Buried treasure

14 May 2017

Life in the trenches: while ‘fibre everywhere’ is the endgame, industry debate centres around the best way to get there and whether the government needs to do more.

Life in the trenches: while ‘fibre everywhere’ is the endgame, industry debate centres around the best way to get there and whether the government needs to do more.

The government’s interventionist stance toward superfast broadband provision has met mostly with approval by fibre network operators and service providers. And with its Broadband Delivery UK (BDUK) change programme set to end in eight months’ time, plus newer initiatives getting ready to be introduced, speculation over whether governmental appetite for state-sponsored investment in fibre to support its Digital Strategy and forthcoming Digital Economy Bill, seems answered.

With BT, government finance is designed to stimulate commensurate commercial stakes: the telco has had to match the government’s £530m funding for regional ‘superfast’* broadband projects with its own money to similar orders of magnitude. 

[*In its Connected Nations 2015 report, Ofcom defines ‘superfast’ broadband as fixed line download speeds of between 30-300Mbps. Speeds greater than this are said to be ‘ultrafast’. However, different definitions of how fast ‘superfast’ should be – and whether it qualifies for the epithet if it runs over souped-up copper at any point – have been a bone of contention for some in the industry.]

Now thoughts are turning to how far government-backed schemes will extend to other players in superfast/ultrafast rollouts, and in what form the extra funds announced in the March Budget will be made available (i.e. loans, grants, vouchers, business rate relief, or even public investments). 

The BDUK programme, which has been coupled to around £1.6bn of public monies, is already rolling out fixed line superfast broadband to reach 95 per cent of the UK before the end of 2017. Since 2013 when BDUK began, new firms have joined the fray, and some of these have since become significant drivers of fibre broadband provision. They include independent network operators who have tended to focus on opportunities for metropolitan area build out (based on new-build and appropriated fibre networks) but who would like incentives to extend their fibre reach into suburban and/or rural locations. Meanwhile, so-called ‘altnets’ – superfast broadband providers who may use alternative delivery technologies such as satellite and wireless – are also minded to find out what public funds could go their way.

A billion for fibre and 5G

BDUK was a torchbearer scheme that demonstrated government commitment to a recognition of the importance of high-quality broadband availability throughout the British Isles, as the potential benefits of broadband as a business enabler for industries in less populated areas (such as farming and agriculture) became evident.

Sean Royce, EVP of technology, service and operations at KCOM, believes it is important to judge BDUK against its stated intervention objectives, which was never to guarantee seamless superfast broadband. “Rather, it was to use a given funding envelope to deliver the maximum amount of incremental superfast coverage, and to ensure that the Universal Service Conditions were met. The timelines for the superfast coverage targets were used as a delivery constraint to help deliver the social benefits from the public investment as quickly as possible to those residential and business customers in the ‘final third’ of the UK.” 

According to Royce, the UK does “comparatively well” on superfast coverage, and there is an expectation that 95 per cent of premises will have access to broadband download speeds of at least 24Mbps by the end of 2017. That’s on top of the country having met its secondary  main objective of ensuring everywhere else has access to broadband speeds of at least 2Mbps, as specified by the Universal Service Conditions.

As well as BDUK, Whitehall has also been funding broadband rollouts and take-up via other various initiatives and schemes – the most recent being the £400m Digital Infrastructure Investment Fund (DIIF) allocation announced in the last budget. But here, the question of whether allotted sums are adequate to the task at hand is not clear-cut, nor is how the total will be divided between component DIIF change objectives.

In his pre-emptive autumn statement, chancellor Philip Hammond announced that government will invest more than £1bn by 2020-2021, including £740m through the Northern Powerhouse Investment Fund, targeted at supporting the market to roll out full fibre connections and 5G. This will be delivered through the £400m allocated to the promised DIIF to invest in new fibre networks over the next four years – as matched by private finance – helping to boost ambitions to deploy full-fibre access to millions more premises by 2020. A new 100 per cent business rates relief for new full fibre infrastructure for a five-year period from 1 April 2017, was also promised. 

But the chancellor did not make clear how the headline figures were arrived at, and the industry is still discovering how it will be made available.

The funding support initiatives announced by Hammond last autumn and re-articulated in his March Budget, indicate that the government is not satisfied by the rate of change. 

Julian Cowans, programme manager at the Superfast Cornwall partnership initiative, says: “This is a recognition that the job isn’t done. Most of BDUK’s programme, which has had an emphasis on providing ‘gap-funding’ to the private sector to enable it to rollout to commercially-unattractive areas, seems to be coming to an end. And yet almost every day, I hear from businesses and people who are desperate for better connectivity. There needs to be something in place to ensure that further rollouts continue.”

Cowan’s phrase, ‘better connectivity’, has a double resonance in the broadband delivery context. Although the debate is couched around buzzwords such as ‘superfast’ and ‘ultrafast’, reliability of connection is just as important for customers – it’s no good having access speeds in excess of 24Mbps if the connection is regularly lost due to technical glitches.

Life after BDUK

There’s no doubt that government is aware of the interdependency between business productivity, economic well-being and broadband quality. 

“There is new ministerial interest in full fibre, and Ofcom also wants to promote it,” says Matt Yardley, partner at Analysys Mason. “There also seems to be a desire to stimulate fibre investment from network operators less well-established than BT and Virgin Media – I presume this is seen as a way to stimulate further competition in the market. 

“However, the economics of full fibre, particularly outside the high-density areas, can be very challenging, and it’s not totally clear to me how the new announcements will address that (if at all).”

Mason believes DIIF is going to need a significant number of investment opportunities to assess if it is targeted at the smaller players and he predicts that while it may not have a major impact on coverage, it could serve as a stimulus.

DIIF’s emphasis on full fibre – which is interpreted to mean FTTP (fibre-to-the-premises) – has been good news for network operators who advocate that full fibre infrastructure is necessary to support ‘smart cities’ and IoT network fabrics. How much funding might be available for FTTC (fibre to the cabinet) infrastructure to be regraded to FTTP going forward is unknown. This issue could turn out to be important in terms of how some of the Digital Strategy change agenda funds should be spent.

In terms of geographical coverage, KCOM’s Royce says the UK’s superfast availability has largely been achieved using FTTC and cable (via DOCSIS)as the dominant transmission solutions, rather than the full fibre infrastructures some politicians are talking about: “Full-fibre networks are more costly to deploy, and take more time to deliver. But [we] consider them to be the only solution capable of delivering the superfast/ultrafast service businesses and consumers will demand, and for providing tomorrow’s ‘gigabit society’.”

FTTC/FTTP debates aside, another funding-related factor is the question of how much broadband speed most businesses will actually need in order to optimise applications as they move into the next decade. Is there a cost-justifiable point in the provision of higher Mbps speeds where they are not really needed, or where customers are unwilling to pay a premium for them?

“It is great to see that public money is being put behind a coherent plan to address the full fibre gap,” says Mark Collins, director of strategy and policy at CityFibre. “While FTTC has brought us a long way, government has recognised that now is the time to start work on building the networks that will take us into the future.”

Collins believes that national impacts such as Brexit, the need to catch-up with international competitors on FTTP differentials, and the advance of the ‘4th Industrial Revolution’ (e.g., IoT, smart cities, etc.) have informed this decision. He adds: “A critic would argue that focus on the importance of creating the right incentives to invest and to innovate has been lax in recent years, and that is why the UK so shamefully lags behind [on FTTP deployment]. The new direction now signalled by the government is a very welcome change.”

With respect to whether levels of government investment to date have been appropriate to promoting its declared objectives, opinion divides – largely because estimated costs and ROI are so speculative. 

The BDUK programme is close to full maturation, and both the requirement and the industry that seeks to service it have undergone changes since 2013. There are some factors that govern the pace of change that governments are not savvy to, but remain everyday business realities for network operators and service providers. For instance, they have to maintain current services while building-out or re-purposing fibre that also, to an extent, replaces copper links still in use. Skills shortages and wider disruptions, such as economic stability, Brexit, and regional development, also play a part.

Royce points out that BDUK has also been a product of its times, and that things move quickly in the broadband industry: “If the government’s efforts to incentivise broadband coverage were starting today rather than four years ago, I suspect that full fibre networks and ultrafast technology would now be the focus, with speeds of 100Mbps or greater. This would follow more closely the ambitious targets stated in the EU’s 2010 Digital Agenda for Europe report.”

But Analysys Mason reckons government expenditure has in fact been proportionate. Yardley says: “We’ve got good levels of coverage with modest levels of public funding: £1.7bn to push coverage to 95 per cent [of the country] equates to just £27 per head – and that’s a one-off investment, rather than a recurring, annual amount.”

He goes on to state that no-one knows what would have happened if there hadn’t been post-2008 austerity, and if the government had had more funds available over the last few years, things may have been quite different.

What’s needed for a high fibre diet?

Of course, there is no point dwelling on what could have been. So for now, while a promise of funds totalling more than a billion pounds is one thing, ensuring that they are delivered as required is another. The last budget did not set out explicitly how the money will be made available, and what terms and conditions might apply.

“We are still waiting for details,” says Cowans at Superfast Cornwall. “It is fair enough that the government is given time to develop these because the Budget has, after all, only just happened. The fund managers for the £400m DIIF to help finance full fibre networks, for instance, are being appointed, and these things do not happen overnight. When these new programmes emerge we will need a very clear and articulate explanation of what they offer, and of what part of the coverage jigsaw they aim to fill.” 

Until this is clarified and agreed, the adequacy of the £400m remains uncertain. Cowans goes on to warn that, in his opinion, the £400m investment fund for full fibre will not necessarily help much with an ambition to complete superfast deployment. 

“This is a loan scheme to assist commercial deployments, so investors will be looking to maximise rates of return,” he says. “It is likely to mean delivering more full fibre ultrafast solutions in the most commercially lucrative areas – like cities – where superfast is already available, rather than pushing out into the very rural areas.”

While this will may benefit ‘UK plc’, Cowans believes what’s needed is a model that facilitates co-investment between the network providers, government and communities to tackle the remaining, very difficult areas. “It’s an economic challenge rather than a technical challenge.”

Collins is likely to agree with some of this. He acknowledges that there are still “plenty of wrinkles” to iron out in terms of how the policy is executed and the money is made available, but he adds that the government departments involved in boosting broadband have been keen to reach out to alternative infrastructure firms: “What is heartening is that the government is not just listening but pulling together all the relevant parts of Whitehall to its plan.” 

However, Hertfordshire-based internet and communications services provider IDNet is less favourably disposed toward the government’s actions. Steve Waters, the company’s networks manager, would like to see investments in better-informed interfaces with government in addition to funds. He says: “Ministers are simply not in touch with what is going on. They could try harder, and engage better with those on the frontline.” 

Waters calls for the appointment of a UK ‘broadband tsar’ who is knowledgeable about the realities and challenges faced by users and suppliers alike. He points out that financial assistance schemes, while not unwelcome, sometimes impose a cost that the beneficiary has to bear if they want to take advantage of them. “Grant schemes can be unnecessarily complex and onerous for something that is not difficult to deliver. The schemes appear to be built by those who simply have no understanding of the broadband marketplace.”

Steve Holford, chief customer officer at Hyperoptic, is more upbeat about what the government has been doing (albeit a tad guardedly when he says “the devil is obviously in the detail”). But he goes on to point out that while other nations plough billions into FTTP programmes, and will soon be reaping the benefits of their enhanced connectivity, the UK has the lowest FTTP deployment in OECD countries, with around two per cent coverage. “This is at odds with stated government objectives to build a modern economy based around the internet. We need to be more ambitious and clear about the overall ROI that investment in FTTP makes to [the UK’s] gross domestic product.”

Holford says government needs to enable more competitiveness in the market, adding that it is only “fair and just” that it creates and maintains an environment where the alternative network companies can compete, survive and, ultimately, thrive. “To achieve this, we would like to see a suspension of all business rates on new fibre assets for the next 10 years. The government also needs to develop regulation that encourages both competition and continued private sector investment.”

Cowans says BDUK is on track to reach 95 per cent of its aim, and that this “significant achievement” needs to be recognised. But his view is that the government should now get behind an ambition of virtually complete coverage of ‘superfast’, and only then look to see if assistance is needed to deliver ‘ultrafast’ broadband on top of that, and come up with the right funding package and model for this.

KCOM reckons that the suite of complementary measures proposed in the government’s Digital Economy Bill and by Ofcom are designed to remove the impediments to full fibre deployment. “In the government space, these interventions are designed to address identified market failures and/or distributional concerns,” says Royce. “In the regulatory space, there is strategic focus on the role of a legally-separate BT Openreach in helping to deploy new fibre networks – e.g., through co-investment – and on the relative importance of certain network access remedies – e.g., duct and pole access, and dark fibre access.”

But Analysys Mason’s Yardley says that concern over whether government investment levels are sufficient to maintain UK digital competitiveness are premature. “The UK is in a good place at the moment, not just in terms of coverage of superfast, but also with plenty of new investment going in from the likes of CityFibre, Gigaclear, Hyperoptic, and others, much of which is ‘full fibre’.” He adds that he is not aware of any studies that demonstrate, with strong evidence, that the UK is falling behind international countries that have more fibre coverage, for example.

Yardley goes on to state that most would agree that ‘fibre everywhere’ is the endgame. But he says the debate is how best to get there, and whether the government should introduce additional measures to reach that destination. 

“There has been a raft of policy and regulatory changes, and we should now wait and see what they promote, especially as we have many operators in the midst of making major investments. 

“In parallel, we should think about potential solutions to the most difficult problems to solve: meeting the ambition of true ubiquity, how fibre and 5G will work together, and what the role of other stakeholders, such as broadcasters, will be in the future evolution of fixed and mobile networks.”