33.As broadband coverage across the UK continues to improve, the policy focus for both the Scottish and UK Governments is shifting onto the problem of how to provide superfast broadband coverage to citizens living in the hardest to reach areas–the “final 5%” that will not be connected through current rollout programmes. The UK Government is addressing this issue by putting obligations on providers to provide minimum service levels, whilst the Scottish Government is continuing the approach of subsidising commercial roll-out through its Reaching 100% (R100) programme.
34.The Scottish Government’s R100 programme aims to provide coverage to the final 5% of the Scottish population by subsidising the rollout of broadband by commercial providers. Launched in June 2017, R100 aims to deliver superfast broadband (30Mbps) to all premises in Scotland by March 2022. It is designed primarily as a rollout programme to three regional lots in rural Scotland. It will also include a demand-led element in which premises not covered by the rollout will be able to apply for vouchers to subsidise superfast broadband provision. The R100 programme is worth £600m which is made up of £579.01m from the Scottish Government and the £20.99m that the UK Government allocated to DSSB in 2014.
35.Fergus Ewing argued that the UK Government should provide more funding for R100. Whilst praising the £100.8m that the UK Government contributed to the previous DSSB programme, the Cabinet Secretary criticised the £20.99m contribution to R100, arguing that the UK Government’s contribution should be comparable to that made to DSSB:
A purist would say that the contribution, because it is wholly reserved, should be 100%. A pragmatist might say that the DSSB contribution, where the UK put £100 million in, would be a comparator, which, if followed, would lead to a contribution of £218 million by the UK Government for our £100 million […] Funding needs to be sorted out, and I have asked the UK Government—and Mr Hancock in person—to make a more commensurate contribution.
36.In response the Secretary of State commented that the UK Government are unwilling to provide more funding:
When the UK Government chooses, as a policy decision, to fund money to try to solve problems for people in Scotland, and chooses to fund that money through the Scottish Government, and the Scottish Government does nothing with it for several years, you can understand why the amount of money does not go up.
He also outlined the funding that the UK Government had already contributed relative to Scotland’s population:
Scotland has received 17% of UK funding for superfast broadband, although it comprises roughly 8% of the population. This means there has been more than double the spending per person in Scotland on superfast broadband by the UK Government than there has been for the rest of the United Kingdom.
37.The Committee welcomes the actions of both Governments to provide broadband coverage to the “final 5%”. People in rural areas face a much greater challenge in getting connected and this should be reflected in how funding for broadband delivery is allocated. We recommend that the UK Government increase its current level of investment to reach the last 5%.
38.In December 2017, the UK Government announced its Universal Service Obligation (USO) which will give every household in the UK the legal right to access broadband speeds of at least 10Mbps by 2020. Under this scheme a universal service provider will be obliged to connect premises that do not currently receive a service of 10Mbps in response to “reasonable requests” up to a cost threshold of £3,400. Ofcom has been given responsibility for implementing the scheme over the next two years. This includes identifying a universal provider who will be required to offer the service and establishing an industry levy to fund delivery.
39.Whilst broadly supporting the need for a universal broadband service, some witnesses suggested the 10Mbps download speed was “much too low” for future demand. Dr Lorna Philip, University of Aberdeen, raised concerns about the demands on speed in the future. Ettrick and Yarrow Community Council said:
… we consider the 10Mbps standard is wholly inadequate, and ill-informed, and will prove to be a brake on the longer-term capacity aspirations.
Other witnesses argued that if the USO was set at 10Mbps, this figure should represent the absolute minimum consumer experience of speeds. Which? said that 10Mbps should be the actual speed consumers will receive in their homes at peak times, not just the speed they could receive. Expert witnesses argued that 10Mbps should be a “safety net” or floor, rather than a minimum target.
40.The Government’s decision to set the USO download speed at 10Mbps was based on technical advice from Ofcom who said this figure reflected the “need to get decent broadband out to everybody as soon as possible” and they were concerned that a higher specification could risk increasing the direct costs of intervention and displacing private sector investment. Ofcom has said that it expects “capacity demands on broadband networks to continue to rise” and “it is very likely that an initial 10Mbps rate would need to be reviewed in the future.” The Secretary of State said that there would be regular reviews to see whether the 10Mbps should be increased. The Digital Economy Act 2017 allows for the USO to be reviewed at any time and requires that it be reviewed when the take up of superfast broadband (30Mpbs) reaches at least 75%.
41.Consumers’ data usage is projected to increase by 50% a year and by the point of USO delivery in 2020 we are concerned that its 10Mbps download speed will not meet consumer needs. We recommend that the UK Government reviews the specification of the USO in the next 6 months, as it has already made provision for in the Digital Economy Act, to ensure the policy is designed to meet the evolving needs of consumers. To keep pace, we recommend that the Government consider increasing the 10Mbps minimum download speed, and specify that this should be the speed consumers receive at all times, including peak periods.
42.The USO has a “reasonable cost threshold” of £3,400 for connecting any one property to a USO capable network. The owner of the premises will have to meet the additional costs above this threshold or do some of the deployment work themselves to reduce the cost. Witnesses told us that this £3,400 cap will rule-out some premises in remote rural areas from accessing the internet. The Scottish Chambers of Commerce Network said that the cap will cause “difficulty in bringing access to 100% of premises”. Robert Emmott, representing Comhairle nan Eilean Siar, said “if you cap it at £3,400, that is not going to get to the most remote places.”
43.To minimise the number of premises that are above this threshold, the USO provider will also have to aggregate demand for connections in a local area to bring down the cost of connecting each individual property. Ofcom’s modelling suggests that this would bring the costs of connecting 99.8% of premises within the threshold. However, in some locations it will be expensive to deliver a USO connection: Ofcom have said that it could cost up to £45,000 to deliver to certain premises in the 0.2%.
44.Which? told us that the bringing together (aggregating) of requests for connections under the USO was a sensible way to reduce cost but highlighted that there needs to be a simple and streamlined way for consumers to put in a request for a connection. They said that once a few people request connections in a community, Ofcom should ensure all other households have adequate time to also send a request for this first deployment. Otherwise, the remaining households could be permanently excluded from further deployments if their costs are above the £3,400 threshold, as there might not be enough people to bring the costs of a second round of deployment under the cost threshold. Ofcom plans to consult on their approach to demand aggregation, including any practical implications for consumers, in late 2018.
45.Whilst it appears that most households will be able to be connected with the USO’s £3,400 cost threshold, there remains a risk that consumers in the most remote areas will be excluded, even with the plans for communities to pool demand to reduce costs. We call on the UK Government to set out in its response to this Report what additional support will be provided for consumers where the cost of connecting their premise is above the USO cost threshold, to ensure those consumers can enjoy the same basic standard of service that is enjoyed by the rest of the UK.
46.Ensuring communities can effectively come together to pool their demand for broadband connections will be essential to the success of the USO, by reducing the costs of each individual connection and bring more under the threshold. This process of “demand aggregation” must be designed around the consumer to ensure no household misses out on the main deployment of the USO to their community. We recommend that Ofcom directly consult communities on the design of the aggregation process and require the USO provider to run a comprehensive communications campaign to ensure that all consumers are aware of their right to request a connection.
47.Some witnesses were concerned that the USO will increase consumer bills. This is because all providers will contribute to the costs of the USO via an industry levy, which will be used to meet the costs of delivering the USO by the universal service provider, and companies may decide to pass this additional cost onto consumers. Ofcom will design the levy and decide who will contribute to it. The UK Government have said the industry cost-sharing mechanism will “enable the designated universal service provider(s) to recover any unfair net cost of the obligation via contributions to a fund by others in the sector.”
48.When we raised this with Ofcom, they confirmed that “it is certainly likely that providers would pass on at least part of those costs to consumers.” Ofcom’s impact modelling predicted that the USO could cause a 1–2% increase on typical monthly household spend on fixed voice, internet and mobile services, depending on the USO’s technical specification. Which? said that Ofcom should consider the impact on consumer bills as they move forward with the design of the USO.
49.We welcome the Government’s intention to minimise the cost of the USO for the public by funding it through an industry levy, but are concerned that consumers will end up paying for it indirectly through higher bills. We recommend that Ofcom monitor the impact of the USO on consumer bills, publishing its findings within one year of the USO launch.
50.The UK Government’s USO and the Scottish Government’s R100 policies have broadly similar aims: to provide broadband coverage to the hardest-to-reach areas. The USO will adopt an entirely demand-led approach where customers must apply for a connection; R100 is primarily a rollout programme, but is likely to also have demand element with financial support given to residents in extremely remote areas that are not covered in the initial to fund the delivery of broadband to their properties. This will mean that some premises will be eligible for support from both programmes.
51.The Scottish Government told us that they saw opportunities to marry up the design of the USO with the on-demand element on R100. Because the USO is offering a 10Mbps connection funded by an industry levy, the Scottish Government told us that they would like to explore the option of giving people the option of scaling up to a 30Mbps connection—with the Scottish Government potentially funding the difference. In a letter to the Secretary of State on 16 May, Mr Ewing said:
I am pleased that officials have indicated a willingness to ensure that the two interventions work together towards a positive outcome … It is vital that, at the very least, we design a single point of entry for the public to avoid confusion but I see a far greater prize; ensuring that the public funding committed to the R100 programme is used in the most effective way possible and does not wholly displace industry funding through the USO.
The Scottish Government has proposed establishing a joint USO Working Group to facilitate this alignment, they argued that a “pan-UK standing committee” is “an effective way of ensuring that the USO is developed in a way that benefits all parts of the UK.”
52.The Secretary of State told us that the interaction between the USO and R100 was a “challenge” that the two Governments had to get right. Ofcom also said that there is “potential - particularly the on-demand element of the R100 scheme - to find a sensible way of co-ordinating that with the on-demand elements of the USO scheme.” Steve Unger, Chief Technology Officer, Ofcom suggested:
The idea there, I think, is that you might be able to find some way of combining an R100 voucher with the USO funding in order to perhaps increase the number of people who are eligible for USO. That is the thing that we are exploring.
53.The UK Government’s USO and the Scottish Government’s R100 programme are different approaches to the same goal: providing broadband coverage to the most remote areas. There will be some areas that could benefit from both the USO and R100 and it is vital that the two programmes work together effectively. We recommend the two Governments establish a joint USO working group to coordinate activity between the two programmes. One of the first jobs of this group should be to explore the feasibility of combining the on-demand elements of R100 with the USO to ensure that R100 funding does not displace industry funding provided under the USO.
54.Community broadband schemes are broadband programmes that are run by local groups, often in areas which are not covered by commercial or publicly funded roll-out. Community schemes can take many forms, including buying into existing roll-outs and building community owned and operated infrastructure. In Scotland, some projects have been supported by Community Broadband Scotland, a Scottish Government initiative which has assisted communities to develop their own solutions, and others operate entirely independently.
55.Academics specialising in rural issues and community representatives told us that broadband initiatives benefitted from being able to tailor their service to the needs of local communities, as well as having secondary benefits such as strengthening local community identity. High-Speed Universal Broadband Services (HUBs), a provider of backhaul and other services to community broadband networks in Scotland, told us that community networks are “uniquely positioned to innovate in response to local needs. They thrive by reinvesting revenue in local infrastructure and services in ways that are infeasible for larger incumbents.” Dr Marwan Fayed, Director at HUBs, highlighted that community broadband networks are growing: “collectively in Scotland… there are about 4,000 premises being served by community networks, and that is projected to grow by 50% in the next 12 to 18 months.”
56.However, community broadband schemes also face challenges. Some expressed concern about the impact government interventions can have on the viability of their network. They questioned the value of public funding being used to subsidise other operators deploying networks in areas where they operate, with HUBs describing it as “anti-competitive behaviour”. A community broadband project in Heriot said that they were told Openreach was planning to overbuild their network to provide full-fibre coverage, supported by Government funding. Whilst welcoming the benefits of this coverage, they questioned “why Heriot has been singled out for such a complete transformation at a cost of at least £1 million, when the community network was built for less than £100,000.”
57.When we raised this issue with Ofcom, they said they were supportive of community broadband schemes and committed to “making sure the way we design a public intervention does not disrupt business.” Steve Unger, Chief Technology Officer, said that they will design the Universal Service Obligation so that the provider does not “undermine” community broadband schemes in areas which have them.
58.Community broadband providers have played an important role in providing coverage to remote areas of Scotland, which have been under-served by larger providers. We heard that a number of schemes felt they were at risk of being overbuilt by Government-funded interventions. We therefore welcome Ofcom’s commitment that they will design the future USO in a way that does not undermine community broadband schemes.
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Published: 23 July 2018