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UK ISPs in Legal Threat Opposing £600m BT 10Mbps Broadband USO

Monday, October 23rd, 2017 (8:29 am) - Score 3,121

Several ISPs, including Sky Broadband, TalkTalk, Hyperoptic and Gigaclear, are reported to be considering a possible legal challenge if the Government chooses to adopt BT’s voluntary proposal to deliver a 10Mbps minimum broadband speed across the UK by 2020.

At present the Government’s Broadband Delivery UK programme estimates that around 98% of premises across the United Kingdom should be within reach of a 24Mbps+ capable “superfast broadband” connection by around 2020, which would leave the remaining 2% to be catered for by a new “legally binding” 10Mbps+ Universal Service Obligation (USO).

So far BT appears to be the only operator willing to actually deliver on the proposed USO (except KCOM in Hull), which the Government could impose through a strict mandatory policy. But at the end of July 2017 BT proposed an alternative / softer voluntary option (here), which would involve an estimated investment of £450m – £600m.

The cost for BT’s plan could then be recovered from product charges, which wouldn’t have a hugely negative impact on consumer prices, particularly if it were partly used to limit Ofcom’s controversial price reduction on Openreach’s 40Mbps FTTC broadband tier (here). Ironically perhaps, the Government has also just intervened to potentially limit that very same price reduction (here), which adds a new twist to this story.

However a new report in The Times, which stems from an industry source, claims that Sky Broadband, TalkTalk, Hyperoptic and Gigaclear have been taking legal advice and might launch a legal challenge if the Government adopts BT’s voluntary proposal instead of a true mandatory and “legally binding” USO.

The rival providers’ fear that a voluntary USO could stifle competition, even though BT’s investment would be commercial. The Scottish Government has also raised similar concerns, albeit partly for different reasons (here).

The Industry Source said:

“The law is very clear on how a USO should be delivered. BT and government can’t simply call the USO something else and hope the law doesn’t apply. If BT persuades the government to ignore the legal framework, they could face years in court. That would derail the process and leave customers waiting even longer for the fast broadband they deserve.”

So far the Government has continued to say that they want a “legally binding” USO and as a result no firm agreement with BT has yet been established, although it’s looking more likely that a deal will be done and the devil could thus be in the detail. Put another way, is it really going to be a binding USO or more of a toothless Universal Service Commitment (USC) that is a USO in name only?

The UK had a USC of sorts for 2Mbps and it wasn’t very effective, although that ended up being more of a political state subsidy / voucher scheme for rural areas than a truly national deployment of new networks. Meanwhile BT’s competitors appear to desire a fully regulated model, in which all broadband ISPs could invest, with costs recovered from consumers via a levy on profits or another funding mechanism.

The problem for the Government is that they don’t have a lot of public money spare and none of BT’s rivals are willing to step in, which means they’re only left with one supplier. Finding the right model could be tricky. Last week the CEO of Ofcom, Sharon White, told a select committee inquiry that if a voluntary deal were reached then they would “examine in detail what BT claims its cost are and what we believe are appropriate costs to be recovered … it will be a robust process.”

The Government hopes to reach a conclusion by the end of this year and the last thing they need is another legal challenge, particularly given that one is already holding up Ofcom’s 5G spectrum auction.

UPDATE 12:49pm

Gigaclear has sent us the following statement.

Matthew Hare, CEO of Gigaclear, said:

“Gigaclear has not considered legal action, but we strongly believe that a regulated Universal Service Obligation (USO) is the only way to guarantee a competitive marketplace. Competition is vital, not only to give consumers choice and access to high quality broadband, but also to secure the future of this country’s digital economy. If the Government were to go with BT’s voluntary deal this would effectively stifle competition.”

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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.
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32 Responses
  1. Davek says:

    Oh just what I thought was going to happen the USO is now dead.
    Anybody with sub 1 Mbps and located in a rural area is stuffed.
    But there is always satellite, which nobody wants even with a meaningless £350 voucher.

    1. Mark Jackson says:

      I’m not sure how solid such a legal challenge would be as the ground it’s treading on seems to be quite thin. At this point we’re not talking about state aid, which would be much more contentious. Will have to see the USO decision first.

    2. dave says:

      4G from three is £17/month for 40GB cap or £26/month for 100GB cap. A lot of people can get that. Much cheaper than Satellite, bigger data caps and lower latency.

    3. RuralBroadbandAndMobileSuck says:

      @dave: Some of us dont get a mobile signal, along with the slow broadband.

    4. Joe says:

      @mark: I think you are missing the point. So much of judicial review today is not about actually having a decent case but the wrecking threat of bringing the action. Even if the government wins it will cost both time and money. The ISPs will delay by years any changes and might force the governments hand simply to avoid the delays.

      Of course of the government had a majority they could force legislation though to cut the feet from under legal action but thats not where we are.

    5. h42422 says:

      @Joe: Not quite so. The legal challenge, as already stated by Mark, would be unlikely to succeed, as in this case there would not be any state aid. This would not cause any additional delays as there would be no projects that would be stalled for the duration of the legal process – as there would be no projects.

      BT/OR as a private company would be still free to pursue whatever investment path they see fit with their own money, which was the whole idea behind the “soft” USO. No government money and no government intervention. The legal challenge was never against BT spending more money to upgrade their network. Basically ISPs would be then suing the parliament for not making a decision they would like it to make. Good luck with that.

      If the government chose this path, then we would be relying on OR goodwill to actually invest into the last 2%. If they chose not to do so and they would still leave some areas out as too expensive to upgrade, there would be nothing the residents could do to challenge this. This is the risk, not the spurious legal challenge.

      I would personally rather see a binding USO, not watered down with any cost thresholds or other loopholes. In my area OR has not been very straightforward with their plans. My area in London is full of long exchange only lines. When council and local groups challenged BT years ago about this, they promised to bring in fast broadband to X households. As there have been massive housing developments in the area, they were able to deliver X without investing anything to improve the existing lines. They just cabled all new builds correctly, which they would have done anyway without any community pressure. This was not what we expected them to do, but they can now claim they fulfilled their commitment and the rest they can just ignore.

      There seems to be always “but” somewhere in OR plans, and this but seems to be working against those with slowest speeds. A legally binding USO would finally force them to spend money fixing the last bits instead of bringing faster technologies to those who already have the highest speeds in OR network.

    6. NGA for all says:

      @H42422 ONe of the issues is that 10Mbps as defined can be blagged in many different ways. The ‘binding USO’ on OR has to be on something like a ‘fibre path facility’ not a pseudo retail package which can be met in many ways currently not acceptable to many users.

    7. Joe says:

      @H42 As I said clearly the strength of the argument is not the issue so replying to agree they won’t succeed is neither here nor there. If the ISPs can successfully force the governments hand on the USO and on OFCOM regulations BT won’t privately invest if they think they can’t make a commercial profit.

    8. Steve Jones says:

      @h42422

      I know of no USO on any service which doesn’t have a cost threshold. There is a certain point at which you have to ask whether it is justified for others to pick up the bill. Not having a threshold would mean that any property, not matter how remote (including any new builds) could cause costs of tens of thousands of pounds to be incurred. If people build houses in the middle of nowhere, they are expected to pay the costs of water and electricity to be connected. It’s not obvious why the same wouldn’t be true for broadband (as it is already for the telephone of course).

    9. Mike says:

      @RuralBroadbandAndMobileSuck

      Antenna.

    10. h42422 says:

      @steve: Fair enough. If someone decides to build somewhere far, far away, I guess it is fair to assume they need to pay for connections as well.

      Whatever threshold there will be, should be such that it in practice covers “almost everyone”. We should be somewhere in 99,9% or even 99,99% of existing homes. Any limits that resemble the USC limits are clearly unsuitable, as it would make the whole USO pointless. The limit should be such that urban coverage should be 100% without any exceptions. Not a single one. It should also force them to bring fibre or a cabinet to rural locations with 5-10 properties.

      Now it seems that very little is happening anymore without gap funding. BDUK and devolved administration funded projects are still happening, but I do not see OR doing much of anything anymore with their “commercial” model. Their focus seems to be already in improving FTTC speeds with new technologies. USO was supposed to help to change this a bit, but if it does not do that, it would be utterly pointless. It would only guarantee 10Mbps for those who already receive much more, and nothing for those receiving less than that.

    11. New_Londoner says:

      @NGA
      Quote “The ‘binding USO’ on OR has to be on something like a ‘fibre path facility’ not a pseudo retail package which can be met in many ways currently not acceptable to many users.”

      Come on Mike, you know legislation has to be technology neutral, could not specify a “fibre path”. Also, be careful about over-specifying the solution given most people don’t care about the tech anyway, would prefer not to contribute any of their money towards the cost to provide service if at all possible.

    12. NGA for all says:

      New_Londoner There is nothing technically neutral in ignoring the customer experience. There is nothing neutral in accepting the shortcomings of copper gain technology into industry and even regulatory language limiting the ambition and what is possible.

      The BT Voluntary offer ought to explain how far the existing funds (Capital Deferrals, underspends, balances in Investment accounts, can go and what is then is needed to complete the job.

      IMHO, the BT Voluntary offer has insufficient detail and substance to be accepted in this form. It is likely BT would gain more from a legislated B-USO rather than this less than convincing offer. The Cameron Nov 9th 10Mbps announcement is as badly informed as the Ofcom inspired MIP when reacting to the coverage obligation.

  2. FibreFred says:

    Not sure I understand this one.

    So joe public and the government want a USO, but ISPs feel that if BT do it, they will be left out?

    But if not BT who will do it? These other ISPs with their own money?

    Sounds all sorts of selfish

    1. NGA for all says:

      Selfish perhaps, but there is an existing £466m BT Capital Deferral to be recycled and all the underspends which could in theory be subject to a competitive process. The Voluntary offer which has not been subject to any detailed work in NI or Scotland points to a possible double payment opportunity for BT.

      The 10Mbps derived from the limitations of copper gain technology was dreamt up in 2015 before the scale of the monies owed was accepted. This was not considered in the Analysis Mason report to Ofcom, and Ofcom’s modelling of the costs have not been revised to reflect the ambitions of LA and DA with existing funds. The latter and BT’ lack of resource needs to be considered.

    2. Steve Jones says:

      @NGA

      The £466m deferral can be spent at the discretion of the local BDUK projects. It’s simply on BT books as a recognition of money to be paid back, or reinvested in extending the SF coverage. Of course any extension of the BDUK projects will reduce the number of properties to be covered by the USO (which is why we are seeing a projected 98% coverage). However, one thing it is not is a “free” pot of money which BT can just go spending on that USO for the remaining 2%. Hence the £600-700m projection for the costs of the USO, which would be over and above what is set aside for BDUK reinvestment.

      If that £466m was not to be reinvested, then the “USO gap” would be wider and the bill to BT for filling it would be higher.

    3. NGA for all says:

      Steve, understood, so why cannot the BT, and Ofcom papers include an analysis of the net impact. Why propose to increase a price control without netting this funding off.

      We get to 95% before a penny of the clawback and underspends are spent. OR’s 2015 charter said the first £130m (of the £466m clawback) would take to 96%, DCMS then said 97% in the consultation while the Minister then said 98%, while Ofcom/Analysis Mason have still modelled on the 2016 numbers. The latter remains uncorrected.

      None have made clear the resource constraint and any USO work done under the price control means less done using BDUK funding. It would be good if this was mapped out without it being gamed.

      The fact of the matter is that if Government was informed of events, the 10Mbps would not have been proposed.

    4. New_Londoner says:

      @NGA
      Quote “The fact of the matter is that if Government was informed of events, the 10Mbps would not have been proposed.”

      Mike,
      Do you have any actual evidence that both Ofcom and the BDUK team are in ignorance about all of this? Or of your separate assertion that the system was “gamed”, whatever that might refer to?

    5. NGA for all says:

      New-Londoner Yes lots of evidence. Nov 9th 2015 – Capital Deferral was £130m, not £466m+ underspends + capital account balances yet to be revealed or BT capital to be reconciled. Ofcom/Analysis Mason report (DEC 2016) examines 2016 numbers not a forecast for 2020. No assessment of the LA and DA ambitions, hence the concerns from Scotland. There are at least 9 counties with stated ambitions for 100% coverage with more to come.

      I can appreciate BT wishing to respond to the proposed legislation, but equally the offer looks weak because the proposal of 10Mbps is a political whim born of frustration and lack of information about how much funds needed to be recycled as the BT Gambit was beginning to be unpicked. Up until 2015 when the 10Mmbps was declared the BT Gambit was still largely intact and BT’s evidence to the CMS 2016 inquiry remained deeply mis-leading.

      I guess the BT contingency of £466m owed to Government can disappear over time if they Gov are dumb enough to go for the Voluntary offer. The BT offer could have at least refer to the possibility that the contingency could be converted into 500k rural FTTP connections if the appetite exists to transform rural networking.

    6. NGA for all says:

      New_londoner The tone of the above contribution needs to change. Perhaps, why settle for a sub-optimal solution and sub-optimal way of funding it. By the latter I mean it is too easy to blag, while BT get the blame. Why not define and do it properly?

  3. NGA for all says:

    The scale of the BT Capital Deferral (£466m and counting) owed and all the county projects with work to complete suggests the voluntary offer in its current has to be rejected as any work done between now and 2020 would overlap with existing contracted work or work that could be contracted using the excesses within the process.

    In 2015 when the 10Mbps was dreamt up, the notion of a Capital Deferral and additional monies owed of this scale was being denied by all.

    It is unlikely the BT offer looked at the specific needs of Scotland and Northern Ireland where the USO is most needed. The LR-VDSL solution being referenced and which remains un-launched is not hugely relevant. Anything other that a FoD (FTTP-GPON variety) can be met with non BT solutions of FWA, antenna supporting 4g Mobile Broadband, or satellite.

    1. FibreFred says:

      “Anything other that a FoD (FTTP-GPON variety) can be met with non BT solutions of FWA, antenna supporting 4g Mobile Broadband, or satellite.”

      But the issue is, who else is going to put up these non BT solutions, why aren’t they there now?

    2. NGA for all says:

      @Fibre, as there is another rub. In attempting to be technology neutral the shortcomings of such services – in terms of the end to end user experience over a number of years means customers have a desire to get access to same service levels as experienced by their urban cousins.
      It can be argued that BT’s position is so dominant there is insufficient room for competition to develop. Gigaclear is currently the exception. As soon as customers are given a choice they will take the fixed solution.

    3. Steve Jones says:

      @NGA

      Even if there wasn’t an agreement, we might yet see BT (or really OR as it would be their investment decision) to go ahead anyway. Then where would it be? The only issue would be whether Ofcom would take any such non-commercial expenditure as part of the cost equation for regulated pricing. If (as is hinted), the government water down the Ofcom FTTC pre-cuts then it could well liberate more cash flow for OR to do precisely that. That wouldn’t exactly help the infrastructure competition.

      The only way to stop this would be to invoke competition law and actively prevent OR spending money on non-commercial network investments. Just what the reaction would be by the press and public to such a move, I don’t know. Ofcom might make such a decision, but it would probably get appealed to the Competition and Markets Authority and ultimately through the court system.

    4. NGA for all says:

      Steve, ..if BT proceed anyway,.. There is room in the replacement cost recovery processes for this occur so perhaps if an independent OR is working there is in theory an increased probability of this, but why a half measure, why not funded legislated B-USO.

      IMHO .. the end goal is I hope the WLA definition which includes FTTP in its workings needs to be amended (perhaps 2021 review) such that the ‘reasonable demand’ clauses are applied to FTTP provision, which are the only things missing creating equivalence between Metal Path Facility and Fibre Path Facility; hence the importance of FoD (FTTP-GPON) and the application of the capital deferral to create conditions for the change in 2021! Enough FoD – FTTP-GPON permits the WLA amendments when sensible to do.

      A half arsed definition (gov) and half arsed response (BT Voluntary offer) is sub-optimal all round.

  4. Steve Jones says:

    Those who are suggesting that the voluntary USO couldn’t be stopped on the basis that it would be a commercial decision by BT (or, rather, Openreach) are, I think, possibly missing an important point. That is the role of competition law. If OR where to go ahead with a voluntary USO (whether by agreement with the government or even unilaterally), then it’s possible that such a decision would be challenged on the basis that OR would knowingly be pricing a product at a loss in order to keep out the competition.

    As OR have (by any reasonable definition) SMP in the provision of broadband infrastructure in rural and semi-rural areas, then the competition authorities could take the view that OR would be engaging in predatory pricing. Of course, that’s only the case id it can be shown there is viable potential competition in this “USO gap” area. If that can’t be shown, then OR might reasonably be able to say that they are just fulfilling some form of social service using the PSTN service as an example.

    Ofcom could make such a decision (but it seems unlikely – imagine the outcry). Alternatively, the potential competitors could take this to judicial review and even try forcing a reference to the Competition and Markets Authority (CMA). I suspect that this is the grounds this group of companies might seek to exploit, but they will have to have a credible alternative to offer.

    1. MikeW says:

      Isn’t the real problem that Openreach would find their USO work by adding ~10p to every bill?

  5. Marty says:

    Sounds like sour grapes to me. That money in legal challenges there happy to spend bickering about. Could be better spent elsewhere in planning permissions to lay better infrustructure in the ground.

  6. MikeW says:

    Bunch of F’wits.

    None of these idiots stood up to offer a USO service, yet they’re all scared of allowing BT to serve this market. This humongous 2% of the country, that’s going to break all their banks. Hyperopic? You care, really?

    Ofcom surely has to see that, while trawling the depths for companies to compete with BT, that that are dragging in worse monsters than the one they are desperate to split up.

    BT are a monster. But nobody else is offering any greener grass.

    What they all care about, really, is the prospect of a 10p levy to fund a mere 10Mbps service to 2% of the country. We all label this as a sub-human service, yet Sky et al want to deny it.

    What a bunch of (people good at tossing cabers). If you don’t like it, stop funding lawyers, and start funding comms!

    1. New_Londoner says:

      Agreed. It’s the usual suspects, the ones with apparently lofty ambitions when pushing their “Fixing Britain’s Broadband” campaign. Perhaps a new one is needed to highlight their real objectives of protecting their LLU assets and avoiding spending any real money at all costs whilst blaming others.

      Pathetic really, although hardly surprising. Voda’s track record of systemic under investment in its mobile and C&W networks speaks for itself.

  7. AndyC says:

    Sounds like a big F.U. to their low speed customers.

    “We aint funding your high speed broadband and will fight anyone else trying to take our super cheap to run adsl service off us.”

    I am confused tho because even if openreach do it everyone complaining can still use whatever openreach build anyway so really where is the problem? I would happily pay a extra 10p a month, just means 1 less McDonald’s cheeseburger per year…..

  8. Ultraspeedy says:

    Ah yes the optional/universal/barstewardise the dictionary 10Mb BT solution including satellite which they do not provide hurrah!

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