Extending Local Full Fibre Networks – response to DCMS call for evidence

ukcta_publicPolicy papers

1st February 2017

1. Introduction

UKCTA is a trade association promoting the interests of competitive fixed-line telecommunications companies competing against BT, as well as each other, in the residential and business markets. Its role is to develop and promote the interests of its members to Ofcom and the Government. Details of membership of UKCTA can be found at www.ukcta.com. Given that UKCTA members have been investing in fibre networks in the UK for over twenty years, we welcome the opportunity to respond to this call for evidence since there is a great deal which government can and should do to improve connectivity throughout the UK.

The views expressed in this response do not necessarily reflect those of Virgin Media, which will be making its own submission.

2. General comments

The focus and scope of the paper appears to us to be confused and in places presents mixed messages. In the main the call for evidence appears to have as its focus only access networks, specifically access networks in residential areas using consumer grade access products. It is true that as consumer grade products have offered faster speeds, they can be attractive to some small businesses, but to assume that consumer products are the answer to the needs of all businesses just because they offer high download speeds would be a serious over simplification.

This focus on the consumer market has been evident in the UK for some years and UKCTA has long called for greater focus on the needs of businesses. Previous interventions aimed at the consumer market have led to a connectivity doughnut effect where businesses in city centres and on business parks often suffer poor connectivity compared to residential areas, with no clear transparent plan for improvement.

The current call for evidence does mention the needs of business customers but then does not go on to consider what solutions might be possible, instead it assumes that consumer grade products will be good enough. There is a section in the document which suggests that business connectivity is a separate matter entirely. Yet other sections mention business customer and their needs; all of which suggests that there is a degree of confusion in government.

A recognition by government that businesses have needs which are distinct from those of consumers (and can require different solutions) would be very welcome.

Another area which is not considered at all on the call for evidence is the need to help encourage further investment in backhaul network capacity. This is key and underpins other priorities such as the roll out of 5G mobile networks.

3. Government Funding Options – Option E (page 12 of the Call for Evidence):

In general, on the issue of direct funding of networks ought to be an option considered only after other initiatives have been implemented (for example the reforms which we have highlighted elsewhere in the paper).

We also urge the government to learn the lessons from previous initiatives. These have been widely criticised not least for the complexity of the bidding process which resulted in nearly all of the funding going to BT and network being deployed in many cases where operators such as Virgin and Warwicknet had already invested in infrastructure. Consideration ought to be given to building from the outside in, that is to say intervening in the most hard to reach areas first since these are the very places that have the most to gain and are least likely to be served by privately funded infrastructure. The taxpayer is not getting best value for the investment if public funding is used to compete with existing networks or to invest in areas that would have been served commercially anyway.

The process has effectively allowed BT to get away with cherry picking areas that suit its own commercial interests. Further, BT has been able to require local authorities to keep its rollout plans and costs confidential, chilling the incentives of competitors to invest themselves in underserved areas. The result is patchy inconsistent coverage across large parts of the UK. In some rural areas such as Shetland, funding was used to deploy FTTC even though it was known that many customer premises were too far from the cabinets for this solution to improve broadband speeds. In the case of Shetland FTTC was used in preference to utilising the existing local authority owned fibre backbone since the national preferred solution was FTTC. Such inflexibility of thinking does little to ensure the best possible outcome for the end user nor the most efficient use of the taxpayer’s money.

In general, we believe that the priority ought to be to consider options for stimulating demand or removing barriers to investment ahead of any possible public funding of private companies to build networks.

Any future funding should not repeat the patterns of previous funding which built from urban areas outwards, leaving the hardest to reach parts of the UK unserved in many cases to this day. For example in the local authority area of Na H-Eileanan an Iar in 2015 only 10% of properties could access superfast broadband services. A year later dramatic improvements had been achieved but still only 39% of premises were served. Previous interventions have concentrated on working from the centre outwards, arguably funding rollout which would have happened in due course anyway.

Where intervention is considered, we do not agree with the suggestion that the necessary funding should be sourced from BT’s competitors. BT has already benefited very substantially from publicly funded support, and has not been subject to appropriate checks and balances in the scrutiny of how that money has been spent, as described below. To top that up with money from its competitors would undermine rather than boost competition. We are in any event concerned that such direct funding simply pays BT to do what they would have done in any case – in other words public funding simply speeds up what would otherwise have happened. There have been well documented concerns expressed that once in receipt of government funding, BT has failed to provide any transparency of what it is doing with the money, preventing any form of realistic oversight. This lack of transparency frustrates efficient investment since other providers are unable to determine where they might best invest, thereby hindering competition.

The BDUK model has flaws and coverage remains very patchy. BT has not rolled out effectively in areas which are underserved as it has focused on easier-to-reach areas despite receiving very significant public subsidies to tackle poor connectivity. Furthermore, BT has tended to favour its own group’s operations, rather than the market as a whole . For example many business parks and areas near town centres still suffer from poor connectivity, thereby hampering competition and productivity of local businesses. This is a heightened concern when such business consumers are paying for expensive leased lines, when alternative cheaper options could be offered if BT’s fibre rollout was more logical. As a result, we have therefore only got a patchwork of connectivity which does not meet the original intention of the BDUK programme, nor the needs of consumers or business customers.

BT has also played the system somewhat, in that it has also set itself a very high commercial investment threshold, which means that it is benefitting from state aid to rollout to areas which could have been commercially viable anyway (especially as BT has sufficient capital to make such investments). While we recognise that some funding has been recovered later from BT, the fact that the government has had to clawback some of the money simply demonstrates that such funding options are open to abuse.

There have also been examples where BDUK funding has been used to deploy network where existing high speed network has already been provided by other companies such as Virgin Media.

Furthermore, if the focus is to be on improving the connectivity of individual consumers (as opposed to large businesses), then it would not be appropriate to consider sourcing funding from large B2B network providers, and such providers should be explicitly exempted from any funding obligations.

Future scheme should be transparent and should be more open – rather than saying serve x homes, qualification criteria should be drawn in a way that could be more open.

Regulatory reforms to assist fibre investments

Reform of business rates

Before spending further sums of taxpayer’s money funding BT’s network extension there are practical steps which Government could take to lower the barriers to network investment in the UK. UKCTA has for some years lobbied Government to level the playing field on the issue of business rates. It is unhelpful when alternative networks have to factor in the cost of rates which will become due the moment fibre is lit, while their biggest rival BT does not have to take this into account. Much has been done, for example the reform of the appeals system for rating assessments, but many of the issues on which UKCTA has campaigned, remain unaddressed. The Chancellor’s recent announcement of a 5 year relief for “new” fibre appear at first blush to be a positive step but on closer inspection raises a number of issues and might in fact be of very limited benefit to most operators and most network investments depending on how it is implemented.

Although no detail has been announced on how the new relief will work, we assume (since this is the most logical way to operate such a relief) that it will apply to whoever lights the fibre, whether it was originally dark fibre purchased as a wholesale input from an existing infrastructure operator (such as BT) and subsequently lit, or it is lit as part of a completely new infrastructure build/dig.

The alternative interpretation of ‘new full fibre infrastructure’ to mean the relief should only apply when a ‘new’ infrastructure network is dug and immediately lit would render the relief scheme largely ineffective (other than for BT) and would frustrate the objective as understood above. For most UKCTA members fibre attracts business rates as soon as it is ‘lit’, that is, when it is connected to other equipment to turn it from ‘dark fibre’ into an active product (ie one providing connectivity). Conversely, BT attracts business rates on the profit that they generate from fibre. It is not clear how the proposed rates relief would work into these two quite different models, and clarity is needed to inform network plans and associated business models.

Applying the relief only to newly installed fibre would also be needlessly complex to administer. Typically, there is a delay between build and lighting of the fibre. The most common approach used by industry is to build network and install greater capacity than can be justified by confirmed orders at that point. It is cheaper and less disruptive to install additional capacity to enable the network to respond quickly to meet future demand. In such cases at what point would the relief apply? Creating a disincentive to operate in this way (i.e. future-proofing capacity demands) would be highly inefficient, because it would encourage industry to install just enough fibre to meet demand meaning that subsequent orders could not be met without further works, delay and disruption.

We would suggest the rating system is complex enough without the government becoming involved in determining questions of what the qualifying period is for the relief (i.e. how new is the fibre, is a gap between construction and lighting permitted?). This would serve to underline the distortive effects of the rating regime through the application of different rating methodologies to BT and to its competitors.

In short, we believe the proposed policy of rating relief requires development in light of industry practice. The simplest solution would be to apply the relief to any fibre lit after a set date (for example from 1 April 2017). This would be simple to administer and would have the greatest effect in terms of stimulating fibre deployment and take up.

The definition of the hereditament that qualifies for business rates assessment includes also wayleaves and ducts. UKCTA would like to confirm whether it is the government’s intention to extend relief to these areas. Finally on the issue of rates, the operation of the rating system threatens to undermine an Ofcom regulatory initiative, Dark Fibre access in much the same way as it previously threatened to derail local loop unbundling 12 years ago. At that stage Government was persuaded to take action to ensure that BT was deemed to continue in rateable occupation of local loops rented out to LLU providers thereby ensuring that LLU was not more expensive than BT’s wholesale broadband products. This allowed the industry to invest in rolling out broadband services. The same risk now threatens dark fibre access. The application of business rates to dark fibre rented from BT will make it more expensive than the active Ethernet products which it is designed to replace. Both Ofcom and industry have argued that Government should intervene to maintain the status quo, but so far without success. It is unhelpful when policy interventions designed to boost connectivity and investment are threatened by conflicting policies such as the rules of the business rating system. UKCTA believes that the government ought to take seriously the calls of the regulator and industry to explore solutions in the way that they did so successfully for LLU.

Reform of Planning policy

UKCTA welcomes the reform of planning in relation to poles and cabinets but believes that there is more that could be done to help facilitate faster, cheaper fibre deployments. It has been estimated that around 80% of the cost of deploying network infrastructure is the cost of digging, an activity which is unpopular with the public and politicians due to the disruption which it causes. Were government to require developers, as a condition of planning consent, to pre install ducting or accessible in building wiring then it would be easier, quicker, and cheaper to deploy fibre networks when construction or redevelopment is complete and customers are keen to take services. There would also be less disruption from street works as a result.

Reform of the electronic communications code / wayleaves

The call for evidence rightly notes that the Government has continued the work of the previous coalition government on reforming the outdated and needlessly complicated electronic communications code. Having argued since 2008 for reform of the code UKCTA is delighted that at last progress is being made in this area. One of the areas which the new draft code does seek to address is the right to share or upgrade infrastructure including ducts and masts. While this is a welcome development and will doubtless be of great help in relation to any wayleave agreements concluded in future, it does nothing for the vast number of agreements which are currently in place which typically prohibit such sharing.

This has been an issue which has helped to frustrate previous policy initiatives to help boost connectivity such as the duct and pole access remedy PIA imposed by Ofcom on BT. The same is true in the case of Dark Fibre Access, a regulatory policy designed to boost businessconnectivity. In both cases BT has insisted that its customers wishing to use existing BT infrastructure have to negotiate their own wayleaves because BT’s agreements (as is typical) contain prohibitions on sharing.

The need to obtain separate wayleaves for every company installing fibre in an existing duct simply adds needless bureaucracy, cost and delay. Rather than rendering unlawful restrictions on sharing in future agreements, UKCTA believes this measure ought to have been applied to both existing and future agreements. In order to speed up and simplify installations, it is simply essential that the issue of wayleaves is directly addressed and resolved. Despite reform to the electronic communications code, serious issues remain with regard to the agreement and use of wayleaves. The time, cost and complexity of negotiating wayleaves with different landowners each of whom will have their own preferred form of agreement is something which we believe must be addressed, perhaps by having a government or Ofcom approved form of telecoms wayleave. Without progress on this issue the process will continue to be beset by delay, unnecessary cost and inefficiency.

Section 1 – existing approaches

In Question 1 DCMS seeks examples of where fibre is already provided or planned. Mention is made of Gigaclear and Cityfibre as though these companies are unusual in investing in fibre networks. We would simply like to remind government that members of UKCTA (and prior to 2003 members of the Operator’s Group) have been investing in many thousands of kilometres of fibre network since the 1990s.

Section 2 – different approaches

Making Public sector assets available

The proposals set out concerning public sector aggregation look broadly sensible. There have been a number of examples of using public sector customers as “anchor tenants” to justify network build, network which could then have been made available to other customers. The largest such examples of this were the Pathfinder North and Pathfinder South projects funded by the then Scottish Executive. These involved the construction of access and backhaul networks throughout the North and South of Scotland to serve public sector bodies. These were not made available to other customers such as local businesses and were therefore a missed opportunity. We would suggest that when spending money on new networks government ought to invite bidders to set out what connectivity they could offer to local businesses and consumers as part of their proposed solution for the relevant public sector customer.

Digging fibre into the ground represents the lion’s share of the cost of rolling out a network so any options to open up access to public sector networks assets would be potentially very helpful – though of course there could be issues with wayleaves as we have explained above.

Centralised GIS register of assets

This option might be worth investigating but we would caution DCMS against assuming that extremely accurate records of infrastructure locations are universally available. The history of consolidation in industry in recent years means that many companies are operating networks inherited from a number of companies and records are not of a uniform standard. It is also worth noting that the location of network assets is often a matter of commercial confidentiality – this has proved to be an issue in for example the Scottish Road Works Register roadworksscotland.org which has suffered from a reluctance by Openreach for example to reveal where its works are being undertaken

Traffic Management Legislation

Thirteen years ago UKCTA was actively involved in arguing that transport policy on streetworks presented a threat to electronic communications policy in the sense that proposals to control and restrict the ability of telecoms companies to dig up the streets to install network would limit their ability to deliver the connectivity required by the UK. We are now seeing a resurgence in calls for greater controls in this area and increasingly active use of existing powers by local authorities. We understand that Government is considering legislating in this area this year or next. We would simply remind government that rolling out and then maintaining fibre infrastructure can and does involve street works. Communications providers have every commercial incentive to minimise the extent and duration of such works. There are existing powers in place, which arguably are too restrictive and in some cases are being mis-used. For example, under the Traffic Management Act local authorities are increasingly using section 74 notices and issuing penalties for over-running works – but there are reports that some authorities reduce the amount of time allowed for works thereby inevitably causing the works to “over-run” and allowing the issue of a penalty notice. UKCTA argues in 2004 that a regime of penalty notices leads to a needlessly confrontational culture and along with colleagues from the National Joint Utilities Group we urged Government to look instead at the more collaborative approach being pursued in Scotland under what became the Transport (Scotland) Act 2005. Sadly our calls went unheeded but if the Government is serious about kick starting a fresh round of network infrastructure investment, we would urge officials to speak with their colleagues in the Department for Transport and adopt a joined up rather than a contradictory approach by both departments. Streetworks legislation is typically far from the mind of policy makers in the electronic communications realm but is of fundamental importance. Since new legislation is being considered by Transport policy makers, the time is ripe for joined up analysis of the needs of both transport road users and fibre network operators.

4. Conclusions

  • The policy thinking appears to be muddled – the focus is on consumers whereas it ought to be on consumers and businesses – each group has distinct needs.
  • Public sector aggregation can be used but only if the network is then opened up to wider use – this has not happened on a number of previous projects.
  • Public sector intervention – if used should tackle the most hard to serve areas first. Greater transparency and accountability over the use of funds is required. The lessons of BDUK must be learned.
  • Reform of business rates – most urgently in relation to dark fibre access – has a key role to play.
  • The Chancellor’s rating relief announcements as currently proposed will benefit BT and very few others. The policy is destined to disappoint.
  • Planning, wayleaves and traffic management reforms are fundamental to network rollout and should not be overlooked – much has been done but there is a lack of joined up policy making in parts.