While the headlines are going to be all about hiving off Openreach to make it more independent the latest Culture Media and Sport Committee report on UK Broadband and how to make it world leading covers many more areas.
Dealing with the independent Openreach firstly, it seems that opinion is divided with different parties able to produce 'experts' willing to state one way or the other depending on their preferred viewpoints, the committees conclusions states "there is good reaspon to suggest that a more independent Openreach might increase infrastructure investment significantly" and the key words being suggest and might, suggesting that if Ofcom and the Government was to push a more independent Openreach path a much better analysis of the potential outcomes needs to be undertaken, unlike the recent Brexit vote where it seems we have entered a vacuum of the unknown.
The report acknowledges the work of Openreach and the BDUK in reaching the 90% superfast coverage target, but there is criticism of the transparency allowed in the contracts, even though the BDUK itself is happy with its visibility of the costs and that any underspend by BT will be returned under the contracts. To be totally frank worries over the BDUK process stalling investment by commercial operators has been around since Labour published the Digital Britain report in 2009 and public intervention was on the table. The key mistake was allowing one bidder to win all the phase 1 contracts for better or worse having an alternate provider in one county would have given committees another firm to question.
With a 90% target, there was always going to 10% left out, but the big debate seems to be whether that 10% is the right 10%, we have seen the numbers only able to get 2 Mbps fixed line broadband falling over the years and similarly for the numbers under 5 Mbps and 10 Mbps too, but the report (possibly influenced by complaints from members of the public not helped yet) has the following to say on coverage decision making:
"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
5.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. (Paragraph 33)"Extracts from Select Committee Report
The contracts were generally signed to deliver a number of premises with access to superfast, and some included detail on less speed coverage but if the system of universal superfast coverage was adopted for a village area, it may mean that in addition to dealing with Exchange Only lines earlier in the project roll-out, more FTTP would be deployed to lift those on the edge of cabinet areas and thus costs may have been higher. The consequence being that another village that now has maybe 50% superfast coverage might have seen none. The gain-share scheme is releasing money back into many of the projects so that more areas with sub superfast speeds can be addressed in addition to the phase II roll-outs, plus with the BDUK audit (where they have access to financial data us mere mortals do not) they are able to identify underspend which BT is contractually bound to return. The report includes a line from Virgin Media where they call the BDUK funding more like a low cost loan to BT and to a great extent it is very much that. The big benefits to the UK economy though that this loan creates are what the Government and local authorities are stimulating.
Service levels within Openreach have been in the firing line all year and while Openreach is the clear target, the levels to be met are set by Ofcom so maybe time for a Ofcom to be more radical and set targets much higher. Though a downside of a better performing Openreach might be better infrastructure and any competitor will find it harder to compete. One downside to higher targets might be higher prices and this will not be popular, the last year has actually seen one major provider opt for a lower SLA from Openreach on its consumer service (i.e. providers have options to buy better levels of service). Price pressures on broadband are not just to do with the copper and partial fibre local loop, but also to do with levels of usage driven by our love of online video and increasingly large downloads for gamers and software updates.
Moving away from the area of hindsight that a lot of the report is based on, the USO (Universal Service Obligation) is looked at and while the 10 Mbps by 2020 is seen as a reasonable target the committee does want any technology used to be readily upgradeable to support something like 30 Mbps for 2022. In terms of paying for the USO, the preferred option is a levy on all communication providers, including mobile providers.
Overbuild of commercial networks, either existing or new, has always been a heated argument on social media as the BDUK projects progress and in evidence to the committee Gigaclear says that around 45% of its network has been partially or substantially overbuilt by BT. In the case of Gigaclear it seems the demand led approach to their roll-out is partially why this has happened, or put another way if every village Gigaclear was monitoring demand at was excluded from the BDUK project those that did not meet the Gigaclear targets would have missed out of the BDUK scheme.
The report does look at the capex situation with Openreach and for those delving into the report its perhaps worth remembering that while Openreach has a revenue of around £5 billion per year, the 5.9 million GEA-FTTC/FTTP customers only generate around £550 million to £650 million of additional revenue and even that figure is under threat as some want the price for GEA products to decrease further while forcing BT Consumer prices to remain high, thus allowing them to undercut the retail arm of BT.
Perhaps a more radical approach than Ofcom or the Government has dared to attempt is needed if we want to guarantee a world class UK Digital Infrastructure for the next century and that is to leave Openreach to operate as a commercial enterprise and instead start a new UK infrastructure firm with the pure mandate of full Fibre to the Premise with every business covered within the next five years and all homes within fifteen years. Under EU State Aid rules this was never likely to happen, but now anything is possible.