Rory Stewart MP Questions the Higher Cost of UK Rural Broadband

The Parliamentary Under-Secretary of State for DEFRA and Conservative MP for Penrith and The Borders (Cumbria), Rory Stewart, has spoken of his concern for the “unjust situation” where people in rural areas can be forced to pay more for a slower broadband ISP package than their urban counterparts.

The Minister, who has a long history of campaigning for rural issues and better Internet connectivity in remote areas, was responding to questions during a House of Commons debate yesterday when Christian Matheson MP (Labour) tabled a concern about the price disparity of rural broadband.

As it stands there is actually a very logical economic and regulatory reason for the difference in cost (see below), although in this instance the question made valid reference to whether or not this should still apply if the infrastructure has been installed with the significant support of significant public or perhaps event community funding (e.g. Broadband Delivery UK).

Christian Matheson:
In the village of Saughall, in my constituency, residents are being told to pay an extra £7 a month in premium to access fast broadband because they live in a rural area. Ofcom is acquiescing in that, but I remind the Minister that there are large amounts of public and European money to develop those networks. Will he please make representations to Ofcom to stop this discrimination, which is increasing the inequality?

Rory Stewart:
I would be very interested to meet the hon. Gentleman and to hear more about this matter. That does seem an unjust situation. I would be interested to know the identity of the provider and why they are charging in that way. It certainly seems an important issue for rural areas in general, so I would be delighted to meet the hon. Gentleman.

So why does rural broadband cost extra? In a normal commercial setting the reality would be that it simply costs more to both deploy and maintain telecoms infrastructure for a small rural community, while a similar expenditure may reach significantly more customers in an urban location.

On top of that BTOpenreach are often the only primary infrastructure provider for such areas, with Virgin Media sticking to dense urban locations and even unbundled (LLU) providers that piggyback off Openreach, such as TalkTalk and Sky Broadband, only extending out to around 90-95% of the United Kingdom.

The above lack of competition and the high cost of infrastructure vs low customer potential both have a negative impact on pricing. Ofcom reflects this through their market definitions, with Market B (89.8% of UK premises) being the cheapest due to strong competition and the remaining Market A (9.5%) being the most expensive due to a lack of primary operators (the other 0.7% reflects KC / KCOM in Hull). Rural areas mostly fall into Market A, alongside a few very problematic urban locations.

In practical terms what this means is that some ISPs will charge you more for living in Market A because you’d be outside of their “low cost area” (Market B). Obviously to those affected this can seem grossly unfair, after all you’ll probably get slower speeds and yet still be required to pay significantly more. It should be said that not all ISPs do this and more expensive providers will often adopt a single shared pricing level for everybody.

But what about if you live in a village where FTTC “fibre broadband” connectivity has recently arrived thanks to the support of public or even co-community funding. Take PlusNet for example, their “Unlimited Fibre” (up to 38Mbps) broadband costs £14.99 per month if you take it with a phone service, yet if you happen to live in Market A this rises to £22.49.

Is it still fair to apply the additional charge to everybody in the same way, seemingly regardless of whether or not the area has been upgraded via predominantly commercial or public investment? Sadly there are still some big on-going costs to balance (maintenance, backhaul etc.) where BDUK doesn’t help, but unfortunately there isn’t enough publicly available information about some of these aspects.

Ofcom do at least conduct periodic reviews of the Wholesale Broadband Market and the last one used data from late 2013 / early 2014, which came before BDUK had created much of an impact. Hopefully in a future review the regulator may take a closer look at the impact of state aid use or community contributions upon their market definitions, but it may not have any impact upon the current model.

One good bit of news is that at the next review we fully expect Market A to shrink in size again, which means that more people will be placed into the low cost area (Market B), but a gap is still likely to remain.