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Ofcom Tweak Commits Mobile Operators to 90% UK Landmass Coverage

Posted Monday, February 2nd, 2015 (10:41 am) by Mark Jackson (Score 1,090)
wireless rural broadband field mast

As expected Ofcom has started to put the recent coverage agreement between Mobile Network Operators (MNO) and the Government into practice by introducing a new licence variation(s) that commits Three UK, EE, O2 and Vodafone to provide voice coverage across 90% of the United Kingdom’s landmass by the end of 2017.

The new agreement, which was reached just before Christmas (details), included among other things a pledge to extend geographic mobile network coverage (voice and text) of the United Kingdom from 80% today to 90% by 2017. On top of that mobile data coverage (3G and 4G [Mobile Broadband]) will be extended to 85% (currently 69%).

Culture Secretary, Sajid Javid, said:

For far too long, too many parts of the UK have regularly suffered from poor mobile coverage leaving them unable to make calls or send texts. Now at last we have progress that will give the UK the world-class mobile phone coverage it needs and deserves.

The deal will also bring £5bn investment by the mobile networks into the UK’s infrastructure, which will help drive this Government’s long-term economic plan.”

It’s important to reflect that landmass / geographic coverage is a much harder pledge to meet than the usual population / premises coverage commitments, which is what operators typically tout (see below), because fewer people live in rural areas (the urban statistical bias has a big impact) and yet rural areas make up most of the UK’s landmass.

All of the primary mobile providers currently meet the existing 3G mobile coverage obligation to reach 90% of UK premises / population, while EE, Three UK and Vodafone have indicated that they intend to match O2’s 98% indoor coverage obligation for 4G by the end of this year.

Today’s new licence variations (PDF) impact the 900MHz and 1800MHz radio spectrum bands, although the actual commitment also appears to include 2100MHz and 800MHz.

Coverage Obligation
The Licensee shall by no later than 31 December 2017 provide and thereafter maintain an electronic communications network that is capable of providing mobile voice telecommunications services to an area covering at least 90% of the geographic landmass of the United Kingdom at at least one of the minimum signal strengths set out in Table 1 of this condition. For the avoidance of doubt the Licensee shall be permitted to meet the obligation set out in this condition using any frequencies and technologies available to the Licensee.

Technology and Band (Minimum Signal Threshold)
GSM900 (-93 dBm)
GSM1800 (-93 dBm)
UMTS2100 (-103 dBm)
LTE800 (-115 dBm)

As part of the agreement the mobile operators had wanted Ofcom to reduce their proposed licence fee hike (applicable to the 900MHz and 1800MHz radio spectrum bands). The regulator has not said precisely what they intend to do yet, but today’s update does confirm that they will “shortly” consult on this issue. The regulator also plans to publish a new Mobile Broadband speeds study during the spring.

It should be noted that the figure of £5bn isn’t broken down and appears to reflect some of the existing commercial spend through the current 4G deployment etc.

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14 Responses
  1. DTMark

    In a similar manner, why don’t we just “force” BT to commit to 90% superfast broadband coverage? It’s a stronger argument since BT is in receipt of taxpayer funds. No “aims”, “goals” or redacted contracts needed.

    Why is it OK to trample over the investment decisions and intellectual property of some companies while others receive very different treatment?

    • Steve Jones

      Because there’s no basis in law for it. 3G mobile licences always had a coverage requirement, and this was amended in 2010 through a variation of the licence (which the operators all agreed to). The key to this article is the word “agreement”.

      The same thing happened with BT regarding the principle of equivalence and the restructuring of BT with the Ofcom settlement. (There was, of course, political and other pressure applied through the implied threat of a referal to the monopolies commission). The intention then was that BT would not have a monopoly over the supply of broadband over copper lines through the use of LLU. As such, there is no legal obligation for BT to provide anything by a line with the ability to carry voice (and a very low data rate too). This was inherited from when BT was privatised.

      The reason that this can be enforced is due to the fact it’s possible for BT to cross-subsidise more expensive rural areas from the cheaper to service urban ones. In effect, those in cities and towns are cross-subsidising rural ones. Much the same happens with other utilities, like mail, water and electricity.

      Such a model breaks down where there is competition in the cheaper to service areas. At the moment, there is strong competition from LLU ADSL2+ systems and from VM. Admittedly the former is not “superfast”, but it’s sufficient to mean takeup on FTTC is relatively low. Perhaps 20% or less. Until takup is much higher, then there won’t be any “surplus” to cross-subsidise rural areas.

      That day may eventually come, but it’s not now. At the moment, with FTTC penetration in enabled areas at 20% (and only about 15% across the country) the economic model doesn’t exists to generate the cross-subsidy model required for a superfast USO. It’s simply not possible for a regulator to enforce it without the requisite powers (and to try would end up in the courts). Of course there are other economic models that could be adopted (like differential regional pricing), but for historic reasons, regulators (and politicians) will not approve such things.

    • DTMark

      I was struck more by the word “variation” than “agreement”.

      The government is now crowing about 5bn of investment in our mobile networks.

      Yet, fixed line only gets a fraction of that private investment. Could have been so, so much more.

      Oddly enough a licensing regime is something I’d touted a long time ago in terms of guaranteeing ROI for those investing in rural areas, as long as the Government never, ever does anything which stifles competition. It does not “pick the winners and losers”.

      And that’s exactly what it has done with the bung to BT.

      I really can’t see how the area I live in (rural) is being cross-subsidised by urbans. It’s an ancient network, it’s all here already, there has never been any investment in it that I am aware of, and it offers no useful products or services. It is just an old fixed line phone company when people want telecommunications services. Are we saying that even without any investment at all, just milking the old tech, that this area actually runs at a loss?

      There are two telecoms companies here, though, Three and EE, who offer useful products and services. If BT had got off their backsides and invested, maybe there would be more subscriptions – seems a shame that old wire goes unused year after year. I think that’s seven years it has lain unused now and we’ve spent thousands with the competition.

      What you’re saying seems to amount to “If BT don’t hold a monopoly then nobody is getting anything”. (Ergo, “nobody can do this better, quicker, cheaper than BT” which seems very unlikely) I wonder if that was what was said to BDUK resulting in the outcome we have and destroying any chance of serious private investment.

    • Steve Jones

      Your rural line is much more expensive to service. There’s just many more miles of infrastructure to maintain. More telegraph poles to rot and need replacing, more miles of cable, more trees to fall on lines. Given the lower population density there’s much less income to pay for all this. If a fault happens, then the engineers have to travel longer.

      Infrastructure is subject to the ravages of time and it’s a simple fact that (for all utilities), there’s less income to cover higher costs. It doesn’t matter if it’s the Royal Main, buses, gas line,l power lines, water or whatever. It needs cross-subsidisation.

    • Steve Jones

      @DTmark

      Just to point out this is not something I’ve invented, here are two of (many) articles on the issue of urban/rural cross-subsidies. There are dozens of these. Also, even making the (wrong) assumption that infrastructure, once installed, never needs significant maintenance or replacement, then what about the new stuff like “superfast” broadband. There new investment has to be funded and cost-recovered.

      “Despite their political popularity, universal service prices entrench an implicit cross-subsidy. Customers in urban areas pay prices above cost to offset losses incurred by charging prices below cost in rural areas. This is not a problem for a monopoly network operator. However, the case for imposing this pricing system falls apart in the face of infrastructure competition. Competitors in low-cost urban markets can undercut the “universal service price” operator, slashing the profits the operator uses to subsidize rural areas.”

      http://www.techpolicydaily.com/internet/pride-prejudice-precluding-infrastructure-competition-government-owned-networks/

      or
      “Market competition is the natural enemy of cross subsidies. While direct competition for telephone subscribers may be long in coming to many rural areas, the competitive erosion of cross subsidies currently provided by toll calling, business and high profit residential market segments is surely going to proceed rapidly. Naturally, the political lobbies for competitive network operators do not want to provide any subsidies for rural development.”

      http://www.rural.org/workshops/rural_telecom/egan/1.htm

      It would be better if people recognised market reality rather than imaging it’s not an issue. It is, and no serious economist doubts it. Start with the knowledge that it does cost more to provide and service utilities in rural areas and then work on options from that basis. For example, there’s B4RN using volunteer labout, free wayleaves and the ability to avoid works on public highways. There are options for implicit cross-subsidy models (if the market economics are set up the right way). There are options for explicit cross-subisidies (by levies on operators in urban areas). There are public subsidy models. There’s differential charging. What is not an option is ignoring reality.

    • PeterM

      Yes, I would agree but OFCOM needs to set a speed target and it has to be attainable.
      The current 2Mbps minimum is now being used by WSCC as adequate because that is all they are obliged to give us in rural Sussex.
      Surrey is pushing for 15Mbps, this is attainable and should now be set as the new legal minimum for all UK lines by the end of 2017.

    • Steve Jones

      @PeterM

      But paid for by whom is the question? You can’t just impose a national requirement without an economic model which supports it.

      nb. another little thing that applies (more) in rural areas. Wayleave charges. For example, a telegraph pole attracts £10 per year plus potential costs for lost agricultural production. A run of 20 poles (perhaps 600 metres) over farmland will therefore attract a minimum payment of £2,000, or the wholesale rental revenue from 20 lines.

      http://api.ning.com/files/gSwxufjvc-Ma2Li6v67YdhdgqlvHfTZ4th5Bb*idIYgvU-9Ga1uJg7glU9mcI4O0JCdSbAou4s0n6IeCXL3seQhvGPu91T*k/BTwayleaverates.pdf

    • DTMark

      So, to clarify, BT would be more profitable if all the rural areas were removed from its remit, and handed to alt-nets – this would be a good financial outcome for BT?

    • Steve Jones

      @DTMark

      Basically, yes, apart from a regulatory issue. If the phone and broadband network in the relevant areas was handed over, then it would. But then Ofcom would just regulate the line pricing down for the relevant area, so there wouldn’t really be any gain of course. It’s just that the average price is regulated to cover the mix. There’s also the little issue of where the boundary would be drawn.

      There are also strategic reasons to be a national provider of course, and there’s a cultural issue of operating that way.

      The issue with broadband is there simply isn’t the near national monopoly to cross-subsidise to the same level. The LLU competition in all but the most expensive areas to serve keeps prices down, so there isn’t really a large margin to finance less viable areas. It may be that as things move “superfast”, this might emerge. However, at the moment there are 23.2 million fixed broadband connections, and only 3.7 million of those (16%) are FTTC (that’s the wholesale count).

      Of course, BT has a large number of ADSL2 and ADSL2+ broadband connections (about 10 million BTW ADSL ports). However, any margin from that can’t be used for basic network upgrade for two reasons. First, margins are thin (due to LLU competition) and, second, they are operated by BT Wholesale so it’s a separately regulated business. (There is a proposal with Ofcom to merge BTW and Openreach, but that’s going to take a long time and there are lots of opponents).

      What is needed to fundamentally improve broadband performance is enhancement to the network infrastructure (basically running fibre deeper into the network). That can only be financed through revenues to Openreach, either currently or anticipated. As FTTC is operated by OR there is income from that source. However, with fewer than 4M lines, the gross rental income will only be about £600 million a year at the moment, and it’s almost certainly a loss maker at the present rate of penetration once depreciation and finance costs are included. It will grow of course, but it won’t be a great source of surplus cash for reinvestment for some time to come.

      Of course there’s the far higher line revenues. With about 25.5 million lines, that’s around £2.5bn per year, although much of that is taken up in operating costs although free cash flow is fairly good there. However, some will go in dividends, pension top-ups etc. OR have a few other sources of income, but these are the big ones.

      I’m not saying that in the big picture rural areas are massive losers of money, but a lot will (at best) barely cover their basic costs. It’s just difficult to see where the source of cash is that would finance a huge uplift to the rural network requiring perhaps £5bn (assuming a mixture of FTTC and FTTdP). BDUK is proving some of it of course.

    • PeterM

      @Steve Jones
      I think that we can all agree that broadband is a good investment for UK PLC and that a reasonable bottom speed of 15Mbps is much better than 2Mbps. While it is true that Surrey is paying more for its BDUK project than West Sussex the costs are not substantially more. With a bit more lateral thinking such as using fixed wireless and maybe even the mobile network in very rural areas things could be substantially better for a relatively modest outlay.

    • DTMark

      Steve

      Thanks for such a detailed answer.

      Even if all that’s true, though, and perhaps you hit on it with the word “cultural”, BT simply don’t believe what you have written. Which seems odd considering that I thought you worked for BT.

      You might have thought that BDUK would have been a wonderful opportunity to fix this.

      However at the first sniff of any competition (rurals, alt nets – even 4G) BT’s behaviour is to try to squash the competition and squeeze it out in order to keep the rurals, using public money.

      So they are much more important to BT than you or logic suggest. Something isn’t quite right here.

  2. adslmax

    Why 2017? Why not right NOW! Useless ofcom

    • Steve Jones

      Maybe because it takes time, money and resource to install more transmission masts? It’s not something that can happen overnight.

  3. Matthew Williams

    This is something that slightly confuses me unlike O2 and Vodafone. EE and Three have no 900MHz and the 800MHz they have will be used for 4G. So for there 90% are they going leave the 85%-90% with no proper backhaul will be confusing for people having a 4G signal but no data.

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