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Written evidence submitted by Virgin Media
Date of submission: 18 June 2020
Virgin Media welcomes the opportunity to support the committee’s inquiries into Broadband and the road to 5G and Impact of Covid-19 on DCMS sectors.
About Virgin Media
Answers to questions
What is the impact of COVID-19 on the roll-out of full-fibre and 5G infrastructure in both the short and medium-to-long term, including any differences in different parts of the UK.
1.1 We strongly support the Government’s ambition to achieve nationwide gigabit capable broadband. Gigabit capable networks will boost the UK’s productivity, improve social outcomes and support the roadmap to net-zero carbon emissions. According to research published by Virgin Media’s parent company, Liberty Global, conducted by international management consulting firm, Arthur D. Little, the innovation spurred by the widespread availability of gigabit speeds will unlock a market of at least 250 billion euros per year in Europe by 2025.
1.2 Covid-19 represents an unprecedented and immediate challenge to the UK and only further underlines the importance of reliable broadband networks to keep people connected. Gigabit capable networks will also be a key pillar to help the economy recover from the initial pressures of the pandemic.
1.3 The initial stage of the Covid-19 pandemic saw the telecoms industry remaining responsive and resilient. Virgin Media’s network remained resilient despite a significant increase in customers using their broadband at home during the day.
1.4 To address the increased need for home working, online socialising with friends and family, and home schooling, we provided extra provisions to our fixed and mobile customers free of charge.
1.5 We also worked with the Government and industry to provide additional support to our most vulnerable customers, as well as our emergency services, the NHS and vulnerable and disadvantaged young learners.
1.6 The lockdown period also created some initial challenges for gigabit rollout. We faced some resistance in the early days of the lockdown from LAs and highway authorities seeking to limit works. However, the situation was improved after the Government published further guidance. We were then able to restart works that had been put on hold and impact on network expansion was minimal.
1.7 In some areas, we’ve managed to build better relationships with LAs where we found that these authorities had an appetite to work closely with us and understand our requirements before discussing any restrictions.
1.8 A difference in approach to construction works from the devolved bodies, particularly in Scotland, has also been problematic. The Scottish First Minister’s initial statement on the lockdown led to confusion around what works were deemed essential and this was seen in the varying responses to our planned work across Scotland’s highways authorities. While the Scottish Government and Roadworks Commissioner have been working well with us to provide further clarity, the position remained more unclear than the rest of England as late as mid-May.
1.9 Overall, a lack of uniformity towards the treatment of construction works across the devolved regions and LAs, could present a challenge to achieving the 2025 nationwide target if some lockdown and social distancing measures remain in place in the long-term. More information on the short-term impacts of Covid-19 on our network is outlined in the Appendix.
1.10 Despite the short-term impacts of Covid-19, we are still due to complete the upgrade of our entire network – over 15 million premises - to gigabit speeds by the end of 2021, delivering half of the Government’s target four years early. We have also invested billions to expand our network. Project Lightning, our expansion programme, has delivered connectivity to over two million premises in the UK, with ambitions to build out to many more premises in the coming years.
1.11 However, given that we are still in the middle of dealing with the effects of the pandemic, it is difficult to tell what the longer-term impact on network expansion will be. Although the telecoms industry has remained relatively resilient in the initial phase, it hasn’t passed without any impact and the scale of the post-Covid-19 recession could affect consumer demand in the coming years.
1.12 To now accelerate rollout in these areas and avoid the tendency for operators to build in parts of the country that are already gigabit capable or will be in the coming years, providers need to be incentivised by the Government to focus on geographies with poor or minimal gigabit coverage. We list some specific operational, financial and regulatory conditions that could help achieve this in our response to question 2.
1.13 While Virgin Media’s gigabit upgrade and network expansion contribute to helping the Government reach its 2025 target, the Government’s strategic approach to its delivery also requires an urgent update.
1.14 We were supportive of the policy and regulatory framework set out in the Future Telecoms Infrastructure Review (FTIR, May 2019). The review’s emphasis on stimulating network competition, reducing deployment barriers, and incentivising investment was, in our view, the right approach at the time to accelerate the building of gigabit capable networks. Furthermore, we have seen positive results accrue from some of the changes introduced, such as improved access to Openreach’s ducts and poles and the proposals set out in Ofcom’s Wholesale Fixed Telecoms Market Review (WFTMR) consultation, which will bring in changes to the market to help encourage investment beyond 2021.
1.15 However, the FTIR was based on the UK achieving nationwide gigabit coverage by 2033, and was informed by a six-week call for evidence from industry. The lowering of the target from 2033 to 2025, following the appointment of Boris Johnson as Prime Minister in July 2019, did not follow any formal consultation process with industry. Industry collectively laid out the areas that require urgent reform to meet the new target in a joint letter to the Prime Minister in August 2019, but these areas still have not been adequately addressed.
1.16 While we assume that the Government is currently following the same principles laid out in the FTIR to guide its broadband strategy, there is an urgent need for an update to the policy framework to facilitate the accelerated timelines.
1.17 In addition, the National infrastructure Strategy, which the Government said would provide more insight into its broadband strategy, has now been delayed for over 20 months. The publication of this document should either be prioritised or the broadband strategy should be decoupled and released separately.
Recommendation: DCMS to publish an updated policy framework developed in consultation with industry to enable roll out of gigabit networks by 2025
In order to attract further commercial investment in areas without gigabit capability, the Government needs to address the following barriers that increase costs, delay rollout and inhibit labour supply:
2.1 The 380% increase in Virgin Media’s business rates liability since 2016 affects rollout decisions in three ways. Firstly, it diverts substantial cash which could otherwise be spent on network expansion. Secondly, it acts as a deterrent to inward investors who will not find a more burdensome property tax regime in any major Western market. Thirdly, it directly affects future rollout economics by increasing the cost of each new premise passed. The relief regime, introduced by the Government in 2018 to mitigate the impact of the rise in rates, looks negligible compared to the scale of the Government’s ambition for gigabit rollout. Moreover, it does not apply to all gigabit capable technologies or infrastructures and is due to expire in 2022. Scotland, by contrast, has a relief regime that extends to 2029.
2.2 In the short-term, DCMS should provide network builders with assurances at the next fiscal event that it intends to extend its relief regimes and expand them to accommodate all infrastructure involved in the building of new gigabit capable networks. To help meet its 2025 target, the Government could also consider tying this relief to build in certain geographic areas, which would then incentivise network builders to consider these areas more seriously. In the near-term, the Government should avoid taxing productivity-enhancing technologies and consider removing business rates from all gigabit capable connections whilst ensuring there continues to be no state aid implications from the Government’s tax regime.
2.3 We also wish to see the forthcoming business rates review directly assess how business rates impact infrastructure investment decisions.
Recommendation: Government to extend all relief regimes for gigabit capable broadband in England and exempt all gigabit connections from business rates to expedite rollout
2.4 Virgin Media currently employs around 3,000 permanent engineering/field staff and has access to up to a further 3,500 through contract partners.
2.5 We are proud to be playing our part in training the domestic workforce. Since 2008, we have recruited over 1,500 apprentices. Virgin Media currently offers 20 different apprenticeship schemes, ranging from Level 2 to Level 7. We will be increasing this by a further 2 by the end of 2020. We pay £2.2m every year through the Apprenticeship Levy and have spent 55% of the Levy to date on apprenticeships (a UK average is 39%). 64% of our current apprenticeships are in roles involved in network upgrade and expansion. During 2020 we will be recruiting up to 103 apprentices, of which 94% associated with the network upgrade and network expansion.
2.6 Our apprenticeships programme will continue despite Covid-19 and we are proceeding with recruiting apprentices this year, despite a 32% employer predicted shortfall nationwide. All our apprenticeship roles are permanent contracts from the start, guaranteeing that apprentices will be able to continue their careers at Virgin Media after their training is completed.
2.7 To achieve the Government’s 2025 target, the Government should publish a roadmap on how it intends to up skill UK-based workers to support its rollout target. Government should also work with industry to explore how the increased pool of unemployed people (caused by Covid-19) could be retrained to fill in skills gaps in the telecoms industry, which would bring benefits to both the wider economy and the rollout of gigabit networks.
2.8 One way for the Government to boost training of the domestic workforce is through further reforms to the apprenticeships system and the Levy. For example, employers should be allowed to use Levy funds to directly support apprentices’ salaries and the 20% ‘off the job’ training requirement should be less prescriptive. We would be happy to provide further evidence on specific apprenticeship system reforms that would encourage employers to expand their training programmes.
2.9 Improving the domestic talent pool is not something that can be fixed overnight so in the short-term, we would like to see roles skilled in gigabit network build, such as network engineers and fibre installations, to be added to the Shortage Occupation List (SOL) as part of the new immigration system. This would prevent operators facing a talent cliff edge when we leave the EU. We have also responded to the Migration Advisory Committee’s call for evidence on the SOL with our recommendations.
Recommendation: Government to work collaboratively with industry to ensure that it can access the skilled workforce it needs to build new gigabit networks
2.10 We support the Government’s legislation to enable easier access to multiple dwelling units (MDUs) and new build developments (NBD) for gigabit broadband suppliers. When passed, these changes will streamline the planning process and reduce the costs involved in negotiating access with landlords. However, we think the legislation could go further.
2.11 While current MDU legislation seeks to create a behavioural change so that landlords are legally compelled to respond to access requests from operators in a timely way, the legislation still allows for landlords to refuse access to operators on any grounds they choose. This situation falls hugely short of the ambition expressed in the FTIR: “We [Government] want to bring telecoms operators in line with the gas, energy and water sectors by providing a ‘right to entry’, where a landlord is given notification of an operator’s intention to access a property, with a magistrate providing the warrant to entry.”
2.12 Legislation on NBDs does not tackle the issue of ‘exclusivity agreements’ for new build developments, where home owners or renters are left with low speed and expensive broadband. We think this is a missed opportunity. Exclusivity agreements mean that only one broadband provider is able to access a new build site and install broadband infrastructure during the build process; other providers are locked out of the site. Consumers bear the negative consequences of these deals as they only have one choice of broadband provider, essentially creating a monopoly service within a housing development.
Recommendation: Government to either use existing legislation, or consider new legislation, to allow broadband operators a ‘right to entry’ as enjoyed by utility providers
Recommendation: Government to either use existing legislation, or consider new legislation, to end the practice of exclusivity contracts in new build developments
2.13 Although the removal of regulatory and financial barriers would significantly ease the rollout of gigabit capable networks, we also face operational barriers when undertaking streetworks which impede our ability to both upgrade our existing networks and deploy new gigabit capable networks via Project Lightning.
2.14 At a national level, DCMS has been very supportive in helping the industry engage with LAs on streetworks. The streetworks toolkit that was published alongside the FTIR was helpful in consolidating guidance, although there are areas – detailed below – where we feel it could be updated in line with new challenges.
2.15 We should also note that there is a lack of coordination across the Government departments that have a responsibility for this area. Whilst DCMS is the key department we deal with on the majority of industry issues, the responsibility for streetworks lies with the Department for Transport (DfT). DfT tends to view streetworks only through the lens of its impact on congestion on Britain’s roads and gives secondary importance to the benefits that faster network deployment will have on the UK economy. For example, DfT has encouraged all LAs to move towards having a permit scheme in place by the beginning of 2021, which will include the need for us to pay fees to apply for, or amend a permit. The cumulative effect of these permits adds significant costs and resource when building, particularly for larger network builders like us operating across a number of LAs. If the Government intends to meet its 2025 target then it must ensure that DCMS and DfT work collaboratively on network deployment, so one part of the Government does not negate the benefits delivered by another.
2.16 In addition to coordination across national Government, we also regularly see a lack of consistency in the way that LAs interpret streetworks guidance. While we have a productive relationship with many LAs across the country, we still routinely face those who see network build as either an inconvenience or a way to raise revenue via excessive permitting. Although we appreciate that much of this needs to be improved by a change in attitude by difficult LAs, the Government can assist by providing clear guidance on some of the bigger obstacles we face with LAs.
Recommendation: DCMS and DfT to establish working practices to enable better coordination on delivering 2025 gigabit target
Recommendation: Government to issue updated guidance to LAs to achieve a consistent approach to permitting, footpaths, access, and implementation of new regulations
2.17 We want to play our part but to ensure that rollout is successful, careful consideration must be given to other policy areas that could unintentionally impact investment decisions. This includes reform of public sector broadcasting, the new regulatory framework for online harms, and policies aimed at the consumer side of the broadband market. We want to work with policymakers to develop approaches in these areas that is proportionate, targeted and focussed on protecting the most vulnerable.
2.18 Last year, we voluntarily introduced a range of measures designed to help overcome some of the obstacles that vulnerable customers face, including annual package reviews that go beyond the requirements of Ofcom’s end of contract notification rules. We want to continue to find ways to better support vulnerable customers, while ensuring that regulation complements faster broadband rollout across the UK.
2.19 While we applaud Ofcom’s intention to inject more margin at the network layer to encourage build, for vertically-integrated players like ourselves, it’s counter-productive if it takes this margin away through further consumer regulation at the retail layer. We have therefore urged the Government to meaningfully assess all future consumer legislation for telecoms customers to understand fully whether it will negatively impact on investment in gigabit broadband deployment.
Recommendation: Government to ensure that future consumer telecoms regulation remains proportionate and targeted at the most vulnerable, to avoid impacting adversely on capital funds and return on investment
3. What needs to happen to ensure the Government’s ‘outside in’ approach successfully addresses the digital divide while also delivering value for money?
3.1 We are not opposed to the use of state subsidy in areas where there is proven market failure. However, we believe that the Government must maximise the opportunity afforded by demand-side interventions to unlock further commercial deployment before moving to subsidise network deployment. In short, the Government should help to stretch commercial deployment as far as possible. This will deliver maximum value for money and ensure that subsidy is targeted at the areas that really need it. We therefore welcome the confirmation that a portion of the £5 billion of public funding released by the Government will include funding for voucher schemes, Local Full Fibre Network (LFFN) fund-type hub initiatives and similar measures. Voucher schemes, for example, would be an effective way to encourage commercial build in harder to reach areas and could be implemented more quickly than a time-consuming tender model. We are keen to engage with the Government to explore how existing demand-side measures can be enhanced and maximised.
3.2 Where subsidised deployment is required, the key to the success of the outside in approach is ensuring that the most difficult to serve areas are addressed first and areas that are within the scope of commercial deployment are not overbuilt, as this will undermine the Government’s priority for the roll out of gigabit networks at scale nationwide. A genuine outside in approach should provide some natural protection against overbuild as, by definition, the ‘outside’ areas are the least likely to be in proximity to commercially viable areas.
3.3 We agree with the Government’s assessment that the above mentioned measures will be required in the final 20% of the country. This has been reinforced further by the fact that improvements to Openreach’s duct and pole product will mean that 80% of the country is likely to be commercially viable.
4.1 In the short-term, Ofcom’s support in retiring the UK’s copper wire telephone network and allowing Openreach and other providers to fully transition to full fibre will be the main driver for consumer uptake of gigabit capable broadband.
4.2 In the longer-term, the move towards a digital-led society will underline the need for ultra-high capacity, reliable, resilient and low latency gigabit capable networks. The current Covid-19 pandemic has demonstrated the importance of broadband to allow people to work from home and keep their families informed and entertained. This demand will only continue to increase as we move towards more people working from home and using more connected devices.
4.3 Our public services will also see an increasing need for gigabit connectivity. Research conducted for our parent company shows that gigabit broadband will enable a more widespread use of digital health services, by enabling applications such as diagnostics-quality video streaming for home consultations, and enable virtual education opportunities via VR and AR learning. Again, Covid-19 has highlighted the need for the Government to understand these opportunities and maximise their potential through gigabit broadband rollout.
4.4 Finally, businesses are increasingly going to see a need for gigabit capable broadband as digital services become more prevalent, in particular small and emerging businesses. A recent report by the Federation of Small Businesses (FSB) shows that one third of small businesses consider their broadband speeds to be insufficient to current needs, rising to 40% when considering future needs and 52% of small businesses plan to upgrade to gigabit capable connectivity when it becomes available in their area.
Recommendation: Government should ensure that business and public sector connectivity is put on an equal footing with residential connectivity given the importance of high capacity networks in the long term.
6.1 Overall, the Government and Ofcom are working together effectively to support the effective rollout of gigabit capable broadband. We’ve been working closely with DCMS and speak regularly to Ofcom about our gigabit rollout. In addition, the Covid-19 pandemic has shown that the industry, the Government and the regulator can all work together quickly and effectively when needed. We would like to see this continued as we move past the initial response phase to recovery.
6.2 However, there are several departments across the Government that have telecoms directly in their Ministers’ portfolios, e.g. DCMS and HM Treasury, and some that have responsibilities that directly affect deployment, e.g. the Department for Transport. It is important that these departments work in a joined-up and co-ordinated way to support rollout.
6.3 There is also disparity in the approaches taken by central and local Government which could potentially cause significant delay to gigabit broadband rollout. This has been highlighted by the Covid-19 crisis, as outlined in the first section of this submission.
6.4 For example, during the BDUK Superfast scheme, there was a high level of inconsistency across LAs with many taking an inflexible approach to assessing areas that were potentially commercially viable and determining ‘white areas’ (as defined under State Aid rules). This was particularly problematic for Virgin Media, given that our build plans tend only to cover a forward looking period of 12 months, as a result of the exposure to uncontrollable external factors to which network build is subject. Conversely, other LAs took a more pragmatic approach. To ensure consistency, the Government should issue clear guidance to LAs on how they can work consistently with network builders to ensure the Government meets its 2025 gigabit target.
Recommendation: Government should issue clear guidance to LAs on how they can work consistently with network builders to ensure the Government meets its 2025 gigabit target.
Appendix: Impact of Covid-19 on Virgin Media
At the start of lockdown, upstream traffic increased by more than 150% during daytime hours. This was largely caused by people working from home and sending files and data.
Upstream traffic growth has now stabilised and, at the time of writing, is showing signs of slight decline. However, daytime upstream traffic remains at more than double pre-emergency levels. Average peak traffic levels are around 50% higher than pre-lockdown levels, due to increased use of video calling and online socialising, with daily peak now starting at 16:00.
Downstream traffic initially more than doubled during daytime hours when compared to pre-crisis levels, but daytime traffic was still significantly below levels we experience in the usual evening peak.
As the weeks progressed, downstream traffic started to stabilise, with daytime traffic flows remaining at 60% up on average pre-emergency levels and more than double during the morning hours. Average peak traffic has settled at between 10-15% higher than it would usually be, but it is still well below recent pre-emergency spike events, such as major games releases. Despite the unique circumstances, we saw some familiar data usage patterns from the beginning. Upstream traffic dipped slightly at lunchtime as remote workers stopped for lunch and again at 17:30 when people logged off for the day.
We have also seen evidence of people staying at home with network demand up at the weekend.
Fixed line and mobile telephone
The volume of landline calls increased by 46% on average in March 2020 compared to pre-Covid-19 levels. At our highest peak, call volumes were up by 78% on pre-pandemic levels, with the number of calls on weekends up by 101% and on weekdays by 71%.
Meanwhile, average call length in March was up by 40% on pre-lockdown levels. During the peak two weeks, call times lasted 75% longer on weekends and 60% on weekdays. Both the volume and length of calls has now stabilised since the peak levels in March, but has remained above pre-lockdown levels.
Meanwhile, mobile data use has declined slightly as people spend more time at home and connect their phones to Wi-Fi.
Our network has been resilient since lockdown measures were introduced. However, we did have one national network issue on the evening of Monday 27 April 2020. Customers experienced intermittent broadband issue caused by a technical fault that occurred outside of our network. The issue was fixed in the early hours of Tuesday morning at 00:15 (28 April 2020) and normal connectivity was fully restored.
The disruption affected our customers nationwide, including business, residential and mobile customers. Emergency call capability (999 and 112) was not impacted by any of the connectivity outages. Customers experienced a loss of connectivity for approximately five minutes on several occasions (once an hour on average). There was not a constant loss of service and therefore no one was permanently without connectivity that evening.
We provided further details on the cause of the disruption in a letter to DCMS Committee Chair Julian Knight MP on 7 May 2020.
Supply chain impacts
An area where the Government and Devolved agencies’ guidance fell short was in considering the impact on supply chain and ensuring those sectors that provide supplies, services, labour and expertise to the telecoms industry were covered within any exemptions. In some cases, this had an impact on our ability to continue network build operations, as well as installs and maintenance works.
Many of our construction partners were unsure if they would be allowed to keep working due to their ability to comply with the two metre rule and the lack of clarity over whether they were classified as key workers – we mitigated this through our own advice notes, but some partners understandably erred on the side of caution and furloughed their staff.
This issue was also seen within the electricity sector, namely the Distribution Network Operators (DNOs), on whom we rely for power to our network. Whilst DNO employees were classed as key workers, their capacity to meet our requests for power was significantly hampered in some areas which in turn affected our ability to maintain our network operations and rollout. Without access to power, our network cannot be lit and therefore it delays the release of premises to serviceable status.
Impact on Virgin Media Business
To date we have only had a small number of customers approach us to request service downgrades. Most of the requests that we have received concern short-term cash flow support and increases in payment terms for a limited amount of time. For the majority of these customers, this has entailed the extension of payment terms for up to 90 days. We have negotiated further extensions with some larger customers on a case-by-case basis.
These requests came predominantly from retail, hospitality and technology sector customers. While SMEs are more vulnerable than larger organisations, the sector in which the customer operates appears to have had the more significant impact on requests for extended payment terms.
We have received approximately 100 requests for a short-term (<6 months) service upgrades, such as bandwidth upgrades. This is likely to have been caused by business customers upgrading their services to support home working by their employees.
It is still too early to understand the potential default rate of business customers, but no customers have yet requested a full suspension of services. We are supporting our business customers who approach us as a result of experiencing financial difficulty or are in need of extra support on a case-by-case basis. This allows us to tailor our support to best address their needs and circumstances. Some of these measures include giving customers the option to put in place a payment plan, the option to defer payments to a later date and over a longer period of time, downgrade elements of packages, and temporarily suspending late payment or interest charges.
A further impact was site accessibility, which has led to unavoidable delays on some infrastructure projects. We are actively working with the affected customers to recover and re-plan based on their requirements.
Impact on Consumer Division
Since March, Virgin Media has introduced a range of measure aimed at supporting our customers at this time. This has included unlimited data for broadband customers and 10GB of extra mobile data, and unlimited texts and voice minutes, for mobile customers. We have worked directly with Government and industry to develop bespoke support packages for vulnerable customers, NHS workers, and vulnerable families with home schooling support needs. We have additionally whitelisted various websites that customers may need to urgently access during this challenging time.
Virgin Media customers have largely not altered their packages in response to Covid-19. In the early stages, we saw a short-term spike in customers seeking to downgrade their TV package. As our sports offering is bundled into our top tier TV packages, we believe this was driven by the lack of live sports. After the initial period, this spike reduced which may be due to Virgin Media giving customers the option to pause their payments for Sky Sports and BT Sports subscriptions.
Openreach’s decision to issue a status of Matters Beyond Our Reasonable Control (MBORC) from 25 March 2020 meant it would effectively cease to install new customers, as well as potentially halting the connection of customers who had begun the installations process until 1 June 2020. Subsequently, Virgin Media saw an increase in customers cancelling their disconnection requests and a decrease in customers choosing to disconnect.
Amongst other support measures, Virgin Media ensured customers were not disconnected during the pandemic as a result of non-payment and customers were not referred to debt collection agencies.
 Arthur D. Little prepared for Liberty Global, Unlocked Gigaworld Innovation: GigaApps in a GigaWorld, 2017, pg 30, https://www.libertyglobal.com/pdf/publications/ADL-Report-Unlocking-GigaWorld-Innovation.pdf
 Oxera prepared for Liberty Global, Gigabit broadband: what does it mean for consumers and society?, 2019, pg 29, https://www.libertyglobal.com/what-gigabit-broadband-means-for-you/
 Oxera prepared for Liberty Global, Gigabit broadband: what does it mean for consumers and society?, 2019, pg 35, https://www.libertyglobal.com/what-gigabit-broadband-means-for-you/
 FSB, Lost connection, 2019, https://www.fsb.org.uk/resource-report/lost-connection-how-poor-broadband-and-mobile-connectivity-hinders-small-firms.html