Welsh Gov Admit Subsidised Rural FTTP Broadband Coming to an End
The Welsh Government’s Deputy Minister for Economy and Transport, Lee Waters AM, finally said something last week that has been becoming increasingly obvious over the past few years, “we need to confront the fact that the market’s appetite, even with subsidy, for reaching premises with [FTTP] broadband is coming to an end.”
Historically the biggest obstacles to the deployment of Gigabit capable “full fibre” networks have always tended to centre around issues of cost, regulation and time-scale (it takes a long.. time to build, due to the level of civil engineering involved). All of these tend to be disproportionately magnified when asking ISPs to cater for increasingly remote rural parts of the United Kingdom, where communities are often both small and sparse.
The Government has gone someway to improving this situation via their Future Telecoms Infrastructure Review (FTIR) and an ambition to achieve “nationwide” coverage by 2033, although tackling regulation and providing incentives (vouchers etc.) will still only get you so far.
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Like it or not commercial operators still have to make a viable long-term business model for Fibre-to-the-Premises (FTTP) networks and at a certain point these become so stretched as to be almost unworkable. Over the past couple of years we’ve seen an increasing number of subsidised Government projects running into similar trouble, particularly as FTTC (VDSL2) dominated builds are no longer being approved (the focus is now FTTP).
One of the most recent examples was of course the Welsh Government’s Superfast Cymru Phase 2 successor scheme, which started out with a funding pot of around £80m and a much bigger ambition. But when it came down to it, the contract agreed with Openreach (BT) would only use £22.5m of that and cover just 26,000 additional premises with FTTP by March 2021 (here, here, and here). Nobody else bid.
The situation has left the Welsh Government with a difficult problem to resolve. They have public money to throw at the problem, albeit not a lot, but the economics and time-scales are so challenging that traditional commercial operators are struggling to make the model work. Scotland’s on-going R100 project will most likely face a similar issue, which may partly help to explain the delay in awarding a contract (here), but they have £600m to throw at it.
Lee Waters AM said:
“Now, we did put on the table a further £80 million in what is known to Members who correspond regularly as lot 2. We said there was £80 million for the market to bid for, to reach those properties that had not been reached under the Superfast project. And of the £80 million we made available to be bid into, only £26 million has been bid for by Openreach, able to spend by 2021. So, the market itself is not interested in getting public subsidy to reach those premises they’ve yet to reach under the previous programme that we funded.
So, we have a problem. It’s not that the money isn’t there or that we’re not willing to spend it, even though it’s not devolved. It is there. We’ve made that choice, but we simply don’t have the private sector partners willing to spend and reach deep into the areas that we want to reach. Paul Davies has mentioned that, even though Pembrokeshire under Superfast has the third highest level of spending the whole of Wales, with £15 million in Pembrokeshire alone, under the next scheme, only 300 or so premises are going to be included in lot 2, and that is deeply disappointing. It’s certainly not a situation that we want to see.
But I think that we need to confront the fact that the market’s appetite, even with subsidy, for reaching premises with fibre-to-the-premises broadband is coming to an end. And many of these premises—let’s bear in mind, 20 per cent of premises in Wales don’t have a gas connection, and yet we are expecting them to have fibre-to-the-premises superfast broadband, and it’s simply not going to happen in the short-term. Now, if the UK Government is willing to step in and have a genuine universal service obligation, then that could be done, but the Welsh Government alone cannot do that, and I think we need to be honest about that and confront it.”
As we’ve said above, this is not only an issue for Wales. Other parts of the UK are facing the same challenge. Some operators, such as Gigaclear, are trying to find workable commercial solutions to this problem but they’ve already struggled to up-scale their operations (leading to big delays across some of their state aid supported contracts) and will also have limits on the model.
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The 10Mbps+ Universal Service Obligation (USO) may help a little but it’s not mandating FTTP and indeed if it did then the cost to industry, and thus consumers, would be much more significant (noticeable price rises) and may also risk distorting some of the existing market (only BT and KCOM were fully willing to take on and could deliver the full responsibility for a USO).
Social orientated operators, such as B4RN, that involve the community in their physical network builds, are another approach for rural areas but they don’t operate at the kind of scale that would be easily able to adapt to a huge national roll-out. Equally there may be some eligibility issues with their model for major Government contracts. The Government’s forthcoming rural Gigabit vouchers could help but it’s not the same as a contracted general roll-out and will only go so far toward the 2033 goal.
So far the Welsh Government’s initial approach has been to boost the value of Gigabit Broadband Vouchers (mostly aimed at businesses and some related homes) in Wales to £5,500 (here), although once again this has its limits and Lee Waters admits that they’re instead “looking now at non-conventional interventions.”
Lee Waters AM said:
“We are looking now at non-conventional interventions, as I say, because we do think that fibre to the premises is reaching the limits of what the market is willing to provide. There’s a very interesting project in Nick Ramsay’s constituency, in Monmouth, where they’re using what’s called tv white space to deliver speeds of up to 10 Mbps. This is using the old analogue tv signal where gaps were left between the channels to allow for interference, and in that white space they’re able to transmit broadband signals up to 10 Mbps.
I’ve been to visit the village scheme that Monmouthshire council are doing a very good job in running, and it looks very promising. The advantage of using the tv signal is that it is able to reach across hills and into valleys in a way that fibre to the premises is clearly going to find very expensive and very difficult to do. So, a project like that, I think, does have significant potential.”
A number of TVWS deployments have already taken place across the UK, although with the UK Government’s focus now being on FTTP then this doesn’t really solve the underlying future issue of how nationwide full fibre coverage can actually be achieved.
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Lee also talked about future 4G and 5G networks. Indeed we think 5G has a lot of as yet unproven potential to push ultrafast broadband into rural areas, but it’ll be years before coverage matures enough to reach the sort of locations, en-mass, that we’re talking about today, and no doubt gaps will remain. Likewise, 5G is not FTTP.
Lee Waters AM added:
“So, I think there are things that we can do, but simply bemoaning the failure of the Welsh Government to reach communities in an area that is not devolved, in an area that the market has decided it isn’t able to serve, when we have spent over £200 million already, and put more money on the table that the market isn’t interested in accessing — I think it’s only fair to give that account, too. But we are trying our best.”
As we’ve said before, at present the 2033 ambition is really more of an unfunded aspiration. The challenge, as has become increasingly evident, is that even if you have the public money to spend (billions are needed across the UK) then building a viable model and attracting the necessary network operators to do it at-scale is not an easy problem to solve.
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 Linkedin.
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Appears very pessimistic statement. Surely this a temporary situation primarily caused by Government/Ofcom.
From what I can see OR have now decided that investment should now be Fibre to get an asset that will last for years. They will extend FTTC if expedient but that really isn’t the way forward. The Welsh superfarce only appears to subsidise at around £900 to £1000 per property? but the forthcoming USO will be up to £3,400. By aggregating USO subsidy OR can reach further and get FTTP to some of these areas and augment fibre capacity alongside existing superfarce.
If this is the situation then I would not blame OR for keeping their powder dry in rural until the USO and its funding is confirmed (except New Build). They are already at their FTTP implementation capacity nationally and because Ofcom are encouraging Altnet competition then OR has to step up investment to protect their revenues and profit. With potential loss of market share in urban OR may be forced to end national pricing which would be another blow to rural.
The voucher schemes are only good for those close to existing fibre infrastructure and the LNNF funding has been going to large Cities/Towns that already have fibre presence so I am not surprised this is where we are currently.
USO subsidy of 3.4k? Isn’t that the maximum amount of cost that a provider has to suck up to provide the USO, not a subsidy?
Regardless Openreach are busy elsewhere for right now. Most of the expense of FTTP deployment is labour so cost and time to complete the projects can be linked. For the time and staffing taken to enable a single rural premises with FTTP they could likely enable 4 or more urban premises.
It’s a bit of a no-brainer. With Openreach, Virgin Media and, when they can spin them up properly, CityFibre all building at scale any build capacity available gets eaten up pretty quickly.
Either more focused providers will have to pick this slack up or those projects may sit gathering dust. The business case for deploying to those areas is weak.
No commercial organisation would agree to a USO obligation unless there was some recompense, either directly or indirectly. It is not clear how commercially the USO will be funded (pricing, tax, other) or what proportion the provider is expected to contribute but funded it will be, it is a cross subsidy.
“They are already at their FTTP implementation capacity nationally ”
based on their own forecast their capacity is/will nooe to be somewhat higher @27k/w.
Yes numbers are increasing but it will be finite. What I meant was their priority is New Build and Urban and that is where they will primarily focus. Numbers, market share, influencing Altnet investment, revenue protection etc.
Yes broadly, I’m sure they will do the cities then the large->small towns and then we’ll be @ >55% or so fib then we see what happens.
I doubt it, LNNF currently is a back door network subsidy to public bodies (Council, Hospitals etc). My view is that Hyperoptics, OFNL, Truespeed etc are doing a good job with current back haul providers so why aren’t we concentrating on getting Fibre competition to remote towns where these types of company can pick it up. Why rural councils are not going for LNNF I don’t know but certainly places like Chichester, Worthing, Colchester, Isle of White etc do not need a priority fibre leg up with public money. In addition many South East towns currently have large scale New Build in progress and this is increasing Fibre coverage out to the outskirts.
oops. Isle of Wight
I think this is the first of many admissions of defeat for FTTP. Many of the remaining properties without superfast broadband will cost more than the USO limit. Many such properties are remote or in small groupings that have been left out of BDUK schemes as they are on the edge of villages that have had FTTC deployed, but are not in large enough groups for the combined USO funding to do anything.
Monmouthshire’s TV white space approach may be a USO solution, but if it provides a maximum of 10Mbps it isn’t going to do anything to address rural inequality. After that is deployed there is nowhere else to go – it will be 10Mbps max for ever.
Comparison with gas is bogus – you can use propane heating without a gas main. You cannot use the internet without a connection.
Yes, it needs real money, a more appropriate USO definition and a recognition of a need to cross subsidise.
But I also still think there is more flexibility and innovation needed to combine technologies to bring down the cost of higher speed to discrete premises (e.g solar powered WIFI repeaters on poles).
@AnotherTim
There will inevitably be cases where the available subsidy via the USO programme is insufficient, leaving residents to make up the balance if they want the service. This seems reasonable as there has to be a limit, bearing in mind the cost is ultimately bourn by the rest of us one way or another.
@NL. In most cases the customer will still not have to pay a lot on top of the USO cap. Frankly its still worth it. You’ll prob add several times more to the value of your house than the cost. (Not always obviously but…)
Adding value to your house doesn’t help if you don’t intend to move, and haven’t got the spare money.
Also the suggestion that rural residents are receiving charity is offensive. We pay taxes too, we receive less in government spending per capita, we pay more for decent broadband if we are lucky enough to get it, and we don’t benefit from our taxes that are used to pay for CrossRail etc. that benefit cities.
@AnotherTim
If you don’t have the spare cash then you can’t have the service, which of course is the same for everything else in life.
The USO isn’t free money, it comes from the rest of us and rightly should be limited to ensure that there is at least some degree of value for money test. A limit of several thousand pounds per property is pretty generous after all!
In some cases the cost for the remaining properties would not be several thousand pounds had the previous BDUK rollout been done in a different way. The high cost is not necessarily inherent, it is sometimes by design.
And I hope you have spare cash to pay should you get ill, or need your kids educating, or use a library – because I’m sure the rest of us don’t want to pay for that.
@AnotherTim
Healthcare costs are capped based on value for money, why should broadband be any different? Ditto education budgets are limited, libraries are being closed as they are viewed by most councils as non essential services.
Given limited budgets, the amount available per property under the ASO is pretty generous.
Is this not also saying or implying that Openreach given the choice between using clawback to build more or handing the monies owed back, there preference is to hand monies back! This hard to believe but I guess if they intend capitalising it then it makes no difference.
Should the Welsh not seek to extend the ‘spend by’ dates like other areas and keep going?
This looks more like they are wishing to use the B-USO as a means to call it a day rather than finish the job.
The issue is mostly not the dates but the desire of OR etc to even do the work. It may be years (2025!) before they will be interested.
@NGA
Quote “Is this not also saying or implying that Openreach given the choice between using clawback to build more or handing the monies owed back, there preference is to hand monies back!“
Er, no. As has been pointed out to you many times Mike, the BDUK contracts dictate how the money is used, it is not in the gift of the supplier to determine whether and how to spend it. The local authorities have some flexibility but also have other, more important funding priorities.
As a former BDUK employee you ought to understand this, weren’t you paying any attention when you worked there?
New Londoner Charming as ever. The key word is preference. BT’s made solid commitments on Fibre on Demand to support demand aggregation. These are unfilled and commitments to the Welsh were more complete that elsewhere in terms of the public announcements.
At least from this utterance, the Welsh Gov are saying BT are not turning up despite the money being available.
The question posed remains unanswered. Have another go!
The commitment by both parties to use the monies to go as far as possible is recorded in full starting in the 2013 PAC hearings.
Quote “The commitment by both parties to use the monies to go as far as possible is recorded in full starting in the 2013 PAC hearings.”
Sorry Mike but both parties have to comply with state aid rules and contract law. In addition BT has to be confident that any additional investment of its money gives a reasonable chance of a commercial return for its shareholders. And the Welsh government needs to be happy that any further investment by taxpayers gives value for money and is a higher priority than other calls on its funds.
Just assuming that any available funds should automatically be spent on broadband is daft.
New_Londoner The Capital Deferral and clawback is not your money. You owe it. This is not state aid issue.
Your treating the Capital Deferral (my opinion) in the manner the BT Italy manipulated its sales figures. Your capitalising what was a share of profits intended for network investment but then failing to invest while then over stating your costs for cost recovery.
I will submit to OCC. Your blagging is not helping your company. It is showing intent. Be careful.I hope your not paid to do this. Please escalate before you write anymore.
@Mike
Now you’re being ridiculous! I certainly don’t owe the Welsh government any money and even if I did it would not be relevant to this story. I have no need to “escalate “ as I represent nobody other than myself, have never claimed otherwise.
You have however made a clear allegation about financial irregularities, may wish to consider whether you actually have any evidence for this given the lack of interest in your previous submissions along similar lines.
New_Londoner so your no longer BT. Sorry.
I have registered the irregularity.
@Mike
To further clarify, I didn’t say that I “no longer” represent BT, nor indeed any other organisation, I actually said that I “represent nobody other than myself, have never claimed otherwise”.
It’s exceptionally bad practice to ascribe someone’s views to any organisation by assumption! I’ll post this comment in both threads to avoid any confusion being created by your comments.
Whilst his later bogus comparison with gas supply questions his thinking it’s important to note that Lee Waters says “….I think that we need to confront the fact that the market’s appetite, even with subsidy, for reaching premises with fibre-to-the-premises broadband is coming to an end.”
In other words, it isn’t about the money. Well, not sensible amounts of money.
Superfarce cymru was supposed to deliver 99% coverage…
With a huge commitment to FTTP and the right to order it.The commitments made repeatedly.
@NGA – ‘and the right to order it.’ What does that mean?
Welsh gov say ‘Some premises will be enabled for superfast broadband via FTTP’ Huge commitment?
Facts, it is when a ‘reasonable request’ for full fibre meets the commitments made specifically by BT country managers to the Wales Public Account Committee.
@NGA – more details like a link please.
Facts, you’ve had before, your refusing to learn.
@NGA – thanks, but I’m sure it’s easier for you to find if you could please.
@NGA – are you referring to FoD?
@TheFacts: What exactly is your point here? If you think other posters are wrong, then say so, and provide links for clarifications!
The stop date of March 2021 could be extended to allow more premises to be reached, rather than set an end date for subsidy, the topography or the landscape is going to be very slow in deployment
It is interesting that the Welsh statement is making the judgment around the fact that only £26m of the £80m was bid for. This was a self-fulfilling prophesy, the tender marking scheme was none standard as it gave very few marks for coverage and lots for wholesale capability and other softer issues. This was perfect for Openreach put would have made it impossible for other companies such as Truespeed, Gigaclear and Airband to win so they didn’t bid. I spoke to Openreachs’ Chairman about it at the Inca event 2018 and he commented that they had only bid a small amount because their internal capital budget is split between Rural and Urban, and they were at their maximum investment for Rural. I know at least two companies that are planning FTTH in wales off the back of the ABC voucher and Gig voucher schemes, so removing subsidy will not help.
Quote “lots for wholesale capability and other softer issues. ”
Wholesale capability is a state aid requirement.
That is weird. The Capital Deferral in BT’s accounts states there is a fortune in clawback/capital deferral available to re-invest in rural. £712m in Oct 2018. This is money owed the process, so converting this into network improvements should not be too onerous. The challenge is that BT has started to recover these as costs without investing in the network.
Are you in a position to publish the conversation in a blog?
Quote “The challenge is that BT has started to recover these as costs without investing in the network.”
Mike, presumably you’re aware that operating costs are covered by the BDUK contracts? Over the lifetime of the contracts? What assumptions about these did you make in your “dossier“?
New_londoner More mis-direction and fluff. Operational costs are always included but this has nothing to do with the Capitalisation of shared profits and how this is then used to increase cost recovery.
If the Wales Gov are to believed you are refusing to bid for work using money you owe them, but which you are deciding to capitalise and add to a cost recovery process permitted by Ofcom.
@Mike
The Welsh government has never offered me any money and I certainly don’t owe it any. I don’t even live there, have only ever visited a couple of times! 😉
New_Londoner – Your no longer represent BT, so sorry, the comments do not apply.
So what viewpoint do you represent? It is not shareholders, it is not rural users, it is not BT.
@Mike
To further clarify, I didn’t say that I “no longer” represent BT, nor indeed any other organisation, I actually said that I “represent nobody other than myself, have never claimed otherwise”.
It’s exceptionally bad practice to ascribe someone’s views to any organisation by assumption! I’ll post this comment in both threads to avoid any confusion being created by your comments.
New_Londoner – this handle has a significant history on this site where there was no previous confusion as to who was represented.
Mike
You’re right, there never was any confusion, my views have always been my own! I suggest that you stop deflecting from the story at hand ….
Rural.. I would still like to follow up your comment and understand why if at BT Group level BT owe the Welsh its share of the £712m capital deferral, plus any gap funding from its capital contributions, why it is that the Chairman of Openreach feels his is budget constrained and cannot bid with the money BT Group owes?
It goes further, BT Group or their auditors have invented an ‘accounting treatment’ capitalising a future debt arising from a share of future revenues, intended for the network which might be ok, but which may never reach the network which is not ok.
Either way it appears Openreachs’ capital budget for rural is uninformed by the ‘accounting treatment’ of capitalising monies owed back to BDUK projects. This exposes just how pointless the separation of Openreach is in practice.
Apart from picking up the date of the INCA conference, is there anything else you can add?
Openreach have widely published commitments for FTTP coverage within the next couple of years. They are presently at about 30k premises per week. If they took all their resources and plowed them into remaining rural they would be at a quarter of that at best and more likely 5k or lower.
There very simply doesn’t exist the capability within Openreach to achieve the targets they have set themselves working in uncovered rural areas.
With this in mind why would Openreach have any interest in devoting extensive resources to it?
More to the point is the suggestion that Openreach are obligated to continue building with monies that are being clawed back backed by anything contractual?
All well and good discussing what x said in y setting, where’s the legal paperwork that shows that Openreach have this obligation? If there is no legal paperwork there what’s in it for Openreach? They are part of a private business with a fiduciary responsibility to shareholders – if they behave in a matter that is not in those interests they are in far deeper trouble than contradicting what some random said.
Fair point, so I have query to OCC suggesting the capitalisation of the clawback is challenged where these monies are not invested in the network. It is just a sharing of revenue not a capital expense.
Quite right Carl. Any money being clawed back belongs to the relevant council and it will decide how to spend it. In many cases this will not be spent on broadband given the many financial challenges councils face.
New_Londoner .. at least half of anything returned (which is not being reported upon) is returned to central gov, but that leaves the inappropriate capitalisation of monies not being spent on network assets. The latter I hope can be dealt with.
You work for BT and these comments are completed in BT’s time and yet they have nothing to do with BT! So you have permission to muck about at your shareholders expense!
Mike
I work for myself, never did do a 9-5 job, have my full permission to spend my time as I see fit! As posted above, I suggest that you stop deflecting from the story at hand ….
imo, a body with a significant monopoly on an essential public service, regularly receiving government money for the public good, should have public good as an additional responsibility above shareholders. and if those priorities are in conflict, the public good should take priority.
it may be more financially difficult in the short term for them but the increased access would be a boon in the medium term.
think of how many small businesses have cropped up in places with fibre coverage – think of how many people can work from home, or access commerce.
hell, even just listing an item on ebay is a painful experience on rural internet. if you’re lucky you’ll get adsl, but it won’t be more than 100kbps upload. many are still stuck on dialup. is paying shareholder dividends that much more important to you than equality for rural areas? i don’t ask out of ideology but because time and again it’s proven that when an area gets uplifted it pays itself back within a few decades.
creating opportunities is good for markets, and for tax revenue! for many in rural areas, the cost of satellite internet is prohibitive. it’s really very isolating, and the initial promise that getting phone lines to everyone held was that rural areas wouldn’t be left behind anymore. for a long time they were without phones too. it wasn’t without its cost to construct the phone network out. but it was for the public good and has paid itself off now in terms of benefits paid back. but now having just copper isn’t enough for the modern world.
if there was a big enough commitment, economies of scale would make it far more tenable than having small companies and organisations try to fill in their own small patch. i find it ludicrous that this isn’t the approach that’s being gone for, except if everyone involved cares more about short term gains and losses than what the hell to do in twenty years when the problem is even worse.
SuperfastEssex handed back a large chunk of ECC-allocated money last year because there were no commercial operators prepared to match the funds (it was about £5million if I remember rightly).
Considering how delayed the commercial projects are in Essex it seems even Gigaclear have no capacity to take on additional work.
if only the fttp rollout from the 80s hadn’t been blocked.. the issue here isn’t an inherent cost, it’s an economies of scale issue. everything is trying to do smaller works but that massively inflates the cost per mile. in the 80s bt claimed they got the cost below that of installing copper if they were allowed to do it at scale. now that may have just been fibs, intending to take a short term loss for the bandwidth gain or something, but i think we can all agree we’d be in a much better space wrt internet access and bandwidth had they succeeded in replacing all of their copper with fibre. imagine if the local loop unbundling competition of the early 00s had occurred with fttp instead of copper? the broadband competition space could have been much more similar to how it was in japan and south korea. we could’ve easily had 50-100mbps to everyone in 2002, let alone access to gigabit now if wanted. but because that rollout was blocked based on monopoly worries, we just were stuck with bt’s copper monopoly instead of a fibre one. i actually live in a fttp development but right now i choose to have the 100mbps package, since that still outstrips the serverside bandwidth for many many cases. i still get angry thinking about how this could have been accessible to every property in the uk, decades ago.
And how the cable companies were busy everywhere and then stopped.
To prevent the rollout of FTTP across the UK because it would be used for video is now a very dated outlook.
Nobody has prevented BT from doing fibre for many years now. We are not living in the Thatcher era.
@GN – thanks for your comment. What’s the current OR rollout rate?
xxx
Get the army engineers to role it out, got to be great practice for them and let communities help?
Rural Gigabit Future: Rural Wales
https://www.inca.coop/civicrm/event/info?reset=1&id=131