UPDATE RSA Slams BT and Virgin for Lack of Broadband Competition in Cities

The RSA’s City Growth Commission, which claims to be an “enlightenment organisation” committed to finding innovative practical solutions to modern social challenges, has published a new report that calls on the Government to improve broadband provision in UK cities and criticises BT and Virgin Media for working to “constrain supply and market competition“.

The new Connected Cities: The link to Growth report found that the majority of core and key cities across the United Kingdom hold an ambition to have greater financial control, governance and accountability over critical areas like broadband and transport infrastructure.

A related survey of 18 major cities, including a collective response from London’s Councils, found that 89% of respondents had an infrastructure plan (5% had plans in-development) and most viewed the biggest future pressures on their infrastructure as coming from maintenance (89%), population growth (83%), climate change (78%) and an ageing population (67%).

But such pressures can also result in extra demand on infrastructure and 72% of cities identified the biggest single area of demand as being broadband connectivity, with BT and Virgin Media being singled out for their perceived impact on the market and competition. The restrictions imposed by EU State Aid rules, which are understandably less accepting of public investment being used in areas where good connectivity already exists, also gets a mention.

Connected Cities Quote

“The key issue raised by cities is that current provision of broadband infrastructure does not match urban requirements for high speed, super-fast connectivity. It seems private suppliers do not have the incentives to invest in network and last-mile infrastructure, especially to meet the demands of small start-ups that require lower-cost, flexible packages of super-fast broadband.

Supply is delivered to the point that it is most profitable in the short run, rather than in the interests of long-term city growth. The end result being that infrastructure investment is inconsistent and often inadequate. Compounding this private sector issue (heightened due to the concentration of the market in one or two players – BT and Virgin), metros are further constrained by European State-Aid rules, which prohibit public investment in infrastructure where private sector investment already exists or is planned to exist.

National government policies have been put in place to try and alleviate these issues across rural and urban areas. For example, the creation of Broadband Delivery UK (BDUK) aims to tackle poor rural connectivity and the Super-Connected Cities programme has distributed £150m across 10 cities as part of the government’s £780m investment in digital infrastructure across the country. This programme includes the creation of Connection Vouchers, which help alleviate the costs of connections to superfast broadband for small companies.

While European State-Aid rules are designed to ensure public investment does not carry deadweight and does not interfere in the operation of efficient markets, the definition of ‘existing’ infrastructure and how adequate that infrastructure is for the 21st century, limits the freedom of metros to help enhance the quality of supply above and beyond that provided by private firms, in the interest of economic and social productivity.”

In fairness there is a lot of new investment going into broadband in urban areas, such as via Hyperoptic, CityFibre and a number of other providers (e.g. Sky Broadband and TalkTalk’s Joint Venture with CityFibre). Equally this is not currently to the same scale as BT and Virgin Media’s existing infrastructure, while it should be noted that Virgin doesn’t have the same regulatory commitments to meet as BT, being the national incumbent, does.

At this point it’s interesting to recall Birmingham’s original Smart City project, which proposed to build a new fibre optic network that was “genuinely open to all operators and will therefore promote competition“. Unfortunately a legal challenge by BT and Virgin Media quickly put pay to that idea due to fears that it would overlap with their own hybrid-fibre (copper, fibre optic and coax cable) infrastructure (here), which is part of the reason why we now have a Connection Vouchers scheme to help businesses install a superfast broadband connection instead of a general infrastructure upgrade in 22 UK cities.

However it’s difficult to know whether giving major cities more autonomy to make their own decisions and financial investments would have much of an impact, especially given the underlying problems with State Aid rules. Never the less the RSA also recommends that the Government review the “insufficiency of fibre connectivity in key parts of cities (especially final connections to businesses and households), in light of what seems to be insufficient competition in the high-speed broadband market“.

The RSA also wants the Government’s review, should one ever surface, to consider how the aforementioned concerns might be resolved. In particular it highlights several key areas for review.

Recommended Focus for a Government Review

* The national interest case for having fully fibred systems in dense urban areas;

* Whether open access matters and if so what would be needed to drive real price and service competition and innovation into the fibre/ducting level;

* Whether the structure and regulation of the market are holding back the development of the above; and,

* The impact of the current state aid rules and how options for addressing them.

Incidentally the Government are currently working on a new forward-thinking infrastructure strategy, which is due to surface by the end of 2014 and should plan the way ahead for the next 10-15 years (here). But the outcome of this, whatever it ends up being, will come so close to the next general election in 2015 that you’d probably be best taking whatever it might say with a pinch of salt (we expect lots of bold ambition and precious little detail about how they might be achieved).

UPDATE 10:39am

The following is Virgin Media’s reaction.

Gareth Mead, Virgin Media’s Spokesman, told ISPreview.co.uk:

“As Virgin Media continues to invest in new services and infrastructure, we strongly believe the best use of scarce public money is to ensure people and businesses know how to make the most of next generation networks already in the ground. The overwhelming evidence suggests improved digital skills will further unlock Britain’s potential and support sustained investment.”