UK Hopes for Relaxed EU State Aid Rules to Help Upgrade City Broadband

The Government’s Communications Minister, Ed Vaizey MP, has hinted of his tentative expectation that the European Commission might soon relax their rules governing the use of state aid in cities. Such a move would make it easier to upgrade urban broadband Internet infrastructure and there are signs that the EC might indeed be planning just such a U-turn.

The idea behind state aid is that it should only be used in areas of market failure and where the case for commercial investment is weak, which for broadband connectivity most typically applies to smaller rural towns and villages. By comparison dense urban or city areas are already perceived to have plenty of potential customers and competition.

However rural areas aren’t the only ones who can suffer from diabolically slow speeds and many urban areas do too, often due to Exchange Only Lines and other planning / access complications (here and here). Indeed this is an issue that has cropped up many times before, with even some of London’s wealthiest apartment buildings still being stuck on slow ADSL lines.

At this point it’s easy to forget that the UK government’s original £150m Urban Broadband Fund (“Super-Connected Cities“) programme was setup with a goal of being able to help upgrade or build new broadband infrastructure in the parts of 22 cities where existing connectivity required clear improvement.

But the above approach soon ran into difficulties. Back in June 2012 the EC praised the city of Birmingham for being the first UBF scheme to win its approval, which was largely due to its focus on being “genuinely open to all operators” and strong support for Dark Fibre access (here). The project planned to build an “ultra-fast” fibre optic based 80-100Mbps+ capable broadband ISP network by 2015 (back then 80-100Mbps+ was the general UBF goal, although it has since been reduced to 30Mbps+).

Unfortunately the plan quickly ran into trouble after BT and Virgin Media, which were both concerned that the city’s new network would perhaps inevitably overlap with their own (even the current BDUK scheme has some limited allowance for overlap), launched a legal challenge to Birmingham’s project (here). “It’s a poor implementation of what is otherwise a sensible policy,” said Virgin Media in 2012.

The following year it also became clear that the EC’s competition authorities appeared to have some concerns and were calling for a long-winded review of the plan to use state aid in urban areas, which some anticipated could last for up to 12 months (here).

A delay that long would have taken the UK’s programme out of time and so instead the infrastructure plan was replaced with today’s watered down Connection Voucher scheme for businesses, which are of little help to residential properties. Fast forward to today and the situation appears as if it might soon change.

Ed Vaizey, Communications Minister, said (Computer Weekly):

“We have a problem with state aid in cities – the commission believes cities are already competitive enough. But a new commission might take a different view, which would be helpful. There are ‘noises off’ that, because the EC recognises that networks are vital aspects of the digital single market and for economic growth, it would look at reasonable arguments on cities again.”

At this point Vaizey appears to be reflecting some truth and indeed the EC’s new Commissioner for Digital Economy and Society, Günther Oettinger, has already indicated that he may be leaning towards a more flexible state aid approach.

“It is similar to what we are already doing in the energy sector: in some limited cases, for new pipelines, companies can be exempted from the requirement to provide competitors with access to pipelines. This is only given if they can convince the EU Commission that without that exemption the investment would not have been made,” said Oettinger last year (here).

But so far the above idea has only been implied as an approach for rural and not urban areas, although it’s an indication that a softer approach towards state aid may indeed be on the way. As usual the devil will be in the detail and, if care isn’t taken, then significant changes could easily court controversy.

On top of that it’s now been over three years since this issue began and we’re still waiting for BT, Virgin Media and other operators to plug some of those poor urban broadband connectivity holes. We see plenty of encouraging signs, trials and plans, but the pace has sometimes appeared to be very slow. In the meantime BDUK and BT have moved swiftly to benefit many suburban and now also rural areas.

Last we not forget that May 2015 will also bring with it the familiar sounds of a General Election campaign and the significant possibility of a political change, which could in turn deliver an entirely new approach to broadband deployment. Meanwhile the EC are revising their Single Telecoms Market plans and this is anticipated to be published in the not too distant future, which might include mention of the adjusted state aid approach.