Legal Challenge to UK City Broadband Funding Could Bring Improvements

The UK country manager for Brocade, a global network solutions provider, has suggested that BT and Virgin Media’s legal challenge against the use of public money (State Aid) to improve broadband services in the city of Birmingham might actually “improve the scheme’s chances of success“.

Birmingham was one of the first UK cities to have £10m worth of state aid money (Urban Broadband Fund) approved by the European Commission (EC), which among other things praised the Smart City plan for its focus on offering Dark Fibre access and being “genuinely open to all operators“.

Crucially this extra funding would only apply in “areas where BT and Virgin Media will not go” (i.e. where they have failed to upgrade their existing networks to deliver “ultrafast” 100Mbps+ broadband services). In the commissions own words..

The EC’s June 2012 Statement

“The target areas of the measure are two districts in Birmingham where private operators have no or very limited investment plans in the next three years. This means that in the absence of this project most consumers would only be able to use basic broadband services or very expensive business leased line services.

The Commission’s investigation found that the ultra-fast network of Birmingham was designed in a pro-competitive manner, exceeding in several respects the requirements of the EU Broadband Guidelines. In particular, open access will be granted for at least 25 years for alternative operators, whereas the guidelines require only seven years.

Moreover, the network will be operated on a wholesale basis so as to ensure more competition at retail level. Finally, all possible wholesale access products will be offered to third party operators, including dark fibre, which is one of the most pro-competitive wholesale access products.”

Despite this commitment BT and Virgin Media have now launched a legal challenge because they claim that the new network would overlap with their own, which came with no small hint of irony given that many similar schemes through the semi-separate Broadband Delivery UK (BDUK) process had already stalled over EU concerns about a lack of competition (i.e. BT winning all of the contracts so far and without much competition).

In fairness it’s true that BT and Virgin Media’s network will overlap in some areas, although this is also true of the related BDUK investment into the country’s “Final Third” (33%) of areas where existing networks have similarly failed to deliver the necessary improvements through private investment. The big ISPs appear to be arguing that they’re the only ones who should benefit as they would suffer if a publicly funded rival did what they had already chosen not to. An interesting position. But according to Brocade’s Marcus Jewell, this could be a good thing.

Marcus Jewell, Brocade’s UK Country Manager, told ISPreview.co.uk:

“When the initiative was announced, it was always going to go one of two ways: either a big player would seek to monopolise the tenders, or they would challenge the validity of the government’s plans with competition authorities for fear of losing out on a lucrative revenue stream.

Far from breaking up the super-connected cities programme, this appeal invites a reassessment of the economic and technical infrastructures necessary to successfully provide superfast connectivity.

Government funding is a drop in the ocean compared with what is required, and city authorities are in no position to provide sufficient additional finance. A substantial infrastructure project like this must be executed well to retain public trust and valuable impetus: putting the responsibility for building, running, and maintaining these networks on councils, who lack the necessary technical expertise, is the wrong approach.

If the government is committed to making a success of this initiative, it should put the networks out to tender in a way that prevents a single provider dominating the superfast broadband landscape in the same way as the telephony market was once monopolised.”

In fairness the responsibility for “building, running, and maintaining these networks” would usually fall to the contract winner (telecoms operator) and not the council itself (hopefully nobody is going to make another Digital Region style mistake), thus such fears about a lack of technical expertise only really come into play when assessing the potential options (bidders).

On the other hand many will surely agree with Jewell that the existing procurement process should perhaps be opened up to more ISPs so that everybody is given a fair chance, which is a comment that applies more directly to the BDUK process than the UBF. Both must be fair but such issues should really have been resolved a long time ago.

Meanwhile the EC’s competition boss, Joaquín Almunia, revealed earlier this month that he would shortly grant state aid approval for related BDUK projects (i.e. by early November 2012), albeit alongside some “relatively minor changes” to BDUK’s design (here). Sadly the EC has refused to say what these changes actually are.