Digital Connectivity in Scotland Contents

5Full-fibre future

59.Full-fibre technology is the next generation of broadband technology, capable of providing download speeds of 1Gbps (1,000Mbps).121 It uses fibre rather than copper cable along the whole connection, which can transfer more data over longer distances and deliver a more reliable service. However, it can be expensive to deploy in remote or rural locations because operators need to lay fibre optic cables over much longer distances. Currently, most premises in Scotland, and the wider UK, rely on Openreach’s network of copper telephone lines for at least part of their connection—only 2% of Scottish premises can access full-fibre.122

60.The UK Government’s strategy is to improve full-fibre coverage by funding rollout, promoting competition and reducing regulatory barriers to commercial deployment. In May 2018, the Chancellor of the Exchequer pledged to install full-fibre superfast broadband connections to 15 million premises by 2025, and a nationwide full-fibre to the premises network by 2033.123 When asked about balancing full-fibre rollout with delivering coverage to the final 5%, the Secretary of State for Digital, Culture, Media and Sport said:

I think you have to do both. Making sure that we can get the coverage to the final 5% across the UK—including in Scotland—is incredibly important, but at the same time we have to get started on the next generation of technology.124


61.The UK Government has established two funds to support investment in full-fibre networks by businesses and local authorities:

During our inquiry, witnesses focused on funding from the Gigabit Voucher Scheme, which is part of the NPIF.

Gigabit Broadband Voucher Scheme

62.In March 2018 the UK Government launched its £67m Gigabit Broadband Voucher Scheme. Vouchers can be used by small businesses and the local communities around them to contribute to the installation cost of faster connections over gigabit-capable infrastructure. Small to medium-sized businesses can claim a voucher worth up to £3,000 and residents can claim a voucher worth up to £500 as part of a group project, which are then pooled together and used to subsidise the delivery of fibre networks to that community by a commercial provider. At present, all communities’ bids must include at least one business, and the vouchers from business must make up at least half of the total funding.126

63.Providers largely supported the scheme: Virgin Media said that the demand voucher schemes make areas more commercially viable127 and the Independent Networks Cooperative Association said they are a helpful way of encouraging smaller-scale projects.128

64.Whilst there was support from broadband providers, there was more uncertainty from the business community, who are the main audience for the voucher scheme. The Scottish Chambers of Commerce (SCC) reported that “there has not been huge uptake of the gigabit voucher scheme” in Aberdeen as part of the pilot.129 Both the SCC and the Federation of Small Businesses suggested to us that this was a communications challenge: businesses need to be made aware that the scheme exists.130 The SCC said there was a need for a “more substantial communications plan to point businesses and individuals to the support that is available” and that there was also a role for representative bodies such as themselves to provide “clustering mechanisms for voucher initiatives.”131

65.The requirement for half of the funding to come from business applications was seen as a potential barrier for smaller communities. High-Speed Universal Broadband Services (HUBS), a community broadband network which specialises in providing full-fibre networks to rural and remote communities, highlighted that “the business-to-residence ratio [is a requirement] that very few communities can meet”, because of the small number of properties in these areas.132

66.Whilst there is still progress to be made in providing universal broadband coverage, investment in full-fibre is vital to the UK’s economic growth. We welcome UK Government funding for full-fibre investment, particularly through the national rollout of the Gigabit Voucher Scheme. We recommend that the Gigabit Voucher Scheme works closely with business groups to raise awareness of the available funding and support businesses and communities to create viable bids.

67.Currently, at least half of the total value in a bid under the Gigabit Voucher Scheme must come from vouchers given to businesses rather than residents. We are concerned that this will be difficult for communities in rural areas to achieve, denying them access to a potential useful source of funding. The UK Government should consider dropping this requirement for bids in rural areas of Scotland, which will allow more communities to take advantage of the scheme.

Competition in full-fibre delivery

68.Competition between providers is vital to driving investment and innovation in communication networks and encouraging competition in the market is central to the UK Government’s strategy for increasing fibre deployment. There are two main types of providers operating in the broadband market:

BT is the largest provider of internet services in the UK and most other retail communications providers (for example Sky and TalkTalk) buy access to BT Openreach’s network.133 These providers are unable to compete with BT on the speed of their service (as they are using the same infrastructure) but can compete on price or customer service. Others, such as Virgin Media, have invested in their own networks so they can offer different speeds from those available to BT. Some companies like CityFibre, just operate at a wholesale level and do not offer services directly to consumers.

Retail competition

69.Retail communications providers can buy access to Openreach’s ultrafast and superfast networks (an end-to-end service), or they can pay for access to the copper network and then install their own equipment from BT exchanges to premises (known as Local Loop Unbundling (LLU)).134

70.In March 2018 Ofcom concluded their Wholesale Local Access review which looked at the regulation of services which use a fixed connection. As part of this review,135 Ofcom announced a reduction in the amount Openreach can charge telecoms companies to use its superfast broadband network to deliver service to their customers.136 Ofcom will gradually cap the amount Openreach can charge rivals to use its basic superfast broadband service, which generally offers speeds of up to 40Mbps, to £12.06 a month by 2020/21.137 Ofcom said:

Regulating this price will help BT’s rivals to compete for customers, while several build their own full-fibre networks, as well as protecting consumers from high prices during this period.138

71.As well as keeping prices low for customers,139 Ofcom’s aim is also to encourage providers to invest in full-fibre networks. TalkTalk stated that “the lowering of the wholesale price for fibre to the cabinet […] increases both Openreach’s incentives to invest and the ability of others like TalkTalk to invest”.140 We were told that the current wholesale price makes it difficult for other internet providers to compete on retail price, and therefore to attract the customer base needed to raise the money for investment in their own networks.141 For Openreach, TalkTalk argued that the price cap will compel them to invest in new full-fibre as the income they get from the existing copper networks will reduce.142

72.However, not all companies thought that this reduction would encourage providers to invest more in fibre networks. Virgin Media–a infrastructure-level competitor of BT–pointed out that lowering the price of wholesale access could make providers more likely to rent because access is cheaper. They said that as well as having a “direct impact on people [like themselves] that are independently investing in their own infrastructure”, this could also mean providers who have historically rented are less likely to invest in their own full-fibre networks.

73.A similar view has been expressed by Mark Jackson of independent telecoms site IS Preview, who said that Ofcom “runs the risk of making slower [partial fibre] so cheap that it could discourage investment in new/ultrafast networks, which might struggle to compete against the extremely low pricing.”143 However, TalkTalk told us that the price reduction had not affected their own plans to invest in infrastructure: they are planning to start building and operating their own fibre network.144

74.Openreach and BT told us that they recognised and accepted Ofcom’s objectives: Kim Mears, Openreach, commented that the reduction in pricing is designed to “create an environment that supports competition”145 and Brendan Dick, BT, said that Ofcom “is trying to create a scenario where… the prices are right to encourage investment.”146

75.Competition is fundamental to driving innovation, investment in infrastructure, and customer choice. Therefore, we welcome Ofcom’s action to stimulate retail competition by cutting the prices Openreach can charge providers. This is clearly designed to encourage investment in full-fibre, however we heard from some providers who argued that it may not have this effect and could hinder full-fibre investment by companies other than Openreach. We recommend that Ofcom carefully monitors the impact of the price cap on full-fibre investment and revisits the affect of the price cap on Openreach’s superfast broadband service if necessary.

Infrastructure competition

76.Another measure that Ofcom has introduced as part of the WLA Review is a requirement for Openreach to make it easier for rival providers to access its telegraph poles and underground tunnels to lay fibre, reducing the costs of them deploying their own, alternative, network. Openreach has been required to offer competitors access to its ducts and poles to lay their own network since 2010. However, this new measure puts additional responsibilities on Openreach to clear blocked tunnels, ensure there is adequate space on telegraph poles and release a digital map of its network. Ofcom predicts it will reduce cost for access by 50% - from £500 per home to £250.147

77.TalkTalk praised duct and pole access reform, saying that it “could make it significantly cheaper and quicker to rollout new networks, strengthening competition and keeping prices low for customers”.148 Virgin Media, which has recently trialled using Openreach’s ducts and poles to deploy their network, told us that the administrative side of getting access had been “significantly improved”.149 However, some providers told us that they have been reluctant to apply for access because this notifies Openreach as to where they are building. They would be concerned that this could “provoke a competitive response”.150

78.We also welcome Ofcom’s measures to stimulate infrastructure-based competition. However, previous efforts to encourage greater use of Openreach’s ducts and poles for other companies to lay their own networks have had limited success. We recommend that Ofcom monitor the uptake of Openreach’s ducts and poles. If this reform does not lead to a substantial increase, Ofcom should revisit the issue next year to see what other action could be taken to encourage this form of competition.

121 House of Commons library, Superfast Broadband Coverage in the UK, March 2017

125 House of Commons library briefing, Superfast broadband coverage in the UK, 2017

126 DCMS, Gigabit Broadband Voucher Scheme, 2017 (accessed July 2018)

127 Virgin Media (DCS0093)

128 Q232 [Malcolm Corbett]

129 Q179 [Charandeep Singh]

130 Q179 [Charandeep Singh and Stuart Mackinnon]

131 Q179 [Charandeep Singh]

133 BT Openreach is the infrastructure division of BT Group which is the UK’s largest fixed broadband provider

135 Ofcom also announced that it will not regulate the prices of Openreach’s fastest wholesale superfast broadband products, this is designed to incentivise operators to build full-fibre networks.

139 ISPreview, independent telecoms site, has noted that there has been “heavy price discounts on related packages over recent months” from Vodafone, TalkTalk and Plusnet. (IS Preview, Margot James MP Hints ISPs Should Pass FTTC Price Cut on to Homes, accessed 3 July 2018)

140 Q223 [Iain Wood]

141 Q223 [Iain Wood]

142 Q223 [Iain Wood]

145 Q224 [Kim Mears]

146 Q224 [Brendan Dick]

148 TalkTalk (DCS0096)

149 Q223 [Daniel Butler]

Published: 23 July 2018