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Written evidence submitted by Dr Paolo Gerli and Prof Jason Whalley

 

 

CALL FOR EVIDENCE ON BROADBAND AND THE ROAD TO 5G

 

We welcome this opportunity to contribute to the Committee’s enquiry on broadband and the road to 5G. We have recently conducted extensive research on state aid programmes and community-led initiatives encouraging the diffusion of superfast broadband in rural areas. Our research has focused on the United Kingdom and EU Member States (Italy and Spain), with the aim of understanding the most efficient and effective policies to address rural-urban digital divide(s).

Drawing upon our empirical research, our contribution to this enquiry primarily focuses on challenges to the broadband and 5G rollout in rural areas. Our response to the questions raised are laid our below.

 

 

A) How realistic is the Government’s ambition of nationwide gigabit-capable broadband by 2025, and what measures (regulatory, financial, technical, other) will be needed to achieve it?

 

A1.              The plan announced by the Government represents an ambitious step forward to promote the diffusion of gigabit-capable networks (hereinafter, GCN) across the UK. However, the delivery of this plan may be delayed by a number of factors that the government should address before launching a new state aid programme. First, the government needs to clarify the exact scope of its intervention: according to the latest data from Ofcom, only 10% of UK premises had access to Fibre-to-the-Home (FTTH) in 2019 [1]. Private providers have announced various plans to deliver FTTH across the UK, but the coverage and timeframe of such investment is currently unclear. Thus, defining the geographical scope of the area to be covered by the public sector is likely to be difficult at this stage due to the uncertainty associated with private supply.

A2.              Furthermore, it is not clear what regulatory framework will be applied to rule public interventions that support GCN. The UK is currently in a transition period that will culminate in its exit from the EU. At present, it is not clear to what extent regulatory alignment will occur – in other words, it is unclear whether the UK will continue to follow EU state aid guidelines when it comes to developing and implementing support for superfast broadband. If the government intends to apply a different framework, then this should be outlined before any programme is designed and implemented.

A3.              The Government must also clarify what broadband technologies are classified as ‘gigabit capable’. The definition of ‘gigabit capable’ is vague and could undermine the government’s objectives to provide the UK with the best-performing connectivity. To date, FTTH is the only technology capable of reliably providing a gigabit connection, with hybrid technologies that combine copper and fibre (such as G.Fast and vectoring) only providing ultrafast connections when under certain circumstances (such as the length and quality of the copper loop) are met. If the intention of the government is to expand the availability of future-proof connectivity across the UK, then FTTH would appear to be the only option, especially in rural areas where the idiosyncrasies of the legacy network (such as the length of copper cables and the high costs of maintaining overheads cable) make hybrid solutions unlikely to deliver gigabit connectivity. Committing to FTTH deployment is likely to increase the overall costs of any public and private investment, but previous research has estimated that these costs will be entirely recovered over the longer term as the maintenance costs of full-fibre networks are significantly lower than those of hybrid networks [2].

 

 

B) What are the challenges to the roll-out of 5G and gigabit-capable networks? To what extent do existing legislative, regulatory and spending plans address them?

 

B1.              The timing and distribution of private investment has followed the same pattern, across the different generations of (both fixed and mobile) broadband technology. Private investors have prioritised densely populated urban areas, where economies of scale are achievable and the cost of network rollout can be reduced. Consequently, scarcely populated rural areas have historically lagged behind urban areas in terms of access to fixed and mobile networks. This situation is likely to be replicated in the context of 5G and GCN.

B2.              Market failures in the provision of broadband have been addressed by multiple public interventions, from regulation to state aid. The regulatory approach followed by the EU and applied in the UK has been widely criticised for failing to promote facility-based competition. Only BT owns a nationwide and capillary broadband infrastructure, and Virgin Media has relatively recently begun to invest outside its historical footprint centred on major conurbations. Other ISPs still rely on BT’s network rather their own infrastructure.

B3.              According to the National Audit Office (NAO), limited competition in the infrastructure market has had a direct impact on the efficiency of Broadband Delivery UK (BDUK) [3], the state aid scheme for broadband diffusion that was launched in 2011. In the first Phase of BDUK, BT was the only provider to bid and won all the public subsidies. This limited the ability of public authorities to effectively control the cost of BDUK-funded deployments, thereby compromising the value-for-money of the programme.

B4.              Compared to 2011, new infrastructure providers have emerged across the UK, often targeting rural areas. Our research [4] on these providers has shown that the current regulatory framework has not played a significant role in the establishment of these initiatives and may even hinder their development. The exit of the UK from the EU could, therefore, become an opportunity for the current regulatory framework to be revised towards one capable of effectively promoting facility-based competition and sustaining private and community-led investment in rural areas.

B5.              Addressing such competitive issues is fundamental to facilitating the rollout of GCN and 5G. Both GCN and 5G require access to backhauling networks [5] but the lack of competition in this market has emerged as a key constraint on the development of alternative infrastructure providers in rural areas [6]. Thus, new regulatory initiatives are needed to facilitate access to backhauling and support the development of alternative providers.

B6.              Demand uncertainty has also been a deterrent for private investment in broadband networks. While this issue has largely been overcome for GCN (as detailed below), it could become a significant obstacle to the diffusion of 5G. To date, applications relying just on 5G networks are not available and some of these (such as autonomous vehicles) may not be commercially available for another decade or so. The low demand may further undermine the case for the private rollout of 5G networks. Consequently, the government should adopt a holistic approach that addresses the lack of demand and supports the development of applications utilising 5G capabilities, justifying the deployment of these networks.

 

 

C) What needs to happen to ensure the Government’s ‘outside in’ approach successfully addresses the digital divide while also delivering value for money?

 

C1.              Our research [7] has highlighted that BDUK did not necessarily invest in those areas most in need of public interventions. BT used public subsidies in areas that they would have covered anyway with their own funding. The ‘outside in’ approach endorsed by the government should help to overcome this major shortcoming of BDUK. Although it could arguably undermine the achievement of economies of scale in broadband rollout, the ‘outside in’ approach is more likely to deliver value-for-money by targeting those areas where public intervention is most needed.

C2.              Based on our comparison of public and community-led initiatives in the UK broadband market [8], we identified a number of best practices that can enhance the performance of the ‘outside in’ approach. These are:

 

 

D) What does take-up of broadband and mobile services indicate about consumer and business attitudes to digital connectivity? What needs to be learnt from this for the roll-out of, and switchover to, gigabit-capable networks?

 

D1.              The latest research from Ofcom shows an increase in the demand for digital connectivity across the UK, even among those groups that have been more reluctant to adopt digital technologies [1]. The demand for ultrafast broadband in rural areas has also steadily increased over the years and the take-up achieved by BDUK-funded projects has been much higher than expected [7]. Despite this generally positive trend, our research found that demand for superfast broadband has been higher in those areas where specific demand-side policies were enforced [8].

D2.              Demand aggregation helped to promote the awareness of broadband benefits within rural communities. When collecting expressions of interest was a requirement to trigger broadband rollout, local campaigners committed to explaining the benefits of broadband to the other residents (including non-users). Our comparison suggested that this approach was more successful than marketing campaigns highlighting the benefits of broadband [8]. The fact that the information comes from local and familiar sources (such as a local volunteer or a family member) contributed to overcoming the scepticisms and mistrust of non-users towards broadband and digital technologies.

D3.              Equally important have been the various initiatives promoting IT skills within the local communities. Whether managed by local authorities or self-organised by groups of volunteers, IT training have helped non-users in the rural UK to fully appreciate the advantages of having a superfast connection [6, 8]. Our research has also highlighted the importance of delivering IT training for business users so that their confidence in the usage of digital technologies is enhanced.

D4.              As gigabit-capable broadband enables access to advanced digital applications, such as telemedicine or virtual reality, future educational programmes should be designed to equip local communities and businesses with the skills necessary to take full advantage of these new technologies. Integral to this is the need for local stakeholders to be consulted during the design of these initiatives to ensure that they address the actual needs and circumstances of the target users.

D5.              It must be noted that the take-up rate can be discouraged by the affordability of broadband services and digital devices. Our analysis of BDUK suggested that this is more likely to affect deprived urban areas, where the take-up of superfast broadband remained low even after BDUK deployed fibre networks [7]. Previous research has emphasised the existence of digital divide within cities [10]. Despite the lack of up-to-date data, it is reasonable to expect that the adoption of GCN will lag behind in deprived areas. Thus, specific measures are needed to address urban digital divide(s), by delivering training to individuals with limited digital skills and subsidising the cost of connectivity and digital devices for low-income households.

 

 

E)    What will be the impact on individuals and communities whose broadband and mobile connectivity fails to keep pace with the rest of the country over the next 10 years? What is the link with other DCMS policy concerns, such as changing patterns in the consumption of digital media?

 

E1.              Superfast broadband is today essential to undertake a number of social and economic activities. Individuals subject to digital divides are already unable to access those public services that are only available online. This situation is likely to worsen as more essential services, from healthcare to public transport, increasingly require some form of online interaction.

E2.              In addition to this, GCN are becoming a key component in the shaping of the competitiveness of local economies. Access to fast connectivity is vital to retain and attract entrepreneurs. In the long term, the lack of GCN will compromise the economic sustainability of local communities and further encourage the depopulation of rural areas. Conversely, e-commerce and digital platforms may provide new opportunities for rural entrepreneurs. As highlighted above, the potential of digital technologies can be fully leveraged only if advanced skills are developed within the local communities. This underlines the importance of developing and then combining demand-side initiatives along with supply-side interventions [11].

E3.              Previous research has also emphasised that broadband is crucial to sustaining the resilience and social development of rural communities. For example, digital technologies can reduce the isolation of residents in remote areas and provide access to online information, enabling them to interact with friends and family as well as participate in local activities. But these benefits will only be maximised if the provision of fibre broadband is combined with the development of digital skills that enable individuals to use the new applications in a safe, responsible and productive way.

 

 

F)     How effectively do the different stakeholders (UK and devolved governments, local authorities, Ofcom, industry) work together in both the mobile and broadband sectors? How might these relationships be improved to support gigabit-capable roll-out?

 

F1.              Our research on the multi-level governance of BDUK [9] has highlighted that, despite the programme being designed to favour collaboration among different stakeholders, the engagement with local stakeholders has not been as consistent or effective as initially anticipated. As emphasised above, the engagement of local communities is fundamental to achieving synergies in the rollout of broadband and supporting broadband adoption. Any public initiatives to support GCN diffusion rollout should ensure that the knowledge and views of local stakeholders is taken into account when broadband rollout is designed and implemented.

F2.              Local authorities could act as an interface between national authorities, private suppliers and local communities. However, our research has shown that county councils often lack the expertise and the financial resources necessary to manage broadband projects [9]. For the ‘outside-in’ approach to be successful, local authorities must be equipped with adequate human and financial resources to oversee the execution of GCN rollout and engagement with both national and local stakeholders.

F3.              BDUK scheme included a number of formal mechanisms to keep local stakeholders updated, such as newsletters and meetings with parish and district councillors. The effectiveness of these mechanisms is debatable as there is little evidence that information was actually passed to end-users [8]. The BDUK approach also implicitly assumed a top-down flow of information, from the promoters of broadband projects to local communities. Those in charge of broadband projects should develop and then implement new mechanisms for the engagement with local stakeholders in order to directly involve local communities and establish a bidirectional communication, with information also moving bottom-up from local communities to project managers. Demand aggregation could also be used as a tool to engage with local stakeholders, as it encourages local residents to coordinate their interests and cooperate to the successful execution of broadband projects [6].

F4.              Our research also shed light on the relationship between BDUK and Ofcom [9]. Based on EU guidelines, national regulators should monitor the execution of state aid programmes and regulate wholesale access to the subsidised networks. To the best of our knowledge, Ofcom has not played an active role in the governance of BDUK despite the competitive concerns raised by the NAO. Ofcom should be involved in the governance of those future interventions that support GCN and 5G rollout in order to prevent and correct any distortion of competition. Furthermore, the involvement of Ofcom is likely to ensure better coordination between ex-ante regulation and state aid programmes, thereby creating a clearer and more consistent framework for public and private investment in broadband networks.

 

 

Dr Paolo Gerli and Prof Jason Whalley

Department of Entrepreneurship, Innovation & Strategy

Newcastle Business School

Northumbria University

Newcastle, UK

 

 

Notes

1.              Ofcom (2019). Connected Nations 2019: Main report, Ofcom: London.

2.              Kenny, R. (2015). Exploring the costs and benefits of FTTH in the UK, Nesta: London. Available at media.nesta.org.uk.

3.              National Audit Office (2013). The rural broadband programme, NAO: London. Available at www.nao.org.uk

4.              Gerli, P., Wainwright, D., Whalley, J. (2017). Infrastructure investment on the margins of the market: The role of niche infrastructure providers in the UK, Telecommunications Policy, 743-756.

5.              The middle mile network that connects the last mile (the local networks reaching the premises of end-users) to the backbone (the core network connecting to the internet).

6.              Gerli, P. (2019) Community broadband networks and rural digital divide: A UK case study, Pacific Telecommunications Council conference, 20th – 23rd January, Honolulu, available at https://council.ptc.org

7.              Gerli, P., Matteucci, N., Whalley, J (2019). Infrastructure Provision on the Margins: An Assessment of Broadband Delivery UK, International Journal of Public Administration, 540-551.

8.              Gerli, P and J. Whalley (2018). Fibre to the countryside: A comparison of public and community initiatives in the UK, TPRC 46, 21st – 22nd September, American University, Washington DC, available at http://papers.ssrn.com

9.              Gerli, P., Navio Marco, J., Whalley, J. (2019). Does the Multilevel Governance of State Aid Encourage Broadband Diffusion? Evidence from Three European Countries, 30th European Conference of the International Telecommunications Society, Helsinki, 16th-19th June 2019, available at econstor.eu.

10.              Ofcom (2013). Availability of communications services in UK cities, Ofcom: London.

11.              This is not a new challenge, but one observable with previous generational shifts in technology – see, for example, Ragoobar, T., Whalley, J. and Harle, D. (2011) Public and private interventions for next-generation access deployment” Possibilities for three European countries, Telecommunications Policy, Vol. 35, 827-841