadband to premises that are too far from existing cabinets, and to those connected directly to an exchange. Inevitably it will be the case that some premises at a distance from backhaul will face high costs to reach an access point to a network.
73.Opportunities for the rollout of fibre to remote nodes should be fully investigated by Ofcom as part of an overall solution for rural connectivity. Access to affordable, reliable backhaul allows communities to benefit from alternative solutions and gives them opportunity to build their own networks such as with B4RN in Lancashire. To assist with deployments, Ofcom should have an important role in overseeing the mapping of national availability of fibre together with a schedule of rates, including suitable spare capacity of public-owned assets.
74.Estimating the cost of providing superfast connectivity to the final five per cent depends on where these areas are and the technologies and business models employed. Gavin Patterson, BT’s chief executive, told us the last five per cent could cost up to £2bn to deliver depending on what the Government decides to do. According to BT, there was no evidence to suggest that a lack of financial capital restrained network deployment but a standalone investment of that magnitude would be unlikely to make a commercial return.
75.There was broad agreement on the need for further public interventions in reaching the final five per cent. Nearly all witnesses representing industry supported assistance provided neutrally: through debt-financing and loan guarantees, demand-side interventions such as publicly-funded connection vouchers, and cost reduction measures, rather than via more public subsidies going to Openreach. According to the Minister, a new universal service obligation (USO) would be the “final chapter” in broadband rollout. However, some campaigners have read this as a sign that the Government is giving up on providing people in the countryside with a fast internet connection. We consider the case for a USO below.
76.Virgin Media was a lone voice in calling for an immediate halt to the public funding of the BDUK scheme. According to Tom Mockridge, Virgin Media’s chief executive, it was not necessary for state funding to be focusing on this 95% “upgrade”. Virgin considered that if public money is necessary to reach the final parts of the UK where commercially-led deployment does not materialise, it should be spent on raising demand or providing satellite equipment. However, Dido Harding, TalkTalk’s chief executive, argued that the harsh reality was that some form of state support would be needed for the hardest-to-reach areas.
77.As discussed above, a key feature of the gap-funding model of the BDUK programme is the scope for local bodies to benefit from higher revenues due to higher broadband take-up and also underspend by Openreach. The Minister indicated that BDUK was on course to claw back £250m. Chris Townsend, BDUK’s CEO, was even more optimistic, anticipating a 50% take-up.
78.In addition, BDUK estimates at least £150m of underspend will be retrieved from the Phase 1 procurement and made available to local authorities for reinvestment. This, in conjunction with the refund to local authorities, will enable many more premises in the final five per cent to be covered. We understand that local bodies are not obliged to reinvest the money gained from higher take-up with Openreach, but can choose to use other providers and different solutions to BT’s FTTC technology.
79.A positive feature of the BDUK gap-funding model is that local bodies receive a refund from BT where there is higher-than-forecast take-up of superfast broadband services. It remains questionable whether the original 20% take-up rate set in these contracts was too low, but the money available for reinvestment will mean that a significant further percentage of premises will be covered beyond the 95 per cent target. Local bodies must be entirely free to choose how to reinvest this money and to spend it with alternative providers other than BT Openreach, if they consider that as being a more appropriate and cost-effective option.
80.Smaller and alternative technology companies have argued that BT has on occasion moved, or appeared likely to move, into areas in which they have established networks blighting revenues before they are able to recover their costs. To address this problem, it was suggested that one approach might be to offer protections to network operators undertaking projects against being overbuilt by another provider or a publicly-subsidised scheme. For example, in hard-to-reach areas, where returns are more questionable, operators could be given licences to deliver that service for a guaranteed period where they were the sole provider so that they could recoup the investment they made in building networks in these challenging locations. Against this, Sharon White of Ofcom was quite clear that choice and competition were overriding principles in Ofcom’s view, and she did not support restricting competition. She cited the case of the B4RN network in Lancashire:
Some of you will have seen the extraordinary chap in North Lancashire who, as the community put it, introduced 1 gigabit per second to a number of farm areas without BT in the first place, and then BT came in two or three years later. What is very interesting from talking to the community is there is choice and there is competition, and very few are switching from the community project to BT, just because the difference in speed availability is so vast. So I would be quite reluctant to say BT should be banned from going into areas where there is already a network running, because having competition and some tension in the system is a good thing.
However, Ms White accepted that a tougher question was where publicly-subsidised deployments impacted on other commercially-funded infrastructure networks.
81.As matters stand, where rural communities are united in their desire for reliable internet connections, and before a USO comes into play, then sufficient demand may need to be demonstrated for a network provider to be sure that there is a robust business case for investment. It would be difficult in practice to enforce rights of exclusivity given that some consumers may be more willing than others to pay for a higher specification, cheaper or more reliable service if it became available.
82.One possible option to stimulate demand would be the introduction of a Community Broadband Voucher scheme similar to the one used to promote the connection of businesses to broadband. This could be an effective mechanism to allow rural communities simple and appropriate access to funding which could in turn be used toward the cost of backhaul or contracting an alternative network provider. This could place the decision on how to employ the public contribution directly into the hands of the users who would benefit from better connectivity. We agree with Government that a demand-led intervention for bringing connectivity to remote, rural communities is the right way forward for the “final five per cent”. Given the challenge of stimulating demand and covering the costs of accessing backhaul will be a huge barrier to cross for some remote communities, we recommend that the Government evaluate the case for a rural voucher scheme to pool demand and contribute to the cost of backhaul access for network builders.
83.There is also market failure in city locations where commercial investment in existing infrastructure (to bring FTTC capability to city centre premises) is not taking place. City centre issues include a prevalence of exchange-only lines, costs associated with highways and traffic management issues, wayleaves and permissions from land and property owners. Clearly reform of the Electronic Communications Code and initiatives such as the introduction of standard wayleave templates by local authorities will be crucial to enabling better deployment of telecoms equipment in urban environments. Alternative providers that compete with Openreach and Virgin in towns and cities will benefit from the greater access to Openreach’s ducts and poles that is planned. City Fibre, a wholesale infrastructure provider, has already announced that it will use Openreach’s ducts to lay fibre when they are opened up but has noted that the present regime did not facilitate this owing to prohibitive costs and hurdles.
84.Local authorities and other public bodies can play an important role here. Many councils and housing associations own ducts and fibre for their own connectivity, CCTV and other networks. If these were opened up to third party providers it could transform the digital connectivity for citizens and businesses and generate very useful revenue to fund hard-pressed public services. Some local authorities are already going down this route, for example Hammersmith and Fulham Borough Council, which has opened up its fibre network to a concession agreement involving ITS Technology and Hyperoptic. Under such partnership working, the commercial providers get access to an existing duct and fibre networks, so there is less cost and disruption, and the local authority gains revenue and helps get high-speed digital connectivity to many more local people.
85.In addition, in some city areas, networks have not been deployed due to anticipated low levels of demand, according to demographic or socio-economic indicators. There is also the issue of affordability. In areas of relative deprivation, there are higher proportions of mobile-only households where people cannot afford to spend £17 a month on a landline. Therefore, in these areas, the commercial incentive to roll out fixed broadband infrastructure decreases owing to the low demand. We consider probably the most effective way of providing access to broadband for those in urban or suburban environments where the market is currently not delivering access is through the introduction of a universal service obligation where a householder would have the legally enforceable right to an affordable and reliable internet connection.
86.Probably the largest “not-spot” in the UK is the London Underground: it is the only one of the top ten metro systems in the world that does not have a mobile infrastructure. While passengers are able to use wi-fi at Tube stations, there are challenges to providing connectivity throughout the Underground network. Since 2005, Transport for London (TfL) has run a number of projects to investigate connectivity throughout the network but the cost of installation in a tunnel environment and other concerns make this a huge undertaking. TfL are now investigating whether rollout could occur alongside the Home Office’s upgrade of its national mobile communications system for the Emergency Services, which will include the Underground. In parallel, TfL is also assessing the feasibility of building the infrastructure with partners to enable MNOs to offer connectivity underground. This has been done successfully in a number of cities, including New York.
87.Given that London is a world-class city and tourist destination, there must be an expectation now that its principal transport routes have full mobile and internet connectivity. The challenge of providing the London Underground network with connectivity is undoubtedly huge and expensive, but partnerships with private infrastructure groups may be able to facilitate a solution. A quid pro quo for any partner might be special access to the Underground’s passive infrastructure running under London’s streets, which could enable cost reductions and wider network development and upgrades across the Capital. There is also a vital need to improve mobile reception along principal rail routes.
79 See: Mrs Anne Tutt ()
80 For example, if a postcode contains 100 premises and only three of these have access to Virgin broadband, then the whole postcode is deemed as ineligible for intervention funding. Consequently the other 97 premises lose out.
81 Nottinghamshire County Council ()
82 Ofcom state that the distance between the premises and the exchange has an impact on the quality of service received. The resistance of copper wire increases with the length of the wire, so speeds decay as the distance between the premises and the exchange increases. Speeds typically start to decrease between 1 and 2km from the exchange and are reduced considerably at distances of more than 3.5km.
83 Long Reach VDSL operates at higher power levels and utilises additional frequencies in order to increase broadband speeds and the distance over which they can be delivered. This means it could have the potential to boost broadband speeds over long copper lines, such as those that are often found in remote parts of the UK. (see BT()).
84 Q597 [William Perrin]
85 Connected Nations Report 2015, Ofcom, para 4.11
86 All of the BDUK pilots are operating in the 2% lowest premises density areas of the UK.
87 See: ‘Fear not Telegraph readers—faster broadband is coming’, The Telegraph, 16 May 2016.
88 Vodafone ()
89 Typically 30GB a month on a £44.95 BDUK tariff for 15Mbps download and 2Mbps upload.
90 Avanti Communications Group uses Ka Band services available from its Hylas satellites.
91 Avanti Communications Group ()
92 A ‘Cell on Wheels’ is a portable mobile cellular site that provides temporary network and wireless coverage to locations where cellular coverage is minimal or other technologies are difficult to deploy.
93 Jonathan Hines, Managing Director of Architype ()
94 See Independent Networks Co-operative Association (), Virgin Media (); and Q1002
95 William Perrin is also the co-founder of Connect8, a local campaign group for better broadband in the Chilterns.
96 Ofcom Advisory Committee for Scotland ()
97 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.
98 This service is often referred to as ‘dark fibre’, because the cables would not be live.
99 See Ofcom’s Business Connectivity Market Review, 22 March 2016.
100 Micro-trenching has the potential to reduce costs significantly in some deployments but it is not a technique universally accepted by local authorities.
101 A remote node can act as a village digital hub.
102 Q785 [Gavin Patterson]
103 BT ()
104 Broadband Stakeholder Group ()
105 See: Q155 [Vodafone and Sky]
107 ‘Ministers halt automatic broadband roll-out for rural families because ‘not everyone wants to be connected’’, The Telegraph, 5 May 2016.
108 See chapter 4 below.
110 Virgin Media commissioned a report that claims the programme’s “conservative” assumptions on demand and timeframe set for a “clawback” of excess revenues could lead to a windfall of £320m - £869m for BT over a 20-year period, depending on the extent of take up.
112 See paras 16 and 23–24
114 Q302 [Chris Townsend]
117 CityFibre is a provider of wholesale fibre network infrastructure. It has metro duct and fibre networks in 37 cities across the UK and a national long distance network that connects these cities to major data-centres and to key points in London.
118 ‘CityFibre first to mount BT challenge after Openreach is told to share network’, The Telegraph, 1 March 2016.
119 Independent Networks Co-operative Association ()
120 Q552 [West Yorkshire Combined Authority]
121 Q474 [Wireless Infrastructure Group]
122 TfL has partnered with Virgin Media to bring WiFi to 250 London Underground stations
18 July 2016