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Cross-Party UK Inquiry Finds Failing BT Must Invest More into Broadband

Tuesday, Jul 19th, 2016 (8:53 am) - Score 1,474

The cross-party Culture, Media and Sport Committee inquiry into the coverage and performance of “superfast broadband” in the United Kingdom has today published its outcome, which heavily criticises BT for “over-reliance” on its old copper network, “significantly” under investing in Openreach and their “lack of ambition” towards rolling out ultrafast FTTP/H services.

According to the ‘Establishing world-class connectivity throughout the UK‘ (PDF 1,4MB) report, the UK is currently doing well in comparison to similar EU countries on superfast broadband deployment (i.e. good coverage, take-up and low prices). But in the same breath it warns that BT’s “over-reliance on Openreach’s copper access network, and its supposed lack of ambition for driving fibre to the premises across the country, could result in a hard-to-solve digital divide beyond 2020.”

Dido Harding, CEO of UK ISP Talk Talk, said:

“This report puts beyond doubt the need for radical reform of Openreach. MPs have concluded that Openreach is not fit for purpose and is letting Britain down. As Ofcom considers how to improve Britain’s broadband, it should feel emboldened to know it has cross-party political support to be radical.

BT’s broken promises risk creating a two-tier digital Britain, with millions of homes and businesses denied fast, reliable broadband. Britain needs an independent Openreach, freed from the shackles of BT and able to invest in world-class technology for the whole country, not just parts of it. After years of suffering, customers deserve nothing less.”

At present the existing £1.7bn (public funding) Broadband Delivery UK programme and related projects have already helped to make fixed line “super-fast broadband” (24Mbps+) speeds available to 90% of premises (here) and a second phase will take this to 95% by 2017/18 and possibly 97% by 2019. The vast majority of this state-aid supported work involves contracts with BT, which has predominantly been deploying its cheaper ‘up to’ 80Mbps Fibre-to-the-Cabinet (FTTC / VDSL) technology.

On top of that BT (Openreach) and Virgin Media are separately working, via commercial investment, to expand their latest hybrid-fibre (G.fast and DOCSIS 3.0/3.1) “ultrafast” (100-300Mbps+) connections to around 60%+ of the UK by 2020, which is mostly focused on the easy low hanging fruit of urban and suburban areas. In keeping with that both BT and Virgin have very recently pledged to do more Gigabit-capable pure fibre optic FTTP/H broadband (here and here).

Lest we not forget the FTTP/H trials from TalkTalk and Sky Broadband, as well as the commitment from alternative network ISPs like Gigaclear, B4RN, Hyperoptic and Cityfibre plus many more. All of those are working to expand pure fibre optic connectivity to more premises, but today’s report suggests that this may not be good enough and more must still be done.

Meanwhile the strategy for closing the final 3% gap, which is partly dependent upon the new EU State Aid agreement (details here), is not yet concrete and seems to depend upon the introduction of a legally-binding 10Mbps for all Universal Service Obligation (USO) for 2020 (here and here). The new report supports the USO, but warns that it must be designed to “incentivise investment, without creating consumer detriment or overly inhibiting take-up” and could be raised to 30Mbps by 2022.

However it’s clear that most of the criticism is being firmly directed at BT’s feet, with a strong focus upon the group’s network access division (Openreach). The committee also recommends that Ofcom must keep the option of splitting BT from Openreach firmly on the table (Strategic Review), in case they don’t improve. Ofcom are due to publish a final statement on this within the next few weeks.

Inquiry Statement

The Committee says BT has exploited its position to make strategic decisions that “favour the Group’s priorities and interests” – and is likely to have sacrificed shareholder value and customer benefit as a result. Capital investment in Openreach has been broadly flat since 2009 until this year, and quality of service remains poor.

The Committee is demanding that BT invest significantly more in Openreach, and allow Openreach much more autonomy over what it invests, when and where. It supports Ofcom’s plans for establishing greater separation between Openreach and BT Group, but makes clear that if BT fails to “offer the reforms and investment assurances necessary to satisfy our concerns“, Ofcom should move to enforce full separation of Openreach.

In the Committee’s judgement, Ofcom has not placed enough emphasis in the past on improving Openreash’s quality of service: it says the prospect of stiffer penalties should also encourage BT to voluntarily invest more in infrastructure.

As usual the committee has published a long list of recommendations alongside its report, although the short summary of those is as follows. We should point out that the report talks a lot about bringing superfast broadband to the final 5% of the UK, although it’s widely expected that BDUK will now reach 97% coverage and so really it’s the final 3% that matters most.

Key Recommendations

Openreach

* The lack of transparency in BT Openreach’s costs and deployment plans in relation to the BDUK programme has stifled local competition and thwarted other network providers’ planning.

* BT has allowed service quality levels to remain low at Openreach in recent years = from an arguably low base – while investment in Openreach has been flat. Ofcom was slow to introduce minimum service standards with financial penalties for Openreach, some nine years after its creation.

* The shortfall in investment in Openreach could potentially be hundreds of millions of pounds a year. It arises because BT appears to be deliberately investing in higher-risk, higher-return assets such as media properties, and not investing in profitable lower risk infrastructure and services through Openreach.

* BT Group is exploiting the position of vertical integration to make strategic decisions that favour the Group’s priorities and interests, at the expense of its access infrastructure business. Its current structure allows it to use Openreach’s utility-type assets to cross-subsidise riskier activities elsewhere in the Group, while significantly under-investing in the access infrastructure and services on which a large part of the public rely.

Ofcom

* Ofcom’s charge control regime has kept a downward pressure on prices, so that the UK’s communications prices are among the lowest compared with similar EU countries. But this mechanism has not been successful in holding Openreach to an adequate quality of service; and it is an open question how effective overall it has been in stimulating investment in Openreach’s infrastructure.

Reaching the “final five percent”

* For those households and businesses in the “final five percent” there will need to be judicious deployments of interim technology solutions to provide improved connectivity to those households and businesses which currently have little or no coverage.

* The challenge of reaching the final five per cent is likely to demand the active and willing co-operation of local communities wherever possible. BDUK will need to offer guidance and support in key areas such as: choosing the right technology solutions, raising finance, stimulating demand and minimising other costs of provision.

Expanding the USO

* That there is a compelling case for expanding the current USO (Universal Service Obligation) for telephony and dial-up internet to cover broadband, given the vital role it plays in people’s lives. The report notes that “the need for an increase in the USO minimum download speed to 30Mbps by 2022 is entirely foreseeable, and the Government should be making active plans for this eventuality,” although it supports a 10Mbps USO for now because there is “no advantage in setting the USO” too high before the right infrastructure exists to deliver it. On top of that it warns that “a higher specification would force industry to pass on the extra cost to consumers as well as in higher charges.”

* Ideally, the USO must be designed so as not to impose too great a burden on industry: to incentivise investment, without creating consumer detriment or overly inhibiting take-up. The committee sees BT has being able to do most of the heavy lifting here (e.g. Long Reach VDSL / FTTC), but it also warns that a balance must be struck in order to prevent the USO becoming a tool that would support a monopoly position and thus discourage investment from alternative networks.

No doubt BT would argue, exactly as it did yesterday (here), that they’ve already made big improvements to their customer service and have continued to invest in new broadband infrastructure. In fairness, it’s worth considering that the roll-out of their “fibre broadband” (FTTC/P) services actually began in 2009, which also occurred during one of the UK’s worst recessions.

A BT Group Spokesperson told ISPreview.co.uk:

We are disappointed to be criticised for having invested more than £1bn a year in infrastructure when the UK was emerging from recession and rival companies invested little. As the report acknowledges BT’s investment has made the UK a broadband leader among the major economies in Europe.

Today’s report is in any case largely historic given Openreach investment is 30 percent higher than it was two years ago and it will grow again this year. We are already pumping in hundreds of millions of pounds of extra money and we have also committed to invest a further six billion pounds over the next three years.

We agree that service levels have to improve and yesterday we announced that we are making significant progress in this area. Thousands of engineers have been recruited and we are fixing repairs and installing new lines quicker than before.

We are in discussions with Ofcom about increasing the autonomy of Openreach and are hopeful that a settlement is possible that will meet the concerns of the committee. Separating Openreach from BT would lead to less investment, not more, and would fatally undermine the aims of the committee.”

The full 101-page report covers a lot of different areas and appears to represent a reasonably balanced study of the market, which in many ways mirrors the initial outcome of Ofcom’s Strategic Review from earlier this year. Never the less it remains to be seen how much of what they recommend will actually be accepted into future policy and regulation, but the pressure on BT has clearly been turned up a few notches.

The committee itself were sadly unable to cover a number of “significant” consumer issues, not least with regards to “misleading ‘up to speeds’” (broadband advertising), as well as the standard of customer service from ISPs and how the recent Brexit vote (leaving the EU) could affect the EU laws for telecoms, Internet, broadcasting and transmission services (e.g. the position over roaming mobile charges).

In keeping with the above issues, the committee has proposed to return to these during autumn 2016 by holding “one-off evidence sessions” to look at a variety of specific areas.

UPDATE 11:39am

A comment from Cityfibre has just come in.

Mark Collins, Cityfibre’s Director of Strategy, said:

“We welcome this morning’s report from the Culture, Media and Sport Committee. Exposing BT’s underinvestment in UK digital infrastructure is long overdue. CityFibre has campaigned the need of sustainable competition to Openreach and significant further investment in fibre infrastructure. As this report highlights, Openreach’s legacy networks are not able to meet the requirements and demands of businesses, local government and consumers. Competitive investment in fit-for-purpose fibre infrastructure is now critical, and this need must be recognised and supported by both the Government and Ofcom.

Ofcom’s historical desire to regulate to lowest prices and devalue infrastructure investments must be curtailed. We need a regulatory and policy environment that underpins the building of new digital networks across the UK. A restructured Openreach will continue to have an important role to play in the future, but it cannot, and should not, anchor the entire UK broadband infrastructure alone – its poor performance is testament to this. Today’s report recognises the need to foster a competitive environment where the role of alternative network providers are encouraged and supported to ensure the UK’s digital infrastructure is capable of meeting current and future demands.”

UPDATE 1:10pm

The ISPA has responded to express its belief that a mixture of technologies, supported by “highly targeted public funding” is the best way to meet the challenge of connecting the final 5%. The Committee recommends limiting the burden of a USO on industry, thus the ISPA says that it should be supported via public funding rather than an industry levy (tax).

However the ISPA also believes that the Committee could have gone further, such as by calling for reform of the VOA’s fibre-tax and wayleave agreements that add time and cost to deployments of vital infrastructure. In fairness, the Government’s new Digital Economy Bill does hint at improvements to wayleaves through changes to the Electronic Communications Code.

James Blessing, ISPA Chair, said:

“ISPA members have invested hugely in bringing superfast broadband to the vast majority of the country utilising a variety of technologies and we re-iterate our call for the new Government to spell out its vision for broadband. ISPA supports the objectives of a USO, but given the socio-economic benefits of broadband we feel public funding should be considered as the fairest option.”

UPDATE 3:12pm

Now it’s Gigaclear’s turn and it’s not in the form of a normal comment, so we’ll format it differently.

1. Investment in new infrastructure

Overview: The report highlights the need for more investment in new infrastructure, especially Fibre-to-the-Premises.

“There is a serious public concern that the UK is not adequately investing in critical telecoms infrastructure. The UK is a laggard by international standards in providing fibre connectivity. This could result in a widening, not a narrowing, of the digital divide; especially as demand for faster services escalates after 2020.”

Comment from Matthew Hare: “It’s not enough just to continue to patch and mend the existing copper network. Gigaclear delivers a step change by putting in new FTTP fibre Infrastructure that we expect to be still serving homes and businesses in 50 years’ time.”

2. Investment for the ‘final five percent’

Overview: The report is highly supportive of a 10Mbps Universal Service Obligation and looks to support funding from the telecoms industry.

“The Government has determined that probably the most effective way of providing access to broadband for those in the “final five percent”, whether in rural, urban or suburban not-spots, is through the introduction of a Universal Service Obligation (USO) whereby a householder or a small business would have the legally enforceable right to an affordable and reliable internet connection.”

Comment from Matthew Hare: “Gigaclear believes that the bare minimum for the USO should be 10Mbps: our own entry level products run symmetrically at 50Mbps, and the demand for much higher performance is already there.”

3. Competition from BT

Overview: The report suggests that BT has kept rollout plans confidential, thus putting other ISPs and operators at a disadvantage.

“A further downside of the BDUK programme has been the lack of transparency in Openreach’s costs and deployment plans, the apparent effect of which has been to stifle local competition and thwart other network providers’ planning.”

Comment from Matthew Hare: “Planning our own investments when we have no sight of where BT will be upgrading their network using taxpayer’s funds is difficult for Gigaclear and for homes and businesses in the affected areas. It still seems incredible to us that BT does not publish detailed plans of its proposed paid-for roll-out.”

4. BT overbuilding networks in Oxfordshire

Overview: The report discloses that Oxfordshire County Council allowed BT to overbuild on Gigaclear’s networks due to existing contracts with BT and a lack of confidence in Gigaclear to deliver.

“Gigaclear cited 24 incidents to us in Oxfordshire where its networks had been overbuilt by BT’s BDUK deployment. In response, Oxfordshire County Council (OCC) explained that when the Council had signed a contract with BT in 2013, although it had excluded some areas from BDUK deployment, as a result of Gigaclear’s existing and planned fibre network, some areas were not excluded owing to uncertainty over Gigaclear’s size and viability as a relatively new market entrant.”

Comment from Matthew Hare: “Different counties have taken different approaches to commercial investment by Gigaclear: some have worked hard to incorporate Gigaclear’s plans into their own programmes, to extend their funding to as many homes and businesses as far as possible by getting BT to modify their plans and upgrade their network to superfast in areas that would otherwise have received no upgrade at all.”

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 X (Twitter), Mastodon, Facebook and .
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