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Committee concludes independent Openreach may increase investment
Tuesday 19 July 2016 10:59:26 by Andrew Ferguson

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.


Posted by Pendlemac 10 months ago
It appears that one of the members of the committee qualified as a lawyer. In which version of reality does that make him qualified to comment on engineering matters?
Posted by ValueforMoney 10 months ago
As a mere mortal, Paragraph 23 suggests BT might owe £124m in capital, while Paragraph 16 references a contribution of £268m. BT in its own evidence said this included work in progress. Few LA project owners I have spoken have seen any direct BT capital contribution as yet.
Posted by godsell4 10 months ago
Given that BTO and BT Group all work within a highly regulated framework, this is more a reflection on successive governments and OFCOM not understanding the effects of the rules and regulations they put in place for the last 30 years since privatisation.
Posted by CarlThomas 10 months ago
Weirdly for all this talk the same report indicates the controls to ensure BT don't overstate their costs in construction of BDUK projects are described as 'an exemplar of best practice' and 'recommended that it be promoted across Whitehall.'

So I'm lost as to what the report is supposed to be saying, beyond that the taxpayer paid a premium to transfer risk of low take up to BT, and BT got an interest free loan out of it.
Posted by andrew (Favicon staff member) 9 months ago
@carlthomas Its easy, report is saying those who have benefited are the wrong people and the right people are those complaining now they are not in the 90% or so. Though we all know if they had flipped it, there would still be complaints.

The business complaints are also driven by cost savings, i.e. firms were willing to pay for leased lines before but now see the potential savings from GEA services and want to lower their costs.
Posted by Blackmamba 9 months ago
Hi Broadband Watchers.
The 10% section under (24 meg on post codes) should check and see what is the max speed that is available and if possible record results on TBB, I have found that many customers do not know that they can get better service so it is the responsibility of all ISP,s to advise them. This would drop the 2,10 meg results and highlight the worst areas. EG areas served by more that one Cab.
Posted by TheEulerID 9 months ago
MPs complaining about the prioritisation of BDUK is a bit rich. The rollout priorities and the emphasis on speed and coverage at SF speeds at lowest were priorities that were set by political imperatives. Anybody who cared to think about would surely have realised the consequences.
In event, if some other policy had been chosen (concentrating on not-spots), then coverage would have been less and cost more.
Posted by JNeuhoff 9 months ago
@TheEulerID (Steve Jones): " if some other policy had been chosen (concentrating on not-spots), then coverage would have been less and cost more. "

Isn't the opposite true?
Posted by godsell4 9 months ago
Or cost the same and covered even fewer!
Posted by WWWombat 9 months ago
The cost was fixed, essentially.

As ever, "hardest to reach" is a euphemism for "costliest to reach".

If the policy was to reach the "hardest to reach", instead of the "easiest to reach" (a policy often labelled "cherry picking"), the outcome would be
- not the "most value",
- not the maximum number of premises,
- not the fastest.

It is most likely to have been
- "least value"
- smallest number of properties
- slowest.

The choice of priority - a political one. Isn't this why CDS has no "phase 2" at present?
Posted by DrMikeHuntHurtz 9 months ago
BT has failed to upgrade my cabinet, so I say give them the chop!
Posted by darren_mccoy 9 months ago
The government should subsidise fibre optic cabling and every new housing development should have fibre to the building as a must have in order to get planing permission.
Posted by Kr1s69 9 months ago
I don't get how an independent openreach would spend more. It would do the opposite.

They'd be a profit driven organisation with shareholders looking at profit over the short term (less than 5 years)

So I've no idea why they would suddenly invest billions.

BT retail profits from selling openreach and together the combined profit keeps their shareholders happy. Without the profit from retail, openreach would find it harder to raise financing.
Posted by Blackmamba 9 months ago
Hi Broadband Watchers.
Please remember that all Cabs were provided with access to 100 customers first come first served this information was under the control off local politicians from the top to the bottom down to parish leval. This also gave the opportunity for the spare fibre to be extended from the local node either close or far reaching. Demand Lead. EG. Fibre on demand, Fibre to the DP/Home.
Posted by TheEulerID 9 months ago

How on earth could using the same amount of money to cover the most expensive to reach locations first do anything but reduce the level of coverage at SF speeds? Take it to the limit, and it means spending many thousands of pounds delivering FTTP to farmhouses.
Posted by CarlThomas 9 months ago
Mamba: All cabs were not provided with 2 line cards in place. It varied depending on expected uptake.

No-one cares about the spare fibre until it starts getting used. As far as Joe Public are concerned, rightly, it doesn't matter.

FoD in its current incarnation is worthless to 99%+.

There don't appear to be plans to do FTTdp any time soon.
Posted by CarlThomas 9 months ago
I must admit to being bemused by Mr Neuhoff's logic.

Random numbers, if you have a hundred million to spend you are going to cover far more properties at £200 per premises passed than £2000.

This seems pretty uncontroversial.
Posted by andrew (Favicon staff member) 9 months ago
Perhaps we'd have been in a better postion if a 15 year FTTP plan had started in 2012 with public polls to determine which areas benefit first.
Posted by Blackmamba 9 months ago
Hi Carl.
My statement was a 100 pair tie connection to either 1,2,3,4 cards what ever was required in the area thus giving the best cost base with extra capacity using fibre at a later date if required. If you look on thinkbroadband maps the fibre runs in Surrey on the post codes which are now highlighted (dark) plus information on Elgin( future ) I feel that openreach will hit as many post codes as possible with the investment in the pot. Just keep checking TBB results 24.00 meg tick tock.
Posted by andrew (Favicon staff member) 9 months ago
@Blackmamba What dark highlighting on thinkbroadband maps?
Posted by Blackmamba 9 months ago
Hi Andrews.
Sorry I missed your reply. I was referring to the post codes that have been provided with fibre to the DP and are not showing on your maps in black but are showing on the BT checker. It could be due to the delay of the over right on the tiles I do keep finding them.
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