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ISPs Fear Anti-Competitive Industry Levy to Fuel 10Mbps Broadband USO

Tuesday, August 16th, 2016 (1:56 pm) - Score 622

Ofcom has published a summary of responses to their recent consultation on the introduction of a new Universal Service Obligation, which would ensure that everyone can get a broadband speed of 10Mbps by 2020. But ISPs have warned that funding this via an industry levy would be “anti-competitive“.

The current USO, which is legally-binding, only requires KCOM (Hull only) or BT to deliver, following the “reasonable request of any End-user” (i.e. demand-led), a telephone service that includes the ability to offer “data rates that are sufficient to permit functional internet access” (here) and that can be met with an ancient 56Kbps dial-up connection.

However the Government want to extend this so that everybody is guaranteed a minimum broadband speed of 10Mbps (Megabits per second), which in practice is only likely to be relevant in the final 1-3% of UK premises where the Broadband Delivery UK programme and BT may struggle to reach (i.e. 24Mbps+ capable fixed line services should cover about 97% by 2019).

The national telecoms regulator, Ofcom, is now working on the specification for this USO (due to be published by the end of 2016) and they’ve today published a summary of 115 responses to their initial Call for Input. Overall there was a lot of support for the USO, albeit balanced against plenty of fear over how it might be implemented.

Quick Summary of Key Points (Ofcom Reflection)

On Market Distortion

Industry respondents raised particular concerns about market distortion, particularly the risk of the USO increasing retail prices and reducing the incentives for further commercial infrastructure investment by duplicating existing networks. They emphasised the need for the USO to put measures in place to prevent network overbuild that might be funded through the USO. Some suggested the USO might discourage future commercial investment by encouraging the universal service provider(s) to seek funding for roll out that could be commercially viable.

On Cost

The USO could be funded using public funds, a levy on industry, or a combination of the two. The majority of public sector stakeholders were in favour of an industry-funded mechanism. This is also the Government’s preference for funding the USO.

However, the majority of industry and some consumer and business groups argued that public funding would be more appropriate. This preference was for a range of reasons, including the suggestion that the Government could make cost savings if more consumers used online public services. It was also argued that an industry levy could cause market distortions and result in higher retail prices, which could make broadband less affordable for low-income households.

On Choosing a USO Provider(s)

The majority of respondents from all sectors shared Ofcom’s preference for a transparent and competitive universal service provider(s) (USP) designation process, with many advocating the designation of USPs at a regional or sub-regional level. It was argued that a competitive process would secure value for money. Those suggesting the designation of multiple USPs recommended this in order to allow smaller providers to play a role in delivering the USO.

At the same time, few industry stakeholders expressed a willingness to become a designated USO provider. BT8 said it was difficult to identify how the USO provider could be designated before the specification and scope of the USO is decided. BT referred to previous public statements9 that it is able to deliver 10Mbit/s coverage universally on a voluntary, commercial basis as part of a ‘universal service commitment’, subject to Ofcom making specific changes to the regulatory environment. Although Virgin Media10 argued that the case for a broadband USO has not yet been adequately made, it suggested that if a USO was deemed necessary, it considered that BT should be the designated USO provider.

Mobile operators indicated that the USO should be an obligation for fixed providers only. Satellite providers indicated satellite broadband could be part of a solution. However, we note that some respondents, mainly individuals, expressed concerns that latency and reliability issues may affect the ability of current satellite technologies to deliver a suitable service.

Ofcom concluded that a “balanced and effective approach” needed to be adopted. “Any intervention needs to be proportionate, considering the costs of delivering services alongside the benefits. Specifically, wherever possible, costs associated with the USO should be minimised while still meeting the overarching policy goal,” said the regulator.

Meanwhile the UK Internet Service Providers Association (ISPA) chimed in to say that highly targeted public funding for the most rural areas is the best way to deliver the USO. The ISPA called on Ofcom to recognise that a new “broadband levy on all providers is anti-competitive, could hinder network rollout and lead to higher prices“.

James Blessing, ISPA Chair, said:

“ISPA supports the principle of broadband universality and feels a ‘safety net’ for the hardest to reach areas is the right approach, but given the clear socio-economic benefits of broadband, public funding should help fund a USO.”

BT has previously indicated that it could cost at least several hundred million pounds to deliver the USO, although they’ve already proposed that this could conceivably be achieved by using their new Long-Reach VDSL (FTTC) technology, which is currently in trial; we recently revealed a lot more technical detail about this solution (here).

Interestingly Virgin Media’s response suggested that the case for a broadband USO has not been persuasively made, which is unsurprising as being a purely commercial operator they don’t wish to share the burden. But Virgin argued that, if a USO was deemed necessary, it was in favour of BT using LRVDSL to meet the obligation, suggesting BT “could do this without incurring an unfair cost burden providing a minimum level of demand is demonstrated before BT is required to upgrade or build a cabinet“.

Meanwhile BT echoed its previous public statements, where the operator said it is able to deliver 10Mbps coverage universally on a voluntary, commercial basis as part of a NON-binding Universal Service Commitment (the government’s previous 2Mbps USC was not especially effective) and they also called for Ofcom to maintain a relaxed level of regulation (i.e. BT aren’t exactly happy with the latest Strategic Review Proposals).

Extract from BT’s Response

BT believes that Ofcom need to make the following enabling changes to the regulatory environment in order to enable the market to deliver:

1) Ensure continued regulatory freedom for wholesale fibre product prices to ensure the market has the confidence to make the commercial investments associated with delivering to these premises

2) Actively support the introduction of new LR-VDSL technology that will lower costs

3) Commit to a stable environment for universal services enabling the market to have certainty over returns rather than being unsure as to the outcome and potential escalating requirements from frequent reviews.

4) If the Government and/or Ofcom proceed with setting a universal service definition for any purpose then they must set down clear, permanent criteria that reflect how the societal problem will be addressed and equally reflect industry, customer and government costs.

BT further set out its view that, with changes to the regulatory environment, it could deliver a roll-out programme resulting in 10Mbps coverage to 99% of homes, but they said the remaining 1% would need alternative solutions (e.g. fixed wireless or inferior Satellite; the latter is something that Virgin Media also proposed).

BT also proposed that line bonding (e.g. via ADSL or FTTC/VDSL2) might be another way to achieve the USO in some areas, but bonding is expensive, not all homes can support it and they agreed that “further study is required to determine the availability of multiple lines in areas of sub 10Mb/s premises.

Ofcom’s job now will be to provide the Government with a “range of options” by the end December 2016 and then it’s the politicians who will have the last say. Otherwise here’s a summary of the most interesting responses to read.

Key Industry Responses to the USO Consultation

> BT

> Hyperoptic


> Sky

> Vodafone

> Virgin Media

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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.
Leave a Comment
2 Responses
  1. MikeW says:

    I wonder why VM thinks a USO is not necessary.

  2. Optimist says:

    Broadband customers already pay a levy to the government, Value Added Tax, and telcos pay tax on their infrastructure, adding to prices. Consumers pay enough as it is.

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