Scottish Affairs Committee
Oral evidence: Digital Connectivity in Scotland - 24 April 2018, HC 985
Tuesday 24 Apr 2018
Ordered by the House of Commons to be published on 24 Apr 2018.
Members present: Pete Wishart (Chair); Deidre Brock; David Duguid; Hugh Gaffney; Christine Jardine; Ged Killen; John Lamont; Paul Masterton; Danielle Rowley; Ross Thomson.
Questions 320-394
Witnesses
I: Dr Marwan Fayed, Director, High-Speed Universal Broadband Services, and Senior Lecturer, School of Computer Science, University of St Andrews.
II: Paul James, Head of Public Affairs, O2, Simon Miller, Deputy Head of Public Affairs, Three UK, Paul Morris, UK Head of Government Affairs, Vodafone, and Richard Wainer, Head of Public Affairs, EE.
Written evidence from witnesses:
– Vodafone
- BT
Witness: Dr Fayed.
Q320 Chair: Dr Fayed, thank you very much for joining the Scottish Affairs Committee this morning to help us in our digital connectivity in Scotland inquiry. Now that you are on your own, you have the undivided attention of the Committee. We apologise for the late starting of the Committee. I see that you have a visual prop sitting with you—you may perhaps want to tell us what that is and then say something by way of a short introductory statement.
Dr Fayed: This is the EU Broadband Award, awarded to HUBS for future-proofing and quality of service at the end of 2016. It is for the RemIX project, where we built an internet exchange for remote regions. I am going to put it away now. The reason I raise it is because I would like the conversation to start not from if community networks are sustainable, but from what it is about community networks that makes them sustainable and successful.
Chair: You would tell us that now in your introductory remarks.
Dr Fayed: These things are gifts, I admit. They are short, two-minute videos—one for each of you, if you choose to take them—of the judge talking about the project and why it is so incredibly innovative and could be the solution to many of our problems.
Q321 Chair: Thank you. Now, a short introductory statement, Dr Fayed. Tell us who you represent.
Dr Fayed: I represent HUBS CIC. We are a community network where our membership is community networks. Our clients are not residents—they are the community networks that serve the residents. We were formed to solve the backhaul problem. There is a lack of backhaul available in these regions, and where it is available, most communities just cannot afford to pay the prices. We provide the tools and training for community networks to get started, and at the same time we aggregate all their demand—we pool it together—so we can collectively buy the resources that are required. That is what we do. We also build from the outside in, which is an entirely different model from what typically happens in the UK today.
Q322 Chair: Can you speak generally about how some of these community networks operate? What is significantly different about them? What type of value do you bring to the process of ensuring that rural areas in particular are connected?
Dr Fayed: The community network model in and of itself is not new. I want to point out a few of these attributes. Co-operative type models have been in existence for well in excess of 100 years, and have succeeded for equipment, energy and food supplies—you name it. Co-operatives are not new. This is exactly the same type of thing that community networks are doing. Everyone wants fibre to their home. That is a fantastic, lofty goal. The question, however, is how we get there from those community networks. One of the things that community networks can do is build up infrastructure that works for them quickly. They have ownership of that infrastructure, and while they are generating revenue, they are building up a pot so they can deploy their own fibre. That is already starting to happen in a couple of communities in Scotland today. The key for these community networks is to get to a size at which they are operating in a commercial manner, so the people running them can draw an income and, in addition, pay staff. That is everybody’s goal. No one wants to do this voluntarily.
We as an organisation have no question about the viability of these things in the long term. In addition to owning infrastructure and so on, they have the added advantage of being able to respond more quickly. I can give you a case in point. A few years ago, BT infrastructure failed, and our network carried 999 traffic for three days until they came out to repair their equipment. Community networks are able to be more innovative. They are the ones that can respond to service calls and customer issues. BT just doesn’t have people up in the middle of nowhere. Of course, they have the capacity to do so because they build on each other’s knowledge and resources.
Q323 Chair: We have heard mixed evidence about the value of some of these community networks. There are obviously things that you are advocating and supporting, where there is a big buy-in from the local community, but we have also heard concerning evidence about sustainability. We have a quote here—you may or not recognise it. Borders Community Broadband says that you introduce a risk to consumers if you rely on what is effectively a semi-volunteer network to provide essential services. That is not really where you want to go. If they are going to get this from the Scottish Government—for example, the R100 programme—they will end up taking a risk with semi-volunteers or good friends, as the Borders Community Broadband described it.
Dr Fayed: The people in these regions get things done, and they have done so for longer than any Government has survived. Sometimes that begins with a bit of volunteer effort, but what small business doesn’t? Everyone who starts their own small business knows that at some point there is a lot of perseverance and a lot of time that goes well beyond the 36-hour work week. No one wants to keep doing that. While that may be the starting point, it is certainly not what is required on an ongoing basis. I would challenge the claim that these networks are volunteer networks, and that’s the only way they survive, with the evidence that exists today.
On the flip side, we hear that claim a lot. The academic in me always wants to respond with, “Where is the evidence for these kinds of claims?” Yes, it is true that communities networks may not be the IBMs and BTs of the world, which are going to survive and you know definitively are going to be here in five years, but we have been operating formally since 2011, and have only grown. Heriot has been operating since 2013, and has only grown. Collectively in Scotland I believe there are about 4,000 premises being served by community networks, and that is projected to grow by 50% in the next 12 to 18 months. So what is the risk exactly? These businesses survive longer than the two-year mark that we typically attribute to business failure. If you are going to survive past the two-year mark, you have a high probability of success long term. Why is this any different from any other set of small businesses?
Q324 Chair: You can understand totally the sense of risk attached to communities investing into some of these community networks. We have heard about volunteer burn-out among people operating them, and about technical failure and the lack of technical expertise if things go wrong. I am interested in what I think you suggested in your answer to the last question, which was that maybe there is a role for these community projects in establishing and setting up the networks and maybe handing over—is that what you were suggesting?—and leaving them to the bigger players as they come in. There is a commitment now to have all of Scotland connected. Is that the role of the community projects now or is there a role beyond that?
Dr Fayed: Can you ask the question again so that I can make sure we are on the same page?
Q325 Chair: There are two questions. Do you accept the risk among communities, given the volunteer burn-out issues that we have heard about on this Committee and the fact there might be a lack of technical expertise? I was interested in your remarks when you sort of suggested that the role for these community projects now was to establish these networks. If I understood you correctly, that suggested that that would then be passed on to one of the bigger players that could give that security.
Dr Fayed: No, apologies if I gave the impression that there is any notion of handing over to the bigger players. One of the benefits of having your own community network is that you can decide your own fate. Are there examples throughout history and around the world of co-ops that own their own services and infrastructure that at some point decide, “You know what? We want out and we’re happy to sell to a bigger player”? That is the community’s decision to make and should be respected, but that is not the ultimate conclusion of these things.
Let me try and address these two questions on the risk and the burn-out. Part of the burn-out has to be attached to not the technical setup, but the technical setup when we help people, and we know how when people help people they can get started fairly quickly. I would argue that the burn-out is associated with surpassing all of the administrative hurdles that are in place and with the policies and funding resources that exist today. It requires an extraordinary amount of effort. In fact, even in HUBS we feel that, because we spend so much time having to work around these kinds of challenges. So I would beg the Committee not to underestimate the challenges of dealing with these kinds of issues.
The second is with respect to technical expertise. There are two components to that. We have a plan, for example, whereby people who are interested in starting their own community networks can come to us as a social enterprise. We have that plan and are happy to share it. People come to us for a small training course: here are the types of equipment you are looking for, here is what we recommend you buy, here is how you set it up. We effectively provide a connection pack. This is a quick way to get people up and running, so that there is someone local in the community who can deal with maybe some of the physical issues.
On the flip side of that, I would ask about all of the CCTV in London. Where is that operated from? Or the Tube and the transit networks? Or the road networks, for that matter? People monitor road networks. I see this on BBC News. In Scotland there are big huge screens, I think just outside of Glasgow. Once the infrastructure is up and running, it is a centralised administration that takes care of the vast majority of issues, and networks are not different in that respect. So once we can help the communities do whatever it is they want to do to get connected, the administration becomes much easier because that can be centralised. Most of the issues we deal with, we deal with in Edinburgh, believe it or not, which is where we connect.
Q326 John Lamont: Good morning. Both of the Government schemes for subsidies to support communities that do not currently have good broadband tend to focus most of the resource on larger commercial providers. Can you describe how that impacts on existing community projects?
Dr Fayed: I have a few examples. Gordon, who was supposed to be with me, unfortunately couldn’t make it. The list is long so I will try and be a little bit compact and if you want more detail for any one of these, I will happily provide it.
Q327 John Lamont: Is it worth submitting it to the Committee secretary?
Dr Fayed: It’s worth mentioning the list in the meantime, if I may. This is how the policies are somewhat biased to working against the community networks: the full fibre funding programme, the exemption of business rates for five years, the business rates for small masts—if that’s what communities choose to do—the duct and pole access that is now a requirement and dark fibre access. There are policies and programmes surrounding every one of these things.
The trend is that every time these things are announced, they are constrained in such a way that they become irrelevant to community efforts. A nice one is the duct and pole access programme, which is great, except that there is a £5,000-per-kilometre fee that BT is paying and anything else in addition falls on the group that wants to access the ducts and fibre. When you are up in the middle-of-nowhere Scotland, that duct and fibre can get pretty dirty. There’s a lot in there. So if the cost of cleaning this is £100,000, that means BT pays £5,000 and the community’s going to pay the £95,000.
The programmes are designed—and influenced and lobbied—either as a consequence of more urban thinking or thinking that’s along the lines of something like rural Oxfordshire. As much as I acknowledge that they have problems, the smallest villages in rural Oxford are larger than all but maybe three or four villages in the areas we tend to serve. Rural Oxfordshire, topologically, is not the same as the vast majority of remote regions in Scotland. They are a different set of challenges. These are the programmes that are creating issues and I am happy to talk about some of the finer details if you like, or we can submit later.
Q328 John Lamont: In terms of the use of taxpayers’ money, I am thinking about Heriot—you mentioned it earlier—which is in my constituency. The community network there cost in the region of £100,000. All the properties there are now getting fibre to premises, which Openreach is providing at 10 times that cost. Openreach is doing that with the help of Government and taxpayer support. I just wondered if we are missing a trick in terms of how they use taxpayers’ resources—limited taxpayers’ funding—in terms of ensuring that all communities get access to good quality broadband.
Dr Fayed: I will give you a couple of examples. Heriot is one. One of our client networks, Heriot Broadband, works there. You know this story well. Everyone there has spectacular connectivity already. BT very recently decided that it was going to deliver fibre to the premises to everyone in the community. I want to put this into perspective: this is 10 kilometres’ worth of fibre for 12 houses in this particular instance. The estimated cost of doing this at BT’s level is about £150,000. HUBS and Heriot together deployed their infrastructure that currently serves this market at an approximate cost of about £15,000, keeping in mind that this now allows Heriot to generate revenue, build up a pot and lay down its own fibre in the future if it chooses.
Moreover, Ms Rowley—is that right? You’re Midlothian? Okay. One of the questions to ask is why we are spending this in Heriot and not over in Midlothian. Well, I am happy to announce that Heriot is just about to fill that gap. The next couple of masts we are building are going to be serving some of the members of your constituency. So this is an example of a community network that is mature and will survive—I have all confidence it will survive—despite BT’s efforts here in this regard.
I am going to answer this one more way, if I may. This is very serious—this is dark fibre access. The DSSB programme paid for this infrastructure to go out. This is taxpayer money, the dark fibre access. Let me just make sure I have this right. Here we go.
With respect to dark fibre access, BT challenged all the rules in court, as I understand, and won. Ofcom, rather than decide to rewrite the rules, has put off any decisions, which means that people like us are no longer able to use it. The dark fibre is something that we need. This is how we can solve many of the problems, but we are being locked out because we don’t know what is going to happen in a year-plus time. And yet this is infrastructure that was subsidised by taxpayers and we can’t access it in any meaningful manner.
Q329 John Lamont: Just one more question. Your colleague, Professor Hughes, who sadly can’t be with us today, is on the record saying that the Scottish Government were deliberately adopting anti-competitive policies in favour of large corporations at the expense of local community projects. I know it is not your comment, but I wondered why your colleague said this. Why do you think the Scottish Government have taken that approach?
Dr Fayed: No one is less happy about these kinds of things than me on a personal level. It is important to stop at this point and say, “We are always ready to work with others”. That is our model. We continue to reach out to the Scottish Government, the Highlands and Islands Enterprises—all kinds of agencies—and are always ready to work together and partner in some fashion.
The anti-competitive behaviour comes from a few different places. The first is the review programme. If I take this case in Heriot, for example, nobody believes that behaviour is accidental on BT’s part, but if it is—if we just for a moment assume that it is accidental—it is based on a review process that is now five years old. When the Scottish Government are tendering and allowing the big players to work with reviews that are five years old, then no one else would dare compete on that model, because five years or fewer from the date that they start, they might instantly be threatened for their survival.
Moreover, in the review process, levels of information are required that only big players are in a position to provide. If we talk about pseudo-volunteers, even if one person draws an income and they are basically setting up their network and they have to set aside and move on a postcode-by-postcode basis and provide these kinds of surveys and information, that is an onerous task for the little people involved.
Moreover, the last one is that there is no promise—this something that needs to be in place—that if there is going to be a roll-out to the community, it must be the whole community. Otherwise—I believe the Committee has heard this in many forms—when BT builds to a cabinet and then takes the 20% or 30% to the community, connects them and leaves everyone else behind, no other economically viable solutions remain for everybody else, and they get cut out. We walk around saying: “This is effectively cutting out the economic heart of a community”.
Chair: We have not got much time, so we are going to rattle through as many questions as we possibly can.
Dr Fayed: I will be as quick as I can with my remaining ones.
Q330 Chair: Dr Fayed, it would help us to get the best out of you if you could confine your responses to the questions that are actually being directed at you. We will see whether we can get through as many as we possibly can. To help us start all that, we have Paul Masterton.
Q331 Paul Masterton: I want to ask a little about voucher schemes. The UK Government have obviously recently announced the new gigabit broadband voucher scheme, which all the community groups and businesses can group together to apply for. What are your thoughts on whether or not these are effective as an option for improving coverage in some of these areas?
Dr Fayed: The voucher schemes are a little difficult with the gigabit programme. They are too restrictive and as a consequence of being too restrictive to communities they are irrelevant—I will be blunt. The voucher scheme will be successful as a scheme, but useless to communities—an important distinction to make.
The issue with the voucher schemes is that, as I understand, a business-to-residence ratio is required that very few communities can meet. Not to mention that, even if they can, there is the onerous task of knocking on doors and saying, “Can I apply on your behalf?” and all of that type of thing. Yet again, it is irrelevant from the get go. Where there are cases where it might be useful, the administrative hurdle is quite high.
Q332 Deidre Brock: I want to ask about the £3,000 per premises. After that the customer will have to make up the funding. Could you tell us a bit about how you think that would affect businesses and houses within these communities? Will that effectively price them out of the market in some areas?
Dr Fayed: Are you asking whether £3,000 is enough for them?
Q333 Deidre Brock: Yes. We have had some evidence to suggest that it might be up to £10,000 for some.
Dr Fayed: This is one where I would have to defer to Professor Gordon Hughes, to submit afterwards the finer details. I would say from our experience and the knowledge that I have, one of the unintended consequences of this voucher scheme is that it just fragments communities further.
The effort of finding consensus, never mind organising voucher schemes, are not easy things to do for anyone, anywhere. Doing this—or anything—on a per-premises basis in this fashion means that somebody has to organise and coalesce all of these different applications and so on. That is an enormous hurdle.
Q334 David Duguid: In some areas of the UK, individual homes are able to apply for vouchers. Do you think that approach could and should be extended to Scotland? Could such an approach be used to support community broadband networks?
Dr Fayed: I will try to be brief because any answer I give would be personal in nature—this is outside my area of expertise. I am sure Gordon will be happy to submit afterwards—HUBS is an organisation that will be happy to submit afterwards.
Do I think it could be effective? I thought about these voucher schemes and for me they feel like an apology: “I’m sorry, we were unable or unwilling to be creative and find broader solutions that worked for everyone, so here is a little bit of money. Now go off and do it on your own.” There is no option at that point but to subscribe to satellite—age-old satellite we know does not work. There are new satellites on the horizon, and no one wants them to work more than me—I am a big tech guy—but, even if they work flawlessly, I think we are still 10 years off. That is a personal assessment. If the technology works, then you still have to worry about the billing and the admin and all the business side of things, and how people get up and running. There is a whole wealth of issues that we have yet to consider with respect to low-orbit satellite.
Q335 David Duguid: I have a follow-up question from something you said earlier about community networks. There is actually a business model, where the people who set them up can make revenue off them. How does that work?
Dr Fayed: The trick is growth. If somebody is running a community network for 20 people, I acknowledge that there is no income there, but then the voluntary obligation is quite small as well. These community networks want to become regional services.
A surprisingly small number of subscribers are required to become economically viable and draw some income. Some of the community networks in Scotland have started paying salaries to other people with, I think, roughly 200 to 500 subscribers. I would have to check that figure. It works like any other business.
Again, they will often come to us as HUBS to reduce their back-hall and support costs, because we give them tools for billing and so on, and support them in that manner. But that is again about collecting resource, reducing the duplication of effort. Does that help to answer your question?
David Duguid: Yes, thanks.
Chair: I notice we are almost at half-past ten. We have a few questions left for you. If everybody could stick to just one question to Dr Fayed, we will get through the rest of the session, if that is all right. We will start with Hugh Gaffney.
Q336 Hugh Gaffney: Is delivering full fibre the right priority, given that some areas still have poor coverage?
Dr Fayed: Yes, of course it is. None of us would argue that fibre to the premises should not be the goal. Of course, some places will be extraordinarily difficult to reach and may never get it—a very small number. That is what everyone wants. The question is how we get there.
The community network is maybe a longer term route to full fibre, but at least they get the fibre where they might not otherwise have, and they own their own infrastructure. Those are two pretty lovely things to have.
Q337 Hugh Gaffney: As a follow-up to an earlier question, what further action should we see from the UK Government to support community broadband networks in Scotland?
Dr Fayed: What are the kinds of things that are required?
Q338 Hugh Gaffney: What further action would you like to see?
Dr Fayed: I would suggest leaving that to the further detail of the current funding programmes and the policies that are in place. We have some ideas, key among them is designing these programmes so that community networks can operate on a level playing field with the big players. That has to be central to everything we do.
Q339 Christine Jardine: Could you tell us little bit about your experience of using BT Openreach?
Dr Fayed: I would have to double check the numbers but with the last circuit we ordered, we had planned for six months, knowing that it would take a little while. I believe it was more than 12 months before we had access. This is just unbundling a cabinet.
Q340 Christine Jardine: Sorry, I should have said that I was asking about using the lines rather than the ducting.
Dr Fayed: Okay. We have not done any duct access type stuff, for exactly the reason I stated. The rules of access are now unclear. It is undetermined when the rules will be decided. It would be a risk for us to try to access this fibre because we do not know what is coming down the pipe, so we find alternative solutions.
Q341 Ged Killen: I think my question has just been covered. It is on the ducts and the poles from Openreach that you have not used. Earlier you spoke about the high cost to communities. Is that the only reason why you have not used the ducts and poles, and do you think that the new regulations from Ofcom will make it more likely that you can make use of them?
Dr Fayed: Do you know what the new regulations are because we don’t? Every one of our readings says that, in response to the court ruling, Ofcom is—what is the phrase?—kicking the ball down river, the pond, or whatever it is. That is my understanding. There are no firm rules in place that allow us to make a decision. This is the big hindrance for us. We would love to use that fibre; we buy circuits.
That is one of the other issues, by the way: circuit pricing in the UK is designed for circuits that are not more than 5 kilometre in length with an average of about 2 kilometres. Our shortest circuit is 30 kilometres in length. The costs of leasing those circuits increases disproportionately with distance. That is what we are resorting to right now because the dark fibre rules are unclear to us. If they could be clarified—soon—that would be a big step forward.
Q342 Ross Thomson: The UK Government has introduced a five-year exemption from business rates for full-fibre broadband. Frist, what has the impact of that been: has that been a useful intervention? Secondly, do you think there should be a similar exemption for wireless broadband infrastructure?
Dr Fayed: To be clear, by wireless broadband, do you mean wi-fi or do you mean cellular—like EE, O2—the big, expensive stuff?
Q343 Ross Thomson: Wi-fi.
Dr Fayed: Gordon will tell you that this programme is of little relevance and may in fact be an active hindrance because the rating system favours larger players. There is that and, in addition, as I understand, it is only for new, rather than existing fibre. The only way you can take advantage of it is if you are one of the larger players that want to move into Scotland. They are not community networks. They are commercial-sized. They are by no means BT and they do good work but, again, community networks are not benefiting from this, because it requires new fibre.
Chair: Dr Fayed, thank you ever so much for that evidence. If there is anything that you can usefully help the Committee with in the future, please supply any further documentation. I think there was something you said you would supply to the Committee and Laura-Jane has a note of that, so we will get back to you. Thank you very much for your attendance this morning.
Examination of Witnesses
Witnesses: Richard Wainer, Simon Miller, Paul Morris and Paul James.
Q344 Chair: Thank you for coming this morning and attending our session on connectivity in Scotland. For the record, would you say who you are, who you represent and something in the way of—given there are four of you—a very short opening statement?
Simon Miller: I am Simon Miller. I am head of government affairs at Three. Three sees itself as the UK’s mobile challenger operator. We are smaller in terms of subscribers than some of our competitors, but we have a slightly different ethos, informed by the need to gain scale. Our focus has always been on high-speed data and the provision of consumer data services. We have a significant presence in Scotland, both in terms of a retail footprint and a large customer service base on St Vincent Street in Glasgow and we are absolutely committed to improving our network across the Scottish landmass.
Richard Wainer: I am Richard Wainer. I head up public affairs for EE, which is part of the BT Group. EE operates the UK’s largest 4G network. We certainly fully recognise the huge increase in reliance on and demand for the services we provide. We also understand the frustrations when people are not connected and we are fully committed to extending that network even further. Scotland does present some significant deployment challenges, given topography and population density, but it is seeing the majority of our new site and network investment. We are in the process of building 500 new sites across the UK and the vast majority of those—over 300—are in Scotland. We have just announced that we have switched on our 90th new site as part of that programme, with the remainder to follow later this year. Together with upgrading 1,600 of our existing sites over the past two years, our 4G coverage has gone from 25% of the Scottish landmass to over 75% today. Clearly there is more to do, but we are making good progress and we want to work even more closely with the Scottish and Westminster Governments, local governments and other stakeholders to continue to improve.
Paul James: I am Paul James, head of public affairs at O2, which is part of the Telefónica Group. We have roughly 25 million customers in the UK and also host a number of MVNOs on our network, including Tesco Mobile and giffgaff. We had the obligation in our licence for 800 MHz to build to 98% of the UK population by 2018.
I would also say we share network build with Vodafone under a thing called Project Beacon, where we have split the UK into two right-angled triangles, if that is the way to describe it. We build in one half, including in part of Scotland, and Vodafone do the other half. I will go into various details when we have questions.
Paul Morris: I am Paul Morris. I am head of government affairs and sustainable business for Vodafone. Vodafone is a British company—it was started here and is now in 25 markets across the world. We are proud of our Scottish business as well. We have more than 1,000 employees in Scotland and 35 stores. We are based in Glasgow. We also have around 600 people working for indirects providing us with further customer service.
We have been making substantial investment across the UK and into Scotland, so I hope you have noticed some improvements. It is not perfect and we want to improve that—I hope we will be talking about how that can happen today—but I hope that in your constituencies you have noticed some improvements as we bring mobile data and 4G to your constituents. That has been one of our largest investments in history.
We are also a fixed and mobile provider, so we are not just mobile. Today we have announced a partnership with CityFibre to roll out the new full-fibre technology, which I heard you talking about. Today, we have announced the third of three Scottish cities as part of that partnership. Overall, we are going to do 1 million homes in 12 towns and cities by 2021. Today we have announced that, to add to Aberdeen, we will be doing full fibre to Edinburgh and Stirling—that might be of interest to some folks around the table. I am more than happy to talk about that, both now and later.
As you will no doubt say, the challenge is the rural challenge in Scotland. It is not just in Scotland: the rural challenge is everywhere. I was reading Ofcom’s “Connected Nations” report on Saturday—thanks for that opportunity, guys—and there was a really interesting stat in it, which encapsulates the challenge. The challenge is that if you look at population per square kilometre, in Scotland there are 60 people per square kilometre, and the average in the UK is 271. That is the challenge. You need the same amount of kit to cover the same area, and obviously you have got fewer potential customers.
I hope that today we can be constructive and think about ways of moving the ball on. We have all got a role to play—policymakers, politicians, the industry and regulators. I hope we can have that discussion today.
Q345 Chair: Good. We will most definitely have it. We are very grateful that you mentioned the Ofcom “Connected Nations” report, because there is quite a lot of stuff in there that is concerning for this Committee. I will list a few things for you. It says that, although mobile coverage has improved, it has significantly lagged behind the rest of the UK. The key findings, which I think you are all pretty familiar with by now, is that 4G coverage in Scotland is only at 17%. In 22% of Scotland’s landmass it is not possible to receive a mobile voice, and in 33% it is not possible to receive mobile data. There are challenges in delivering mobile coverage to consumers on the move. Only 46% of Scotland’s A and B roads are covered by mobile voice services. Why should Scotland have to put up with that poor service? What are you doing to address it? Don’t all rush at once.
Simon Miller: I am happy to answer from a Three perspective. We have invested significantly in the past few years. Part of that has been around meeting the 90% geographic coverage target.
Q346 Chair: 90%?
Simon Miller: A 90% geographic coverage target. That is UK-wide.
Q347 Chair: It is currently 19%, isn’t it?
Simon Miller: I think that data is slightly historic; there is a lag to it. Our network has doubled in size in Scotland since December 2014, when the agreement was reached. When you are building out network at that pace, it all tends to happen in the final few months, because there are significant causes of delay and scheduling issues that mean that service delivery is back-ended. I can certainly assure you that Three’s network is much bigger now than what was recorded there. We have data services to probably about 79% of Scottish geography now, as it stands. We have plans to go further.
The key issue we all face is the inherent cost of delivering to challenging geography and topography. The costs of that delivery are disproportionately expensive for rural areas for a number of reasons. It is much cheaper to build in urban areas. Those issues are particularly acute in Scotland.
Richard Wainer: I would just add a few points. I think the figure you quoted from the “Connected Nations” report is coverage from all four operators. Clearly, we are four very competitive networks. From an EE perspective, we have got a 76% geographic coverage. The data from “Connected Nations” was taken in June last year and published in December last year. From an EE perspective, the pace of improvement is quite significant. Within those six months, we built more than 50 new sites in Scotland and upgraded 350 existing sites, so the progress is rapid. Taking a point in time that is almost a year ago does not recognise the significant improvements that are being made at pace.
Q348 Chair: Anybody else want to help us out with this?
Paul James: I can say a similar thing. O2 has upgraded or built more than 800 sites in the last year in Scotland. We are looking at another 150 sites to upgrade to 4G this year. As Richard said, there is significant progress going on. On Paul’s point, I think it is important to look at geography versus population, and at where customers are. You can take the figures from a geographical perspective, but if you look at it from population coverage, Scotland actually comes out on top of Wales and Northern Ireland, in terms of the availability of services for population and premises. I think the Committee’s role is about talking—
Q349 Chair: So are you only interested in the easy parts: the big cities and towns where people live? What about Highland Perthshire, which I represent? Surely they are entitled to the same type of service as everybody else in Scotland and the UK.
Paul James: As I have said, these are villages and towns that we have upgraded. That includes everything from Orkney to the Borders to the Western Isles. We are putting in significant sites, and that is what we have done. What I am saying is that the focus has been on ensuring that customers have coverage where they live and work. If you look at the Ofcom stats—the point I am trying to make is that the conversation needs as much as possible to be about customers. We cannot just look at geography. We need to look at where customers live, work and play and work with the likes of your Committee, the Government and the Scottish Government to target the investment in the right place to ensure that that happens. That is going on and the industry has indicated that with the investment that is going in—
Q350 Chair: Is there a solid plan by the four of you to ensure that areas are not going to be left behind and that you have a commitment to deliver so that people, just because they happen to live in a rural area, are not deprived of access to mobile telephony and the services that go with having that? It is almost like a pocket computer now.
Simon Miller: I think the key thing is that none of us sees 90% as an endgame. We all have ambitions to go further, and we all have investment plans. We are looking at acquiring a further 300 sites across Scotland from which we will deliver high-speed data services. I think all of us are also looking at highly localised solutions. In some cases, those can be very complex. Three, for instance, is in discussions with the Deputy First Minister of Scotland in your constituency, Chair, to roll out data services from Carie, which is one of the sites next to Loch Rannoch.
Paul Morris: Can I just add to that? We have all co-operated on things, and I think that included talking about 4G. It does vary, and the truth is that it is difficult for us to tell you exactly what is going on with some of our future investment plans with all of us here. We also cannot agree between us because we have competition rules about what we are going to do.
The reality—it certainly is for us, and I think you have heard this from others—is that there is an ambition to do more. We have done quite a lot more already. I gave evidence to this Committee before the last election; I do not think there are many members from that Committee left. If I looked at it then, we were at something like 17% for population coverage for 4G. Now we are at nearly half for geo-coverage, and we are very much higher for population. We are making improvements.
We need to get to those areas that are outside of the plans, as you have highlighted. What do we do about that? That is the challenge. We will continue to improve and invest. We have invested £1 billion in the past two years and we will invest another £2 billion over the next few years. Ultimately, as we have highlighted, there has to be a partnership in some of these areas. You have flagged it up: how do we work together on that? There are obviously constraints on what we can do as operators together.
Q351 David Duguid: Just to finish off the previous line of questioning, do any of you as operators have any strategy or plans to flip the approach from low-hanging fruit to reaching that point—we are always going to have that last 5% or 2%. Actually, maybe you should be saying, “Forget improving the urban areas; let’s focus from the outside in and ensure that there is nowhere in the country that does not have 4G coverage.”
Richard Wainer: From an EU perspective we are focused on delivering against our requirements under the emergency services network contract, which requires us to provide essentially universal coverage across Britain’s road network. We are going out to those remote and rural locations. Beyond that, we have set ourselves the ambition of getting to 95% geographic coverage for the UK by 2020. We have not defined exactly what that looks like yet, but we will be prioritising new sites by the extent of customer experience benefit and also the ease of deployment. We have a plan, but we want to do more. We would say that we are not neglecting rural areas, given our ESN work.
Paul James: I will build on that. I think the challenge for operators is twofold. One is the capacity issue. We still have to build in cities, because consumers are using more and more data. That is everywhere from Aberdeen to the Shetlands. The challenge for us is to do both of those things as much as we can. They both present problems. In cities, it is access to things such as street works. In rural areas, it is the economic challenge of building sites where there are problems with planning, no transmission, or other issues around electricity. One of the things that we have looked at strategically is building bigger masts in some areas. Clearly, that issue warrants careful consideration. We have literally just built the biggest stand-alone mobile mast, just north of Inverness, which is 50 metres. That has given us the ability to provide quite wide area coverage in a rural area. More importantly, it allows us to transmit using radio, so you do not need to rely on transmission.
We also need to look at other assets. We need to look at the ESN environment, which is Home Office-funded. We need to look at, and work with you guys on, things such as the Scotland infill programme, which the Scottish Government have identified. We also have to look at other areas where we can do that. The Scottish Government are currently tendering for notspots to build a certain amount of masts in areas where there is no coverage at all. As an industry, and individually, we are all engaged in that discussion.
Paul Morris: I want to flag a few things. ESN is really important. Although, at the moment, that is being built for emergency services, it is ultimately public money putting up mobile infrastructure. We think that should be shared, and built to share, so that it can improve coverage in rural areas. The Home Office is building half of the sites—300 of the 600, built to share. The challenge is how you ensure that they are in such a condition in terms of size and things such as backhaul, which is the broadband connection that we need, and power, that they are good to go, and the cost of accessing those sites for a company such as mine is not so high that there is no point doing it. That is one point.
A bridge to the infill programme can then be built, which I think is a good idea. We should learn the lessons from the mobile infrastructure project, but not discount that model itself. Finally, there are things that we can do as operators. We can continue to invest, build traditional infrastructure, and look for innovation. We have done some things around community projects where I think that can work. Also, we are using smaller structures, where that makes sense. We are developing some mini macro—mini masts, basically.
There are a number of tools, not just one. If we use all of them, plus the policy reform, we will be in a much better position to fill the gaps. ESN is absolutely vital. That is the bridge to the 4G and drill programme.
Simon Miller: To follow up on some of those points, it is probably worth dispelling the notion that we are only focusing on low-hanging fruit. In the first instance, only 50% of mobile phone sites wash their face, in financial terms, on a UK-wide level. That number is significantly smaller in Scotland. Lots of sites—almost all sites in rural Scotland—are incredibly challenging to build economically. We increasingly share our mast sites to enable us to develop sites more cost-effectively. Regulatory issues have prevented us from doing that to the extent that we wanted to.
These things are only starting to change now. The key thing is how we are able to build efficiently as we go forward. There have been some changes in legislation that will enable that. Probably a lot more needs to be done to enable larger, taller, and broader mast sites to be built that can take all our equipment. ESN, as has been said, will be critical; it is a massive infrastructure programme. We need to wait to see how that is delivered and where that delivers service before we look elsewhere.
To take service beyond that requires significant partnership working by Government, the devolved Administration, local authorities, the industry, and communities, because many solutions will be challenging.
Q352 David Duguid: On a different question, Ofcom’s latest complaints analysis has determined that 35% of the time, those with 4G contracts are actually not on 4G networks but on 3G or 2G when they are using mobile data. What are you doing to remedy that?
Simon Miller: From Three’s perspective, we do not offer 4G contracts; we just offer a service contract. You get the best available service in any given area. In most parts of Scotland, that will be 4G. At minimum, it will be high-speed 3G data service.
Paul Morris: Basically, we are selling someone the data package. It is not a technology package. You buy an amount of data, and quite often now the voice is thrown into that amount. That is the technical answer. Obviously, people want a bit of certainty, so we have a 30-day network guarantee and we also improve the tools on coverage—you can always improve these things more—so that people can trial it, basically. They go home, and if it does not work they can come back. The reality is that we are trying a number of things, but ultimately we are selling someone a data package rather than a technology package.
Richard Wainer: From the perspective of geographic footprint, our 4G network is now larger than our 2G and 3G networks. Clearly, at certain times and in certain locations, unfortunately, customers drop down to 2G or 3G services, but we know that 4G connectivity is a major driver of our customer satisfaction, so we are focused on making sure that whenever they are connected to our network, they are connected to 4G. Over the course of last year we started to use a time on 4G metric to describe the customer experience on our network—throughout the year that rose from 86% to 94% for those customers using a 4G-calling capable handset. So we are seeing improvement.
Q353 David Duguid: Is that reflected in customers’ bills? Can they tell how much of the time they are actually getting the 4G that they are paying for?
Richard Wainer: That is not something we currently provide on a customer-by-customer basis, but we are absolutely committed to it. We recognise that providing better coverage data, given the way the service that we offer is changing, and customers’ reliance on the coverage that we provide—we know we have to get better and better about making sure that they are clear on the coverage and connectivity experience they can expect.
Paul James: Just to build on that, in a sense there is no 4G premium that the operators charge—as Paul said, there is a data and voice package that is sold to customers. Not all customers have 4G handsets. That is why Beacon have upgraded to 2G, 3G and 4G. As people swap out their handsets and get 4G ones, obviously they can take advantage of that; but it is important to recognise that there is no price premium for 4G in that context. That was competed away very quickly after EE launched and the other operators followed; so people buy data and they buy voice. Increasingly it is on 4G because increasingly people are getting handsets that are on that—
Q354 David Duguid: So when they don’t get access to 4G they are actually using less data, so they save money that way? You are paying for the fact that you have got the access, whether you have access to the network or not—
Paul James: And obviously, depending on the usage; how much date they use varies from, say, YouTube to WhatsApp or whatever else.
Paul Morris: People are paying less for mobile services now than they were, say, 15 years ago. I was thinking about this today. You can view this as various things. It can be as a service company—and also, frankly, we are critical national infrastructure as well. So we are a bit like water, energy and others—trains, even. I cannot think of a service—I may be wrong, and you guys might be able to because you have broader knowledge on these things—where the price has gone down over the last 15 years.
Paul James: I think it is less than 15: since 2012, prices have gone down by roughly 31% across mobile networks. The average spend on mobile networks now is around £16 per month, whereas in 2012 it was around £32. We are talking about a significant fall in prices across the mobile network, primarily as a result of competition.
Q355 Chair: Thank you. I am conscious that there are four of you, and you all obviously want to respond to everything that you hear, but do not feel obliged if it has already been said.
Q356 John Lamont: I understand the physical challenges that you face in terms of providing rural mobile coverage. What I do not understand is the fact that we are playing catch-up. What struck me, when I was with other people with different mobile providers, is how we can have absolutely no signal in the Ettrick Valley in my constituency, yet at the top of an Alp in Switzerland or the Pyrenees all of us, with different providers, have a perfect signal—and that was a few years ago. I would argue that, obviously, the physical challenges in Switzerland and the Pyrenees are much more challenging than what we have in Scotland. Why are they able to do it in those countries, but we are not able to do it here more quickly? Why have we not been able to achieve in Scotland what they have been able to achieve?
Simon Miller: I think the first thing is the wider regulatory and legislative framework around mobile. There was no substantive change to the legislation on our mobile infrastructure between 1984 and the introduction of a new electronic communications code at the tail end of last year. Planning law in the UK is far more restrictive than it is in some of the jurisdictions you have spoken about. A key thing, which Paul spoke about, is the 50m mast just outside of Inverness. That is the first one of that size in the UK. Mobile coverage is largely about lines of sight and laws of physics, so the taller the mast height, the greater the coverage footprint from that mast height.
Historically in the UK we have built relatively small mobile infrastructure, because the planning legislation has forced us to. The average height of a mast is 17 metres, and you get substantively less good coverage from that, to say nothing about the further restrictions on how you build in areas of outstanding natural beauty or protected areas, where it is even more complicated to build.
In addition, there are restrictions on how we were able to share infrastructure, so you may have one, but you would not have two necessarily. That also made it difficult to provide service. So there are a large number of reasons why structurally and systemically the service was not as good in some parts of the rural UK as it is in comparative jurisdictions.
Q357 John Lamont: And some of those regulations might change to make it easier to allow you to build masts in those areas?
Simon Miller: They have just started to change, yes.
Paul Morris: The trouble is you were obviously rolling out 4G before the changes came in, although we had asked for the changes. That is the challenge—what is the environment in which we built these visual networks? In all honesty—I think we are all honest with each other—traditional infrastructure has probably had more focus. If I think about railways, they get a parliamentary Bill, for example. That is the reality of it.
We are just realising now that digital is incredibly important. You are reflecting that to us today. We get that too, but I think we are lagging behind a bit in terms of the ability to build this infrastructure. All this regulation and red tape just adds additional cost. As we described, we are providing fairly good value services. That is the challenge. How do we remove this additional cost so that we can spend it on network investment?
Q358 Ged Killen: I want to return to the point that you sell a data package rather than a technology package. I remember being encouraged to go on to 4G when it first came out and it was more expensive than what I was on already. Was that because of the handset that went along with it, or am I remembering that incorrectly?
If it is the handset, are 3G-only handsets still being made? Is that an option for people in Scotland who do not get 4G? Can they go out and buy a 3G-only handset that is cheaper for them?
Paul Morris: I think you were probably buying a bigger data package—4G would enable you to have a bigger data package so you were paying more for that. I may be wrong about that, but that is what I think.
Paul James: Initially, when 4G was launched, there was a slight premium, because it was new. Basically, that was competed away very quickly. When other operators started competing, EE had a lead of about six months in terms of 4G services, and when everybody else came in it was competed away very quickly. There was initially a spike, but in that sense, prices have gone down significantly.
Some people may want the latest handsets and will therefore buy a bigger data package and a better phone spec associated with that. I will double check for you, but I think low-entry smartphone handsets can cost about £30. That is the minimum you can get. I will check whether it is 4G or not. The cost of entry is quite low and that is for standard data.
Q359 Ged Killen: If I live in rural Scotland and I get no or limited 4G signal, as operators will you offer me a handset that is limited to 3G because I cannot get 4G, which is therefore reflected in the cost?
Paul James: As far as I know, most handsets are able to do 4G, but I think we can follow that up with you. Between us, we do not know every handset. There are some quite low entry smartphone handsets that may well be 3G, but generally they are all 4G.
Richard Wainer: From our perspective, our 4G network is just as extensive as our 2G one now. I think we are very aware that we want to provide the widest possible access to those 4G services for good value. Customers do not necessarily have to buy the latest iPhone or Samsung device to access that. We have already launched our own brand 4G calling capable handset, which is very good value. It comes in at about £100 outright, so a range of handsets is available to access those services.
Q360 Chair: I am just looking again at your Ofcom report. Billing was a key area of concern for some mobile customers. It accounted for 38% of complaints to Ofcom about pre-pay monthly services in 2016. That is a lot, isn’t it?
Simon Miller: It has to be seen in the context, which is that the number of complaints to Ofcom is relatively small. We average almost two complaints to Ofcom per 100,000 customers. Given that there are 98 million mobile phone subscriptions UK-wide, we are dealing with a relatively small sample. In the provision of a service, complaints are almost by definition going to be grouped into a key number of categories: coverage, and issues and disputes around billing. Those are potentially disputes, rather than incorrect or inappropriate billing.
Q361 Chair: I cannot find much about complaints relating to mobile phone coverage, in terms of the Ofcom score. I do not know whether that signifies that there is satisfaction. I would suggest that that probably is not the case—particularly in areas where you cannot get access to this speed. What sort of response do you have about coverage issues in Scotland? How do you address them, if people are complaining that they cannot get a 4G signal in some parts of Scotland, as Mr Killen said?
Paul James: From our perspective, there are a number of things we do. At the network level, we have an app that allows people to report coverage—in a sense, it is a crowdsourcing environment. We encourage O2 customers to report areas where they have problems with coverage, whether from a capacity perspective or from a rural perspective. We take that information and analyse it, and look at where we can build on that context.
Breaking that down, we address things like 3G and 4G on a customer to customer basis. We will look at the issues that the customer has and at what we can do with them. We address all aspects of it, from the top line all the way down to the customers themselves. As Simon said, customer satisfaction, according to Ofcom, is around 87% in mobile, and customer complaints are about three per 100,000. It is very much about ensuring you have the engagement with the customers, in that context.
Paul Morris: We do a network guarantee, which gives people the chance to go home and see how it works, and if it does not work for them, they can change that. I guess we are all trying to improve our prediction tools and coverage tools so that people can make informed choices. The other thing to mention is that mobile is mobile. It is not always about premises. I know we are going to discuss geo. People move around—they could be travelling into a city or elsewhere—so they might be using their phone on a number of different technologies as they go along. The difference between a 3G and a 4G handset these days is minimal. A lot of people bring their handsets in and have SIM-only deals as well, so you are seeing a subtle change in customer approach to these things.
Paul James: Just one thing. If it is on a community basis, we encourage the community to contact us, so we can engage with the community to see what can be done. That is important.
Simon Miller: Ultimately, we are a consumer-facing business, and we want our customers to be happy. That means that we need to ensure they are making an informed choice right at the beginning. There is a process you go through of looking at coverage and making certain that you have coverage at home. Like many others, if our customers do not have coverage at home, we let them go without penalty, because the last thing we want is an unhappy customer.
Chair: I am grateful. John Lamont.
Q362 John Lamont: Ofcom’s recent spectrum auction included caps on how much one operator was able to own. Do you feel those caps were necessary?
Simon Miller: I should probably go first. You are probably all aware that Three litigated Ofcom’s decision. We have always been in favour of caps on the available use of the spectrum. We think they are absolutely critical for ensuring that competition is fair and equitable in the market. As a company, we believe that that is what drives the best consumer outcomes, in terms of price and investment. We litigated it because we were absolutely clear that the caps weren’t stringent enough; they should have gone further. Ofcom, the High Court and the Supreme Court didn’t agree, but I don’t think that necessarily brings into question the importance of caps in ensuring that the key input into mobile is fairly spread across the industry and that consumers get the services they need.
Richard Wainer: From our perspective, we have got to acknowledge that the mobile market is hugely competitive. As we have already discussed, we have seen prices reduce quite significantly. Consumers are seeing much greater coverage and capacity, in terms of what they are able to access. As such, we didn’t believe the caps were necessary. All four operators could compete quite intensively across the piece. That is why we didn’t challenge the restrictions placed by Ofcom on the 2.3 GHz band, which is the immediately usable band. What we could not do was sit back and potentially allow our competitors to further restrain our ability to purchase spectrum, particularly in the 3.4 GHz band, which is going to be very important for the launch of 5G services, so we were compelled to challenge on that point.
The final point I would make is that spectrum is one factor that determines an operator’s competitiveness. Operators can add capacity through investing in new sites, and they can compete on service price and so on. Spectrum is an important factor, but it is not the only factor.
Paul James: I can build on some of those points, but I think you have heard both sides of the argument. From O2’s perspective, we did feel that the spectrum in the UK was unbalanced, with one operator having rather a lot of the spectrum and others not. Obviously we made representations to the regulator on that basis, which they in a sense listened to. The key thing for us was to make sure that the spectrum was put into the hands of people that would use it. We were successful and we have already started rolling out 2.3 in that context.
It is a very important input, and it is right that the issue around spectrum continues to be debated, because it is the key input into a lot of this. The UK market did have a very skewed spectrum environment prior to the auction.
Paul Morris: To add to that, ideally we would let market forces decide, irrespective of size. We are all large, multinational companies. Caps generally mean a discount, in all honesty, but obviously we understand why Ofcom put a cap in, because you probably don’t want someone buying a whole lot, so we get the point they were trying to make.
Q363 John Lamont: It has been suggested that all operators have paid more than expected for the spectrum. Is that going to impact on your ability to provide services and potentially the bills that customers are going to have to pay?
Paul James: From a Telefónica perspective, we felt we paid the market price for the spectrum. That is part of operating in the sector, and from our perspective, that was what you do. That is the efficiency of auctions and how you do that, so we did feel we paid the market price.
Q364 John Lamont: But if the market has pushed that price up, in terms of your business model, it will then have to affect some other part of your business, whether it is the services you provide to customers or, as I said, the prices that customers are paying. Do you accept that mobile operators paid a lot for the spectrum in the most recent auction?
Paul Morris: Historically, we paid a lot for 3G spectrum and the prices have gone down, as we have told you. You touch on an important point, which is that spectrum costs—be that at auction or on the annual fees that we pay—could have an impact on network investment. That is what I would say. Part of that mix is how you incentivise. How do you incentivise spectrum policy to get better coverage? That is the discussion that needs to be had. It has started. In all honesty, that discussion has been going on a few years now without coming to a complete conclusion. The reality is that is where you are going. Spectrum costs are obviously something that needs to be paid by business. The budget, ultimately, is the budget, and that could have an impact on investment; but equally, if it is got right, it could also incentivise investment.
Paul James: My point is, what do you then with that revenue? That might be a more apt conversation. The revenue just goes straight into the Treasury. It is whether there is a role—this is just an open view in response to a question—as Paul says, to look at spectrum in that context and see what can be used in the future, particularly in terms of revenue. In the past few years, we paid, I think, £2.2 billion in the last auction and roughly £1.3 billion in this auction. That is money that goes into the Treasury. So there are two things from an O2 perspective—that point, and looking at freeing up more spectrum. If spectrum scarcity is an issue, maybe you look to unlock more spectrum, for instance in the 2.3 band that we know that the MOD has at the moment.
Richard Wainer: From an EE perspective, the 3.4 spectrum that we bought at the last auction will position us well to launch 5G services in the coming years. To build on Paul’s point, it is important that the Government and Ofcom look at the annual licence fee regime for spectrum. It places a significant additional burden on operators and the fees go well beyond, we would argue, what they need to be to ensure the efficient use of spectrum. The Government have currently got a major review of the future telecoms infrastructure. We think that ALF framework should be an important consideration as part of it.
Simon Miller: From our perspective, the investment pot is obviously more or less fixed. There are ways of flexing it; we paid what we expected to and what we wanted to for the spectrum that we got, which puts us in a good position for the future roll-out of 5G services. There are many parts of a wider mobile landscape where costs are artificially high and could be brought down to enable further investment. What we paid at the last auction does not detract from what we would otherwise invest in services; it was an expectation.
Q365 John Lamont: I guess my concern is that if the reports were correct and that you had paid more than expected for the spectrum, that gives you less money to invest in rural areas.
Simon Miller: I think this is more analyst speculation, because huge amounts were paid for 3G and relatively little was paid for 4G. That set an expectation in relation to this coming auction. It came out that what was paid was above what analysts expected. That is probably what we all originally expected to pay.
Chair: Thank you.
Q366 Deidre Brock: I want to ask about Ofcom’s consultation on coverage obligations for their 700MHz spectrum. Could I ask for your views on the proposals of nation-specific geographic coverage obligations?
Paul Morris: We are still finishing it off. When we have done that, we can come back with loads of detail. The principle here, for us, is really what the endgame is. What do you want to achieve from this policy? As you say, you want to achieve rural coverage improvements in Scotland. The challenge to policy is: will it do that? We are still thinking through how exactly we want to position this, but actually it is about how you incentivise this rather than having a target. As discussed, there are a number of ways of doing that. We have had specific targets before so it would not be new, but how can you encourage more network investment in terms of how it is designed?
Q367 Deidre Brock: What kind of incentives would encourage you to do that?
Paul James: There is a balance to be had with spectrum obligations. We had the last one, and felt that it was good for 4G. As we had an obligation, everyone else felt it was right to follow on with that because of the competitive environment, so we competed a lot on 4G. We are all doing something about it, but the balance in 700 is: do you build according to obligation, or do you build for customers? How do you come up with an obligation that delivers for customers, as opposed to purely delivering what it says on the tin in terms of an obligation? A lot more data is needed, with an input into the 700 conversation to see what it will achieve and what the endgame is.
Q368 Deidre Brock: So are you saying you do not generally support this as a notion, or are finding a lack of enthusiasm for it?
Simon Miller: We are considering our responses and what we see here. As much as we would like to share what we provide with our competitors, it is probably not appropriate to do so, nor the right place to do so. You are right in terms of the question, but the 700MHz spectrum is going to be critical for extending coverage further, particularly for 5G services. More research needs to be done on whether hard and binding obligations are the right way to do it. From our perspective, we reached and exceeded a 90% coverage target, but as the smallest network it came at significant additional cost to us, and we now have a large number of sites in rural and remote areas that are effectively unused. That detracted from investment where our customers actually are. There are questions on whether you need operators in all of the UK landmass, whether you need two or three, and whether there are other ways of doing it through means other than a pure licence obligation—either through much more incentivised sharing or regionalised roaming as a solution to coverage issues. More work needs to be done.
Paul James: Just to build on that point, there is the ESN that is currently being looked at, and there are the buildings. To what extent is that part of the future discussion? There is the Scottish infill programme. You need to take the data, analyse it and look to see where the gaps are—and, to the point made at the beginning, to see where people are not getting coverage and, therefore, what would be the most appropriate way in those rural, small areas to ensure that they have got coverage. That will require a lot of data.
Paul Morris: We could probably write, Chair. We would be happy to send you a brief when we have done it. It is just a bit early, because we are just going through it and have not submitted to Ofcom yet.
Q369 Deidre Brock: You are just going through it, okay. I think the proposed target from Ofcom for Scotland is just 76%. England has got 92%, Northern Ireland 92% and Wales 83%. In terms of even getting to that point, what would you have to do as an operator to achieve that? Is there anything?
Richard Wainer: That is probably exactly what we are all assessing at this stage, to understand the level of investment that would be required to meet those targets, if we feel those targets are appropriate. The Ofcom consultation closes next month, and I am sure we will all be responding in detail to that. Following that, we could probably write to the Committee to outline our thoughts in more detail.
Simon Miller: There are a number of things to consider that sit below that. Ofcom has set up a consultation on a series of potential targets. What is also critical is the signal strength thresholds that underpin those targets, and whether those are the right ones, whether that is what people need to get a good service and whether they should actually be placed differently. There is a lot of thinking, rationalisation and collation of data that needs to be done to get to the right place with this.
Deidre Brock: Thank you.
Q370 Chair: On some of the innovative work that has been done, I am particularly interested in the work done by the National Infrastructure Commission and the Future Communications Challenge Group. They have suggested a number of ways that we could progress this in order to try to get a better result for some of these poorly served areas. What they suggest is making spectrum available at lower costs in poorly served areas. Is that a viable proposition to improve coverage?
Richard Wainer: If the proposition there is to make spectrum available to community groups or local operators, which is what I think some stakeholders have proposed, we would be pretty cautious in advocating that for a few reasons. First, for a national operator it is not the additional spectrum cost that is the determining factor when looking at rural coverage; it is more the physical site investment costs. The cost of the additional spectrum is not great at all.
Secondly, if we are providing lower-frequency spectrum to these local community groups, there would potentially be huge problems with signal interference from us as national operators, which may prove quite inefficient and actually reduce the incentive for us to invest in rural coverage. Thirdly, I think Ofcom has a statutory duty to ensure efficient use of the spectrum, so we would question whether that sort of proposal would fit in with those obligations.
Q371 Chair: Another proposal that was made by the National Infrastructure Commission was that businesses and universities should be able to access already licensed spectrum. Is that something you find favour with? We are just trying to look at ways where poorly served areas are able to try to access services and are currently not able.
Paul James: Just building on Richard’s point, I think the same points still exist in terms of things such as interference and how you manage that and bill for it. Where is the handover, particularly for universities and businesses, if they are in cities?
This is a scale business. It is quite hard to manage all of those aspects in a low-cost environment. I am not sure what the benefit to the end user would be, which is the key aspect here, which is about the consumer. What would they be delivering that is not available or is a good service to them at the cost that they are getting now?
I think it is right to ask some questions about spectrum, as we have alluded to a little, but I am not sure they are the right questions. These are scale businesses and the manufactures that we have to buy for build on a scale, so there are economies of scale with all of this as well.
Paul Morris: I would add one point. Many of you are talking about getting data on 4G. We are also in that escalator to 5G and we are looking forward to launching those services as well. Part of 5G is to create new business models. That means, can we sell different technologies—the internet of things, the fourth industrial revolution-type technologies—to enterprises? Part of that will be because the technology will be more manageable. You will be able to do more innovation with it. Part of that would be to do exactly that: go to a university and say “Can we sell you a bespoke network?” What we need to do is create a business model so 5G works, with the investment that we can put in and continue to invest. We just need to be a bit careful that we encourage 5G as well in terms of these new business models, because to succeed it really does need to create more opportunity.
Simon Miller: The key question is, what is innovation supposed to deliver? It’s supposed to deliver better coverage. To deliver better coverage, you need more sites. Those sites have to be linked into core networks. That means you need cheaper transmission and you need power going to each of those sites. These are exactly the same issues that beset the rollout of 2G, 3G, 4G and will do so for 5G. There are structural issues in each of those markets.
Land across the UK is largely overvalued, so we pay disproportionately high rents. That links to what we pay in business rates. The cost of getting power to some of these sites is extraordinary—in the multiple tens of thousands, sometimes hundreds of thousands, if not more in rural areas. There are very high transmission costs as well. That will have an impact on anyone trying to deliver improved coverage where there is currently no coverage. Unless we can all work together to do something to reduce those costs, the basic economic case for extending coverage is always going to remain flawed.
Q372 Chair: Can we move on to Government support and Government funding of some of the mobile telephony packages? Briefly, I am interested in your experience of the UK’s mobile infrastructure plan. What lessons do you think might be learned from the experience of this? Have you got any particular views on the Scottish Government’s 4G infill programme? My understanding is that the figures—they’re not huge figures, but they are quite significant—include £150 million from the UK Government for the mobile infrastructure project. Also, is it £25 million that the Scottish Government have set aside for their infill programme? What will they usefully add to your operations and what can we expect to see in terms of that investment and some of the issues we discussed about access in rural communities?
Paul Morris: As we discussed, we think that the ESN is the bridge to infill. We need to make sure those two work together and that isn’t being built to share today, so there is an opportunity being missed right now. If we miss that opportunity, it is difficult to see where the immediate opportunity to increase our coverage in some of those rural areas will come from. What we have got to do is not take some of the things that went wrong with the mobile infrastructure project and then assume—
Q373 Chair: What did go wrong with it? What were the problems?
Simon Miller: We should be careful with the mobile infrastructure project because it is very easy to write it off as something that went very badly wrong. Ultimately, it delivered 75 new sites in which four operators were present in areas that did not have coverage. The key thing that went wrong was that the original radio planning done by Ofcom was incorrect and that caused a delay of upwards of a year to the whole project, and it was time-bound. There were then issues around securing planning permission. There were issues around appropriate transmission in relation to a large number of other sites, which disqualified them.
Four operators stood behind this project, a whole set of infrastructure providers stood behind it, Government and local authorities bought into it and it still crashed up against these systemic issues with delivering infrastructure. When it did start to work in its final year, it delivered 75 sites fairly quickly and demonstrated the benefits of communal working. There are a number of other issues with it—did four operators really need to be on each site?—but there are positive lessons to be taken from this experience as well as negative ones.
Paul Morris: One of the major problems is that it was trying to build in remote rural areas and—as we call it—backhaul just wasn’t there to connect them up. That was one of the major problems.
The infill project is an interesting project, because in the mobile infrastructure project, the backhaul wasn’t included in construction; it just put it out at the cost ratios. In the infill project, they are including it and they are including power. So they are doing their best to deliver a product or a mast that we can just go on and you only need to get one operator on that mast. This is also a more sensible solution.
The reality of all this is that one thing you really want to do is build these structures, and all of this might go on at different times, to be honest. It depends on where we are. You want to have the option to do that and it may not be all at the same time. So if you get one anchor tenant, it’s a choice for others.
We are certainly working with the Scottish Government on it and we are very interested in the principle of it.
Q374 Chair: On that, how do you work with the Scottish Government? These funds have been made available to improve telephony and access. How do you then become involved? Are there bilateral conversations you have as each company with the Scottish Government?
Paul Morris: We have a mobile action plan. We are all closely involved in that, of which this is a—
Chair: But you are all competitors.
Paul Morris: We sit with the Scottish Government. We cannot talk about everything, but there are some issues we can talk about: planning, property, access to public sector sites and infill programmes. We can talk about those together.
Richard Wainer: In terms of the infill projects, collectively, through Ofcom, we provided our aggregated and anonymised network data, to enable them to determine the locations of the initial sites for the infill programme. There is a lot of work.
Paul James: That is fundamental. At a very headline level, there are certain things that we can do that are very clear, as an industry. Then, underneath that, as individual operators—
Q375 Chair: Do you expect more from Government? Government have a responsibility when it comes to these issues—for the rollout of mobile telephony coverage. We are talking about £250 million. Do you think that is a reasonable investment by Government?
I know Mr Lamont asked about Switzerland and getting a signal at the top of the Alps. In Iceland, practically everywhere I went I was able to get a 4G signal. Are other Governments doing much more to ensure that we are enabled and we have access? I am trying to test your expectations of what Government could do.
Richard Wainer: From our perspective, we have very competitive network level competition in the UK between the four of us. That should be allowed to extend as far as possible. That is about reducing deployment costs, to make commercial investment more attractive. We have discussed planning, business rates and access to land; Government have to do more there. Rightly, we have lofty ambitions for—
Q376 Chair: Is it mainly in the regulatory environment that you are looking at Government to address some of your concerns?
Richard Wainer: It is important to get those deployment costs down, through public policy and regulatory reform. Clearly, as operators, we also need to innovate in the way we roll out coverage—we have discussed some of those ways today. But there will be a limit to commercial deployment. Initiatives such as 4G infill and MIP, if they are designed appropriately, are the right role for Government to take when it is clear that commercial investment will not be viable.
Paul James: They may need to engage with us sooner. We need to get the regulatory and planning regime for 5G right now. From my perspective, it is about engaging now on those issues for 5G. As Paul and Simon said, with 4G we were playing catch-up in things such as planning. It is about the pace of change.
The Scottish Government have been more progressive than some of the others, as they had their mobile action plan before everybody else and they tried to drive through the infill programme. They have engaged in the right way. It is about the pace of that: engaging and speeding it up as we go towards 5G. As Richard says, we should look at the economics of the areas that are challenging and, outside that competitive environment, how we get a model, a partnership and collaboration that helps us to deliver that. That is the key challenge.
Richard Wainer: To build on a point that someone made earlier, the mobile industry was operating until the end of last year with an electronic communications code that had not been changed for more than 30 years, in terms of setting out our rights to access land and to share infrastructure. We have to see the pace of reform reflect the importance that people now place on digital connectivity.
Paul Morris: That took seven years to change. That is the problem; all of us here, and I think the Governments, all agree that we want to improve coverage as best we can for everybody. How do we define universal coverage? Where people live, work and travel, I guess. We are doing it in the face of, in effect, a 2G to 3G regulatory structure. There have been some changes, but it has been slow and hard work. We need to move quicker and to recognise that this is as important as other, more traditional infrastructures. If you look at it, you cannot say that it has benefited from the same focus, in all honesty, although that is increasingly changing.
Q377 Deidre Brock: Just quickly, Mr Miller, I want to return to the mobile infrastructure plan, which I thought you were rather kind about, actually. We had 75 sites when 500 sites were planned. I think £150 million was sunk in that. You seem to be suggesting that some of that was the responsibility of Ofcom. Was it poor planning? What lessons are there for the Scottish Government? They have obviously taken quite a lot from it in their proposals for the infill programme. What are the core lessons to be learnt from that?
Simon Miller: Planning, and getting the radio planning right in the first instance, is absolutely crucial to this.
The second thing is making sure that all the process ducks are effectively lined up. With mobile infrastructure, we had not understood the likely impact of the planning regime on the ambition to deliver up to 600 sites. In many areas, planning was refused. The sorts of structures that would be needed to effectively deliver service to an area could not be got through the system. We need to make certain that all those things are in place—that there is real will to deliver the infrastructure that is needed to give the community that is to be served the service that it needs.
Q378 Ross Thomson: In answer to previous questions, you have talked about some of the main regulatory barriers in terms of infrastructure. I am interested to hear where you think there is a difference between the regulatory challenges you face in Scotland and those you face in the rest of the UK, given, for example, that planning is different in Scotland from anywhere else in the UK, and how you think those particular challenges may be addressed.
Paul Morris: On planning, Scotland was one of the first to introduce change. The Government have introduced change, in effect, to non-protected areas, and they are looking to update protected areas. In that sense, they are just catching up a little bit with England. It has been a sort of horse race, where one has got ahead of the other.
The challenge is whether that is enough. As Paul said, we are probably still building structures that are basically determined by the planning system, rather than the structures we should be building for the area. We should be making an assessment of what works in the area. Sometimes, it is a very large piece of infrastructure. That can mean fewer masts, which means less cost, but they are taller. There is still some work to be done on ensuring that the planning system does not block the ambitions of the industry to roll out.
Ultimately, this comes down to local agents making pitches. Generally, they will not go too far beyond what they think is possible. Pushing the envelope is quite difficult with planning. That needs to continue to be looked at. There is also the question of how much equipment you can put on sites and whether you need planning for the smaller equipment. All of this needs to be looked at. If we do not need planning, we can get as much out as possible—it allows us to build the structures that make sense for that area to maximise the coverage.
Paul James: It is about building on our permitted development regime for a lot of the equipment associated with the masts—as Paul says, the generators, the cabins and all those things—so that we can just build those, as opposed to going through a planning process to do that. In fairness to the Scottish Government, they have looked at that. England has looked at it, Wales is considering it at the moment and Northern Ireland is not looking at it at all, so Scotland has been quite progressive.
Going back to the 5G point, the trick is to try to get ahead of the curve on this so that you are in an environment where this becomes part of the fabric of the local community, and digital connectivity is a key consideration for economic development, as opposed to being purely about the planning regime. That is the challenge that we all face. We have to tell the right story in that context—we understand that—but communities need to engage with us and the Government need to build that. To me, you have to embed digital connectivity in social and economic plans—whether it is the future use of smartphones in our health environment or anything else—so that it is a consideration in the application to build a mast, as opposed to building a mast on a piece of land because that is what the planning regime dictates.
Richard Wainer: Local authorities have three key roles in this. One is in economic strategy. The second is as a planning authority, and we would like to see more happen there. The third is as an owner of public assets, in terms of siting mobile infrastructure. As a general rule, public sector sites are sites of last resort for the mobile sector, certainly from an EE perspective. Given that there should be shared ambitions to improve mobile connectivity, they should be first choice sites for us. There is a long way to go and a lot for both central Government and local government to do to improve access to their assets.
Paul Morris: It comes back to the centralisation point. If a local authority wants to improve coverage, they have probably got buildings that could be used. You will also have agencies like the Forestry Commission and others. No one today comes to us and says, “Here’s a free site.” There is not that sort of conversation going on. I think that is probably somewhere we need to get to. We still hear too much, “How much can we get from you in rent?” The actual benefits, largely in a coverage conversation, are not always as prominent as they should be.
Simon Miller: Just to unpack that point, great efforts have been made to open up public land to mobile operators to help improve coverage. Rents have invariably been set up for commercial. There will then be restrictions on access to that land. If a site goes down we need to be able to access it to repair it. If we cannot do that, it becomes unattractive. If that land is a long way away from a transmission or backhaul run or a power run, it also becomes unattractive. There is some tying up of loose ends that needs to be done so that when local authorities or Governments at a national and devolved level do bring forward land, they bring it with an ambition to improve coverage, and that means taking that ambition into the rental consideration as well, so that they actually do have a benefit.
Q379 Ross Thomson: That was really helpful. The UK Government introduced the five-year exemption from business rates on full fibre. The Scottish Government are currently trialling relief on new mobile masts as part of their 4G programme. Do you think this policy would work on a larger scale across Scotland and would it incentivise you to build more mobile masts if they did?
Paul Morris: Yes.
Simon Miller: Yes.
Paul Morris: It has already in Arran, where you are talking about. It is a good initiative. It is the sort of thing that is a good idea. It is all about what we were talking about and how you reduce these costs, and rates is one of the things you can reduce easily. It is harder with landlords, which is why we need legislative change. We have had it, and that is being worked through. But why would you not do that if you want to have coverage?
Paul James: And fibre will become increasingly important in terms of a data environment, so the ability to get access to transmission and the high band transmission becomes very important in a 5G environment.
Q380 David Duguid: The UK Government through DCMS have established a barrier-busting taskforce designed to work with industry, local authorities and devolved Administrations. Have you had much involvement with them so far?
Paul Morris: Yes. Who wants to talk about that one?
Paul James: We have had an initial conversation with them, but we have also put forward, from an O2 perspective, the future telecoms review, which is a part of that, and our views on what needs to be done, again from an O2 perspective. I could probably provide you with a brief summary of what we have said to DCMS in that context. It is very much from an O2 perspective. It covers everything from access to sites to things like dark fibre and everything else. Clearly, as you have all rightly identified, we are a competitive bunch, but I would be happy to submit something to you in that context.
It goes back to the key point. To me it is about the pace of change and speeding things up and driving through change quickly, as everyone has talked about. The pace of change in the past has been very slow. We need to supercharge it.
Richard Wainer: Yes. From our perspective it is a good initiative. It recognises that there are various Government Departments involved in this and not just DCMS. For example, Communities and Local Government has a role through the planning regime. It has been up and running for a few months. There has been a level of interest in mobile, but I think the focus to date has been on fixed infrastructure and reducing the barriers there. I think we would be hopeful that over the coming months they would start turning their attention more to some of the barriers that have been faced in terms of rolling out mobile infrastructure.
Q381 Chair: Can I just ask you about—I think I know the answer to this—your views on a national roaming service? I do not think it will find favour among any of you fine gentlemen, but I want to explore this a little bit more, particularly the idea that Ofcom suggested about the macro roaming, which might be able to address some of the notspots. That is surely a helpful suggestion.
Simon Miller: Three is looking at how you improve coverage, as I think we all are. There are parts of the UK where a regionalised approach to roaming might be an appropriate answer, but there are technological hurdles to be got through. Part of it is also getting the economics of this right. When national roaming was first mooted as a potential solution in the middle of 2014, it was not looking at the wholesale cost inputs—what we charge one another to go on to one another’s networks—but we think that regionalised roaming options could be a way of addressing coverage issues.
Q382 Chair: You think it could certainly be considered. Is that the view of the rest of the companies?
Paul Morris: We took a view when we looked at it before and we have discussed it today. How far can the current model take us with some of the reform that we have been talking about and maybe some Government programmes like an infill programme? But that is very different from a roaming solution. I think we should probably continue down the path we are going on, because of what we discovered about the roaming solution when we looked at it before—we ended up with a 90% voice obligation out of that, but it does not help with notspots of course, because there is nothing there—
Q383 Chair: You just said that there is one of you who might have some—EE, for example, has got a mast in rural Argyll and the rest of you have not. Is there not a suggestion—
Paul Morris: That is about the sharing side. We have talked a little bit about the infill programme, and you have got the ESN, so how can we share that infrastructure, and see how far we get? Ultimately, and when we looked at it before, it was not good for investment decisions, and it was not a good customer experience. Also, it will not solve notspots—a notspot will remain a notspot, if it is a complete notspot, because there is nothing to run on to.
Q384 Chair: Not notspots, but where one of you operates, where one of you may have a mast—
Paul Morris: Then it comes down to being bad for investment and bad for consumers.
Q385 Chair: Good for consumers?
Paul Morris: Well, the experience is really poor, because you lock in and out all the time—
Paul James: There are two issues, as I have said. In consideration of any sort of roaming solution, if one were put forward, those two key things are needed: first, for the customer experience to be good—at the moment there is no such thing as, say, in-call handover in roaming, so what you do is to drop a call, pick it up, drop it and so on—
Chair: It could be stopped, obviously.
Paul James: Secondly, what impact does that have on investment? With future investment, for argument’s sake, why would we invest if we felt that we could roam on someone else’s network?
Q386 Chair: What about sharing masts?
Paul James: That is probably a conversation that we will increasingly have. We do already share masts—
Q387 Chair: How many are shared?
Paul James: For us and Vodafone, as I said right at the beginning, we have Beacon, which we share. So there is a single grid of 18,500 masts that we share—we do one side of the country, Vodafone does the other.
Q388 Chair: A lot of this would be solved with a monopoly—one service across Scotland, and then all the services that you provide could be available to the customer.
Paul James: It could be down to things like active sharing—so how much of the kit on a mast we can actually share in future. Ofcom has clear rules on sharing masts—what you can share and what you cannot share—and when we did the deal with Vodafone, we had to get regulatory permission to do it. The idea of having a conversation about the particular aspects of sharing a mast is valid in the 700 argument, for instance—so the conversation about where the future network bill goes—and in economically challenged areas, that is very valid. I do not know if we have all the answers yet, but it is worth exploring that.
Paul Morris: It does involve sharing infrastructure.
Q389 Chair: Good. That is what we look to hear. Just to conclude, the thing that strikes me about this session—I think this is something we want to explore with you a bit further—is that some of the regulatory barriers that you have identified today could be combined, perhaps through your own work. Will you let us know a little bit more about that so that when we shape our report, we understand that better and can report to Government about some of the issues? I know that we touched on some of the investment support that you have had from Government but, if you have any further views on that which would help this Committee, again we would be very grateful for them, so we can better understand how all this works—your relationship with Government and with some of the more direct funding arrangements.
Richard Wainer: I am very happy to do that, although given the time, we might not be able to go into it much. We have discussed the Emergency Services Network a number of times—
Chair: Yes, we meant to get to that.
Richard Wainer: Perhaps if I could write to the Committee to set out the opportunity there for site sharing and the process we have set out—
Chair: Please.
Paul Morris: We are not agreeing yet, but hopefully we will come to an agreement. The Home Office needs to build these things to share as well.
Chair: What is impressive with four very cut-throat competitors is the amount of agreement and consensus. I think you have impressed the Committee with your joint working when it comes to giving your evidence. For that, we are grateful.