Ofcom Sets Out Funding Rules for 10Mbps UK Broadband USO

After the fact. Ofcom has today set out the final funding regulations for their legally-binding Universal Service Obligation (USO), which went live in March (summary) – supplied by BT and KCOM – and aims to ensure that people in disadvantaged areas can request a minimum broadband speed of “at least” 10Mbps (1Mbps upload).

Strange as though it may seem, the USO actually ended up going live BEFORE the regulator had finished setting out the full detail of their rules for funding the obligation. The basic template was there for all this but some key details were missing, such as with respect to the procedures for any compensation that the Universal Service Providers (USPs) may claim for delivering the USO, particularly any “unfair costs“.

On top of that there was an absence of information on how such a fund would operate (i.e. those who will contribute and in what proportions, and how funds would be collected and distributed), although we know that it’s intended to be cost neutral (i.e. USPs will gain neither a cost advantage nor disadvantage from delivering the USO) and the net cost of meeting these obligations will be determined by several factors (e.g. the number of eligible premises, the technologies used and the cost of building the infrastructure).

Ofcom will however only establish an industry fund for the USO if they “find that there is an unfair net cost burden” being imposed on the USPs due to its delivery (this hasn’t happened.. yet). In reality there may well be some deployments that attract a high cost and so might need to dip into such a fund (a cost threshold of £3,400 applies to USO connections – balanced against forecast take-up) or be excluded if too expensive.

The new regulations allow for quite a wide section of the industry – both fixed and mobile providers – to potentially contribute toward such a fund (cost recovery), albeit with some limits to protect smaller providers and new entrants (based on a turnover threshold). Otherwise here are the final funding conclusions and yes, some of it is still a bit vague.

What Ofcom Have Decided

• A USP can request that Ofcom reviews their request for funding for the cost of delivering the USO, minus any benefits associated with being the USP (net cost). We expect to review no more than one request for funding per year, and it is for Ofcom to decide on the scope of a review and when the review will begin.

• A USP must submit appropriate information to support their request for funding. We provide guidance on this information in the Statement. For the purposes of the broadband USO, we also separately require the provider to submit specific financial information, for example, capital costs incurred and forecasts of future revenues and costs.

• When carrying out a review, Ofcom will need to determine the existence and level of any net cost. We will review the information submitted by the provider and assess whether the costs incurred in delivering the USO were efficient. There will be a separate process to check our calculation including, if appropriate, by an independent party.

• Once we determine a net cost, we will decide whether it would be unfair for the provider to bear some, or all, of that cost. Our approach includes considering: the cost to Ofcom and industry of establishing and administering an industry fund; the impact on the provider of bearing these costs alone; the method of designating the USPs; and the outcome of any previous determinations.

• If we find USP have incurred unfair costs, we may establish an industry fund to compensate them. We will also determine who will contribute to the fund and how much they will contribute. This will include any threshold below which contributions will not be required.

• Once we have established an industry fund, we will collect monies from industry and compensate the USP. We will gather and check relevant information to calculate individual contributions. We will then invoice each provider required to contribute. When we start receiving the contributions, we will pay the USP on a monthly basis.

So far it’s been hard not to see the USO as being a bit of a disappointment, which is partly down to its minimum speed (although a faster speed would have created various complications with competition, high cost and potential delivery delays) and the fact that Ofcom allowed the use of highly variable 4G mobile (mobile broadband) tech to be used (alongside fixed FTTC or FTTP methods).

Technically just 2% of UK premises (608,000) receive fixed broadband speeds under the USO level, but if 4G is added then this gap drops to 189,000 premises (BT previously estimated that around 100,000 premises may be too expensive for the USO to tackle). Not that 4G can’t be quite a useful solution in many areas, but putting any kind of guarantee behind its performance is fraught with difficulty due to the highly variable nature of its signals and mast capacity.

None of this was helped by the fact that the USO was set to launch just as the COVID-19 crisis began to really bite. At the time BT was struggling due to a related shortage in their support teams and it didn’t help that their initial messaging left many people confused (likewise their CS staff seemed generally unprepared, despite having a year to get ready).

Just remember, if you get offered a 4G solution and it doesn’t work out, or the USPs find you aren’t eligible, then you can complain (here). Often this will trigger a more detailed review of your case and coverage.