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UPD Virgin Media Slams UK Government for Gifting BT a Huge Public Subsidy

Tuesday, May 22nd, 2012 (8:51 am) - Score 1,008
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The Chief Operating Officer (COO) of cable and broadband giant Virgin Media, Andrew Barron, will today tell the House of Lords Select Committee Inquiry into the UK’s national superfast broadband strategy that BT are effectively being subsidised by government policy and thus “freezing out new entrants” from the market.

The governments Broadband Delivery UK (BDUK) office has so far set aside £530m (plus a further £300m after 2015 that could be found by using some of the TV Licence Fee) to help 90% of the people in each local authority area gain access to a superfast broadband (24Mbps+) service by 2015 (the last 10% would be given at least 2Mbps).

Sadly most of the alternative operators have since dropped out of this process, with some often pointing towards BT as having an unfair competitive advantage (example) or saying that the “sums simply did not stack up” (Fujitsu). As a result BT are now the only major operator left in the process, with Fujitsu’s interest having since diminished to bidding for just Cumbria and North Yorkshire.

Fujitsu’s project, which is strongly supported by Virgin Media, TalkTalk and Cisco, originally intended to develop their own 1Gbps capable superfast Fibre-to-the-Home (FTTH) based broadband network that would reach 5 Million homes in rural areas by 2016 and act as an alternative to BT’s national platform (albeit by using BT’s own cable ducts and poles).

Andrew Barron, COO of Virgin Media, said (The Guardian):

The noble ambition of locally procured rural broadband networks is protracted and likely to favour the incumbent, freezing out new entrants. The outcome of current government policy is likely to be the subsidy of already dominant infrastructure in areas where we are not, to the sum of hundreds of millions of pounds of public money.

If we agree competition is the best way to encourage further sustainable investment, and that embedding dominance in markets is bad for consumers, we must also accept that providing the vast majority of available public funding to an incumbent is not in the UK’s best interests.”

In fairness Virgin Media has also taken a fair degree of criticism over the years, often for refusing to open up its own cable network to wholesale access by rival providers; but then their platform wasn’t originally built with public money. Similarly Virgin Media does not have the same national responsibilities as BT and has kept its predominantly urban focused cable coverage at around 50%.

Likewise we should not forget that BT also plans to push a huge amount of new match-funded investment, possibly up to around £1bn more than their current £2.5bn commitment, to help achieve the government’s target. On the other hand it’s clear that BDUK’s process, where for most areas the only real bidder is now BT, has some extremely significant flaws.

Understandably Virgin Media and most non-BT ISPs would prefer to see the public money going towards promoting alternative infrastructures or to at least give rivals a fair chance. At present the bar is set so high that it would be very difficult for any operators, other than BT, to bid competitively.

UPDATE 12:33pm

BT has just sent us their official reply.

A BT Spokesperson told ISPreview.co.uk:

BT would be more than happy to compete directly with Virgin for BDUK funds but we doubt that will happen. That is because Virgin have steadfastly refused to provide open wholesale access to their network – a key BDUK requirement – and because they have shown no interest to date in supplying rural areas with broadband. This is in contrast to BT who offer broadband services on a wholesale basis to 99 per cent of UK premises. Fujitsu have announced their intention to bid for funds and so there will be a competitive process. We are already seeing this in several part of the UK“.

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Mark Jackson
By Mark Jackson
Mark is a professional technology writer, IT consultant and computer engineer from Dorset (England), he also founded ISPreview in 1999 and enjoys analysing the latest telecoms and broadband developments. Find me on Twitter, , Facebook and Linkedin.
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38 Responses
  1. Avatar New_Londoner

    Nothing stopping Virgin from bidding too, other than a refusal to offer wholesale options, share its own infrastructure with others, possible lack of capital to offer matched funding…..

  2. Avatar Telecom Engineer

    So we could give the money to Virgin who wont do rural or new build with their own funds as BAU (for all the moaning BT is covering huge rural / non cable areas).
    Or we could give it to a startup and hope it doesnt go bust (look at Digital Region – from what I read it was well enough managed and took an economical technology but still loosing money hand over fist)..
    Or we could let people bid in such a manner that the money follows the geography and we ensure the firm is large enough not to go bust within a year or two.
    If the latter then its obvious BT will have a major advantage – they have scale in every part of the country – they are already putting 2.5billion of shareholders money (the people who bought the duct / cables / poles from the government under privatisation) so have the skills, tools and technology already in use and are large enough not only to survive a roll-out but top up taxpayers cash with their own.
    Fuji… well you may get a super hyped press release from them but all we have really seen from them is an ability to build small scale networks for other people.

    Down the road from me is a very large housing estate, it had CATV feeding roughly 5000 houses all fed, Virgin ended up owning the system and come digital switch over turned the damn thing off – if they are not willing to invest in a few fibres and new amplifiers in an insitu urban goldmine I very much doubt they could be trusted with BDUK money.
    BT on the other hand have FTTC’d the whole estate with their own money…. speeds up from average 3/4meg to 30+ for fttc users (pre 80meg) – was easy pickings for virgin the past decade but they didnt want to spend the money…

    • Avatar DTMark

      Not ignoring the general business and marketing ineptitude of Virgin Media/ntl..

      But, do you think that 2.5bn of investment in a network of that size over 31 years is a significant sum?

    • Avatar FibreFred

      @DTMark

      2.5 covers the investment now not since privatisation, they didn’t buy a network “internet ready” in 1982 as you well know it was just a POTS network

  3. Avatar FibreFred

    “often for refusing to open up its own cable network to wholesale access by rival providers; but then their platform wasn’t originally built with public money.”

    Was BT’s? The majority of ducts and poles were, but not the internet platform that is there today, it didn’t exist when it was privatised. As New_Londoner states, Virgin could have bid and provided some real competition to BT but they won’t as they won’t wholesale.

    Yes the BDUK process looks flawed I’ll agree, but for Virgin to be sat at the back sniping and not even taking part is the usual Virgin hot air.

    Sour grapes, they didn’t want to get involved as they are too busy protecting their own interests.

  4. Avatar DTMark

    Apart from in a very small number of *very* rural areas, we shouldn’t be “gifting money” to anybody, full stop. It’s just not necessary nor desirable.

    I’ve previously written ‘essays’ on here about how we could move towards a real broadband market without the need to directly inject any taxpayer money into any companies providing us with a platform to move forward and solving the majority of the issues that have held back the development of broadband in this country. Just my ideas, and I’m sure other people have more.

    That there is any need to give money to incumbents proves comprehensive market failure because of the ideologically flawed prior transfer of a State monopoly to a private one (see also trains and water companies, anywhere that a market will not be created as a result, as opposed to say British Airways) with no evident advantage to the taxpayer to date that I can see, indeed I’d say significant disadvantage.

    Giving money to the incumbent simply fixes us on a route whereby we’ll have to do the same over and over again. Rather than tackling this country’s broadband issues, that will actually make the problem much worse in the long term.

    Bye bye all the small ISPs. You probably have a few years left though. Going forward the only ISPs in the country will be Talk Talk, BT, Sky and Virgin.

    • Avatar FibreFred

      Why do you say that Mark? At the moment small ISP’s will be using other telco infrastructure to provide a service and they’ll be able to do that with NGA as well?

    • Avatar Kits

      @ Fibre

      BT are underselling FTTC which is causing smaller ISPs to find it harder to sell this product. BT wholesale charge smaller ISPs more than BT retail the product. If they charged correct price for product the wouldn’t need to go begging for handouts to upgrade.

    • Avatar New_Londoner

      @Kits
      Are you saying that BT Retail are getting terms not available to any other ISP? Or simply that small ISPs don’t get the same terms as large ones? The first is quite serious, the second normal business practice, so important to be clear.

  5. Avatar dragoneast

    Quote: f we agree competition is the best way to encourage further sustainable investment, and that embedding dominance in markets is bad for consumers

    Well it seems to me:
    1. The BDUK process does involve competition for public funds at the investment level – but not on terms that suit Virgin, apparently.
    2. There is also competition at the retail level on BT infrastructure (not Virgin’s), though it’s a market that maybe Ofcom needs to keep under review.
    3. The noticeable omission is value for money. Everyone can come up with ideas to do things differently, but at less cost to taxpayers? Sorry but for normal people, I suspect that’s the most important thing.

    • Avatar DTMark

      1. No, clearly not. But you’d imagine that, by this point, there would be other eager players. You’d need to question why there aren’t any.

      2. Yes, but that’s not the issue. It’s pointless having many suppliers competing for my business if I can’t give any of them my business because there is no suitable infrastructure over which to supply said service.

      3. The right solution may, or probably, may not, come at less cost than throwing half a billion pounds at a telephone company. It all comes back to whether we are serious about ‘broadband Britain’. The government makes the right noises, but so far, that’s all it is, ‘noise’.

    • Avatar bob

      That is not real competion, It is just reselling the BT product

  6. Avatar SlowSomerset

    The BDUK Procurement is very protracted, In somerset the survey just goes on and on my guess is most of the money will be wasted.
    As for BT covering huge rural areas, well not in Somerset their not.

  7. Avatar DTMark

    @FibreFred

    Several reasons – I’ll attack just one of them..

    At the moment ISPs have a choice in the “middle layer” for backhaul e.g. BE, C&W, BTW…

    One of those players is leaving the field by the looks of it.

    Competition raises standards and reduces prices. And the reverse is also true. Now, why are they leaving?

    When broadband penetration in a country relies largely on a single and frankly unsuitable infrastructure, the power of that infrastructural provider cannot be underestimated.

    When that infrastructural provider is one part of a Group which also contains a commercial retail provider, that player has scope to price services in a way that others do not.

    OFCOM have denonstrated themselves time and time again to be a bunch of clueless muppets, but to be fair, they’re presiding over a farcical structure anyway with regulation after regulation and price controls which only serve to paper over the cracks in the model rather than actually doing anything positive whatsoever.

    If you sat down and tried to come up with a worse model for making progress, I think you’d struggle to beat the one we have. The current state of broadband here in 2012 is the clearest proof you could wish for.

    • Avatar FibreFred

      @DTMark So you see FTTC/FTTP as unsuitable? Not being funny, a serious question

      @Kits, so its about price of the product then not hand outs? I can see where you are coming from though, the trouble is.. its a catch 22, price it too high and no-one will take it up, its not uncommon for products to be launched at a low price to gain interest and then increase

  8. Avatar DTMark

    @FibreFred

    The solution will be a mix of technologies. Both the “fibre fetishists” and the “copper fetishists” are wrong in equal measure.

    Anyone in this village of 240 houses who seriously imagines that a commercial provider is going to put in FTTP without contribution needs their head examined, though even that could be solved by franchising ducting in such a way that for a provider to get the densely built up bit in the middle of town they also have to do the one outlying village. There are always solutions.

    I also note a number of threads from those with the fibre service with frankly appalling speeds (3Meg) being told “It’s all you can expect”. Likewise, a number of threads from people genuinely getting near 80Meg down. The idea that broadband Britain has anything to do with how far people are from a telephone cabinet is as laughable now as it always was. And that’s the problem with stopping at the cabinet. The cabinet isn’t the one browsing the internet.

    From what I can see, Rutland council have just decided to throw £2.9 million at BT with no promise of any particular outcome other than that most people will probably see some indeterminate improvement in their services on a random basis depending on the quality and suitability of the ancient telephone network.

    There is no one company with that mix of technologies, which therefore implies that the solution will be a mix of providers. The immature market doesn’t facilitate this, which then causes you to question why the market is immature.

    • Avatar zemadeiran

      Why can’t Rutland council build their own network?

      Build it, own it, love it…

      Every council in the UK should have a network team tasked with providing council residents with GPON, EPON or whatever fits the bill.

      ISP’s can then come in and vlan their services. The council oversees roadworks, building permissions, council tax, waste removal etc so to me this makes sense???

      Why not break this massive UK task into bite size pieces? Think Global, act local.

      Let the geeks come up with a solid locally focused economic infrastructure model and replicate across the UK with tweaks.

    • Avatar New_Londoner

      @Zemadeiran
      Four thoughts about local authorities building it themselves

      1. Hardly a core skill for them, many are outsourcing their own IT
      2. Are public sector-run services generally good? Remember how bad many were pre-privatisation, how little investment they got?
      3. We can’t afford it, don’t have the money anyway
      4. The cost to I?sPs of supporting lots of network islands will not encourage them to off service anyway

      If you doubt the above, I offer as further evidence “South Yorkshire Digital Region”, which seems to have cost around £500,000 per customer.

  9. Avatar FibreFred

    3Mbps on FTTC? That is a fault surely, anything below 15Mbps is. If people aren’t happy with their FTTC speeds the on demand version of FTTP will be available next year ok there will be some installation cost involved but that must count for something? FTTP anywhere where FTTC is present

    • Depends upon what the customer signed for. BT also has a 5Mbps Fault Threshold for longer FTTC lines and so it would be “anything under 5Mbps” as a fault for that and not 15Mbps. Still a fault though 🙂 . Of course if the customer was promised speeds of above 15Mbps in the estimate then that would indeed fall into BT’s 15Mbps Threshold.

  10. Avatar FibreFred

    Arr ok I’m getting mixed up, I thought they didn’t have a sub 15Mbps product yet? So by default they must have been promised > 15Mbps?

    I know there was talk of offering less than 15Mbps but don’t know if that has happened yet.

  11. Avatar DTMark

    The 15Mbps threshold is a bit of a diversion designed to protect the identity of “BT Infinity”. And, 15Mbps is hardly fast, not even really current-gen.

    The cases I’ve read appear to involve long and/or poor quality lines, and, yes, in both cases, the customer was told to like it or lump it. I believe because technically the product sold was not called “Infinity” but something like “BT Broadband with fibre”, both were a long way below the estimate for those lines.

    But what the product is called is completely irrelevant to whether or not the network is capable of delivering a credible, modern service.

    I’m not going to post up links partly because I have to go and partly because, actually, those sorry examples are not representative of the sort of speeds *most* are getting. And, we should also remember that some lines overperform to the promise given.

    BT could of course replace poor quality D-sides, fit fibre instead, use Wi-Fi, move cabinets around and install new ones and so on, but those don’t increase the magic £15/mo retail line rental (or whatever) for the phone circuit. It’s not in BT’s interests to do so if there is no competition and they can win a tender based not on a futureproof network, but instead simply doing the bare minimum.

    The customer could pay for a fibre circuit, yes, *if* the cabinet is enabled.

    Pricing hasn’t been announced for that, but I’m suspecting it will not be a residential or SME option.

    A “one size fits all” based largely or solely on the topography of an old phone network will not achieve “broadband Britain”.

    • Avatar FibreFred

      You don’t think FTTP On demand will be a residential offering? I’m sure it will be

    • Avatar FibreFred

      And lets not forgot the non-role of the telco that is making this complaint in the first place. The British broadband market in terms of competition would be a much better place if Virgin wholesaled access to their own ducting or just sold the entire network to someone else to do it, like Fujitsu for example.

      I’ve heard all of the cries of the fact they paid for it with their own money etc etc and it doesn’t wash with me they’ve not invested much since they bought the patchwork quilt of cable companies, Virgin want the best of both worlds, opening up of the BT network whilst safeguarding their own. Why not open up both and create even more competition?

  12. Avatar FibreFred

    “A “one size fits all” based largely or solely on the topography of an old phone network will not achieve “broadband Britain”.”

    Well I suppose the logic is they are re-using what is available already in terms of infrastructure and where it is placed. What is the solution FTTP to all properties? Who will pay for that?

    • Avatar zemadeiran

      Maybe we should forget about providing the tax payer with a future proof exemplary fiber network and just throw much more money into a train line for private companies to make money from?

      I would be surprised to hear that said train can go faster then 20mph due to all the fucking leaves on the track….

      You see my point?

    • Avatar New_Londoner

      @Zemadeiran
      Not really. We’re contributing a relatively small sum fom the public purse in order to get that much again, perhaps more, from the private sector on top of a much larger sum that it is already investing. Putting up perhaps £1bn to get possibly £4bn more of investment (including that already committed to FTTC) seems pretty good value to me!

      People can talk about FTTP all they like but there is no prospect of anyone investing the £20bn+ needed for UK-wide deployment anytime soon, so it really is a waste of breath. Either comeuppance with a credible, funded plan or stop complaining. Same goes goes Virgin, carping from the side lines but contributing nothing, pathetic!

  13. Avatar bob

    Fujitsu, Virgin,talktalk & Cisco were prepared to build an OPEN NETWORKif they recived a resonable amount of the funding. Instead the system was biassed towards BT who also have an inbuilt advantage

    THe UK does need a second national operator to compete with BT but to do this it needs to have fair access to the BT ducting

    Virgin have also been looking at extending their coverage by using the BT ducting. THey would run in fibre to the home and take it back to alongside the existing BT cabinet and then put in a Fibre link to the VM cabinet. THis would enable VM to build out from existing cabled areas and infill areas that were not cabled, Again BT is blocking this

    The real anser is better seperation of OPENREACH from BT. At minimum it should be a wholly owned subsiderry company and not as now a part of BT

    • Avatar FibreFred

      “Fujitsu, Virgin,talktalk & Cisco were prepared to build an OPEN NETWORKif they recived a resonable amount of the funding. ”

      Correction

      ALL of the funding, which was never going to happen

  14. Avatar Deduction

    quote”This is in contrast to BT who offer broadband services on a wholesale basis to 99 per cent of UK premises.”

    Utter dribble and even more dribble when you consider the percentage that are NOT served by BT but also do not get 2Mb or greater speeds via ADSL technology.

    EVEN more dribble when you factoring in (24Mbps+) service by 2015.

  15. Avatar Deduction

    Not 99% of PREMISES thats for sure, they dont wholesale or retail in parts of the highlands or Hull for starters of the top of my head. Hull on its own has around 105,000 homes (thats NOT including businesses). There are around 20 million homes in the UK, so not selling in Hull on its own (including businesses) is probably around 0.5% or more of that so called only 1% they dont wholesale to.

    Wont even go into numbers about who gets more than 2Mb from BT that in itself can not be 99% if they dont even offer to 99% in the first place.

    And as for them providing 90% of the country with 24Mb or more come 2015 that is pure and utter fantasy. Average speeds in the UK from BT are not even half (IE below 12Mb) of that 24Mb. Chances they are going to increase average speeds by more than 100% inside of 3 years in this country = Living in Cuckoo Land.

    BT maths again. Im more and more impressed every time i see it. I can only imagine some one has super glued all the balls on their abacus this year as a prank.

    • Avatar New_Londoner

      @Deduction
      IIRC the actual number of premises in the UK is more like 24 million, so Hull is rather less than 0.5%.

  16. Avatar Deduction

    Either way Somerset not going to argue with you on this occasion, couldnt care much about the story anyway. BT and Virgin both live in their own little fantasy worlds.
    As is evident from the item itself.

  17. Avatar Deduction

    “@Deduction
    IIRC the actual number of premises in the UK is more like 24 million, so Hull is rather less than 0.5%.”

    FIRSTLY i did actually say AROUND 20 million.

    Secondly. 0.5% would be 120,000 homes based on your figure of 24 million uk homes. So my point stands hull with approx 105,000 homes is not a million miles from 0.5% all on its own.

    To even suggest they can supply/wholesale 99% of premises with broadband services is silly. Im sure those that live rurally (and by that i mean up a mountain or a moor and similar examples) which in some cases have no broadband available (either from BT direct or a BT reseller) in addition to hull would love to hear how that maths was calculated.

  18. Avatar bob

    What is needed is real competition at the ifrustructure level rather then the only competition being pretty much ISP’s reselling the BT product

    It make though no sense to duplicate the local loop so this should be a shared resourse independent of BT

    • Avatar DTMark

      In response to the point above (I’ve been away for a while), “what’s the answer” – the above is the beginning and part of the answer, though while the ducting should be shared, the fibre(s, multiple) should be private.

      All that’s needed to do is to change the BDUK approach slightly to force minimum speeds where public subsidy is being given.

      That may very well have the result that every council who hasn’t already been conned into BT’s fibre option as ‘superfast broadband’ simply reverting back to the Government with the correct assessment that there is no market in terms of suppliers and that the only way it’s going to be possible is that the ducting is state funded with multiple possible suppliers laying their own fibre (Sky, Talk Talk, BT Openreach, Fujutsu, a small consortium of the better ISPs (e.g. IDNet, Aquiss, Zen etc) another. There would be at least one if not two wholesale options.

      Then simply franchise the ducting in such a way that coverage is ensured since the provider(s) who get the sparsely populated bits also get the most densely populated bits, running fibre as far as a distribution point which might be the home or might be the village centre.

      The Wi-Fi ISPs then step in to distribute the signal in the villages and rurals with every player playing their appropriate part and doing what they’re best at. The councils just look after some ducting and stay well clear of the tech.

      That’s the basis of “how you do it” but I don’t run BDUK and don’t have an hour to expand it into a detailed essay.

  19. Avatar Deduction

    Considering also the government just keep adding to the broadband pot. The most recent being millions more on the Urban Broadband Fund. By the time they have finished spludging millions they could had probably built a network serving 66% of the country which is all FTTC is supposed to serve initially anyway.

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