EU State Aid Clearance Problem Delays BDUK Broadband Contracts

The Government’s Broadband Delivery UK programme is close to securing a new approval from Europe for the use of state aid in their national roll-out of “superfast broadband” (24Mbps+) services, which has been stalled since the original umbrella agreement expired at the end of June 2015.

Last month’s Autumn Statement 2015 (Spending Review) was notable for its absence of any serious commitment to expanding the reach of superfast broadband (24Mbps+) services to cover the final 5% of the United Kingdom.

We had been expecting such an announcement since the summer when the Digital Economy Minister, Ed Vaizey, promised to make it “absolutely clear” where superfast broadband would be delivered (originally expected before the end of autumn) and he also pledged to publish a firm plan for reaching the final 5% “before the end of the year.” Neither have shown up.

Instead we’ve been treated to talk of a vaguely defined Broadband Investment Fund for alternative network providers (here), as well as the more positive proposal for a 10Mbps Universal Service Obligation (here) and most recently a short-term Satellite subsidy to help cater for the old 2Mbps Universal Service Commitment (USC) that many may frown upon (here).

One of the reasons for the seeming lack of progress on the “superfast” front is due to the uncertainty of state aid approval. The original Phase 1 Broadband Delivery UK contracts (90% superfast coverage by 2016) were all covered by an umbrella agreement with the EU and nearly all of the Phase 2 (95% coverage) contracts fell into the same category, but this came to an end on 30th June 2015.

The situation means that some outstanding Phase 2 contracts (e.g. Herefordshire, Devon + Somerset etc.), plus all of the potential model for Phase 3 (final 5%), have effectively been stuck in limbo while the Government attempts to negotiate a solution with the European Commission.

A Spokesperson for BDUK told ISPreview.co.uk:

“We have been progressing a State aid notification with the Commission since June 2015. These discussions have been productive and we hope to publish our proposed approach in the New Year.”

However achieving the new agreement is far from easy, otherwise it would have been completed sooner. According to a recent speech from Chris Townsend, CEO of BDUK, the road to approval has been a rocky one because the EU will require all suppliers to provide “full open access” (i.e. share cable ducts, masts, local loops) and that approval also favour “small” projects (i.e. encouraging smaller suppliers to bid). According to BDUK, the EC want to see procurements being as pro-competitive as possible, including considering size of interventions.

The problem is of course that some of the most capable altnets, such as Gigaclear and B4RN, prefer to adopt a much more closed network model. It’s hard enough to build new infrastructure as a smaller player, without strict regulation making your efforts vulnerable to bigger competitors.

On the surface this may sound similar to the original state aid agreement, but it appears to be stricter. Under the new state aid proposal even BTOpenreach’s network may not be considered open enough, which is despite the fact that they’re one of the most heavily regulated incumbents in Europe.

Never the less BDUK believe they can reach a more acceptable compromise in time for the end of February 2016 (we’ll keep an eye out for that), which will retain the required “full open access’ basis“, but we’re informed by the Government that discussions around the exact access conditions are still being negotiated (subject to change).

Even if an agreement is reached in February 2016 then the situation will still have created another administrative delay, which means that the remaining Phase 2 programmes probably won’t catch up with their own contracts until towards the end of spring. Meanwhile it will take longer before we know what model Phase 3 is to adopt, although this might be ready in time for the 2016 Budget.

Credits to Patrick Cosgrove and BDUK for assisting with our research.