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Written evidence submitted by Openreach

 

How realistic is the Government’s ambition of nationwide gigabit-capable broadband by 2025, and what measures will be needed to achieve it?

  1. The UK Government’s ambition of supporting nationwide gigabit capable networks by 2025 is immensely challenging and will require deployment at a faster pace than almost any comparable country. 

 

  1. Openreach will be fundamental to upgrading the UK’s digital infrastructure. We recently announced new ambitions to reach 4.5 million premises by March 2021, and then aim to pass 20 million premises by the mid to late 2020s. Importantly, we are not just a city fibre builder, and are building across the whole of the UK, in all devolved nations, and in many rural areas as well as in towns and cities. 

 

  1. Meeting the 2025 goal will require significant amounts of private sector investment (with comparatively limited public subsidy) - and will need operators to deploy at pace and scale.  Both these elements require Government support - to strengthen the investment case, and to enable the sector to accelerate deployment. The National Infrastructure Commission estimated that building and operating a full fibre network would require £33 billion in investment, with £5 billion in public support. 

 

  1. Competition remains the best model for delivering at pace for the UK. As Openreach has accelerated the pace of deployment (passing over 30,000 homes in the weeks before the pandemic), new entrants have also emerged to build competing networks.  This is rapidly improving FTTP coverage across the UK.  Moving away from this model would hinder investment and delay reaching nationwide coverage.

 

  1. Moving the target for nationwide coverage forward (from 2033) does however place additional pressure on the business case for investment, and makes the case for removing the barriers to rapid deployment even greater.

 

  1. While some barrier busting measures have been taken forward, there has been less progress on others. For example, many operators have told the UK Government that the current business rates regime makes the investment case for full fibre harder to justify, and argued for an extension to the existing relief. 

 

  1. BT have said that funding a 20 million premise full fibre network would add an incremental £1 billion to their business rates liability over 20 years. This is roughly the equivalent cost to connect 3 million homes. Without a business rates exemption for full fibre, it is therefore significantly more challenging for operators to create a business case for investment.

 

  1. The business case for this investment assumes that various policy initiatives, including a business rates exemption, are delivered by Government.  We therefore continue to urge the Government to take the necessary steps to unlock investment and support the 2025 goal.

Impact of Covid-19

  1. The pandemic has had a significant impact on Openreach, while also highlighting the critical importance that digital infrastructure plays for the UK.  While the existing network has held up well under the twin pressures of increased home working and school closures, the case for future proofing the network is even more compelling.

 

  1. To support the UK during this crisis, we put a number of measures in place to support vulnerable consumers, and connected 17 Nightingale hospitals as they were constructed. We also took a large volume of orders to improve connectivity across the NHS estate.

 

  1. As housebuilding largely paused, and we were unable to access blocks of flats, there has been a short term impact on our build rates. We were able to mitigate this to some extent through refocussing effort on building fibre spines, and working to improve connectivity on newer housing developments which require less intensive engineering activity.

 

  1. This means that while the pandemic will have a short term impact on build rates, we are confident in our ability to meet our short term 4.5 million target – as our work on fibre spines will reduce the overall engineering effort required to pass large numbers of premises at a later date. The longer term impacts remain unknowable at present, and will depend on a range of factors, including the length of continuing restrictions and whether a second wave emerges.

 

  1. In the longer term, any negative economic impact from Covid-19 may reduce consumer’s willingness or ability to pay for upgraded services, further weakening the investment case. This again makes the case for additional and ambitious support from the Government even more urgent.

 

  1. The case for taking action is also even greater than before, as the benefits to the UK could be substantial if we’re able to rapidly deploy FTTP. It has been estimated that productivity benefits could be £59 billion in increased GVA, and 500,000 people could be bought back into the workforce.[1] 

 

  1. The research also suggested that 400,000 additional people could choose to work from home, opening up employment opportunities outside of cities and stimulating growth across the country. The pandemic has further demonstrated the extent to which digital connectivity underpins so many different facets of modern society. Full fibre offers the most reliable and future proof technology to deliver these benefits and get the UK economy back on track.

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?

  1. Operators face a number of challenges when deploying networks. While we have seen some progress from DCMS in addressing these issues, especially in recent months, it is clear that there is more which could be done to accelerate deployment. Finding Parliamentary time to address some of these issues is also still required.

 

  1. The challenges operators face can be grouped as:

Barriers to rapid, cost-effective deployment

 

  1. One of the major barriers we have found when attempting to deploy full fibre networks is negotiating access agreements (wayleaves) to enter blocks of flats or other multi-dwelling units (MDUs). Around 15 percent of households in the UK are MDUs, so reducing the barriers to deployment for these buildings is a key component of upgrading the UK’s digital infrastructure.

 

  1. Openreach is acutely conscious of the importance of protecting property rights, and our preference will always be to negotiate a long term access arrangement with a landlord. However, there are several barriers which stop operators being able to do this, including:

a)      Unresponsive or unidentifiable landlords

b)     Landlords who are contactable, but will not meaningfully negotiate with operators

c)      Landlords who place unreasonable costs on operators

 

  1. We welcome the introduction of the Telecommunications Infrastructure (Leasehold Property) Bill. The Bill will provide a route for operators to gain access to MDUs in cases where we are unable to identify a landlord or where they are unresponsive. There are a number of measures which could have strengthened this Bill which were debated in the Lords – without further amendment, the Bill is unlikely to fully support the 2025 ambition. 

 

  1. It is also important to be clear that the Bill is narrowly targeted and will not help address other issues operators face when attempting to access MDUs, such as those outlined above.

 

  1. Addressing these wider issues will be critical when aiming for nationwide coverage – if operators are unable to access MDUs without recourse to an expensive and lengthy tribunal process, it will be impossible to meet the 2025 ambition. We recently completed our deployment in Salisbury, and found around 8% of premises could not be connected owing to access issues – and the legislation currently being debated will likely be insufficient for these premises to be covered. 

 

  1. DCMS will therefore need to take further steps to build on the existing proposals in order to support accelerated deployment.

 

 

  1. It is vital that all new sites are connected with full fibre. Openreach has taken action to incentivise developers to do this – including significantly reducing the contributions developers make for us to provide full fibre. We provide full fibre for free for all sites of 20 premises or more.

 

  1. Our work to increase full fibre deployment in new build sites has driven significant improvements. Almost 100% of larger sites (30 or more premises) are now being contracted with full fibre, and the small volume of cases where full fibre is not delivered for larger sites is where developers do not contact us in time.

 

  1. It is primarily smaller sites where copper is still being used. DCMS have now set out their plans to address this.  We’re working with DCMS to make sure that these proposals are as effective as possible, and hope the measures can come into effect quickly.

 

  1. We continue to be concerned about exclusivity arrangements in new housing developments – where operators are ‘locked out’ of being able to compete to provide an alternative network. This leads to poor outcomes for consumers, who can move into a new build site and find that they have very limited choice in retail provision. We continue to urge DCMS and Ofcom to address this issue, and believe the review on the Access to Infrastructure Regulations offers an important opportunity to tackle this and speed up deployment. 

 

 

  1. While we will always try to avoid streetworks, they are sometimes unavoidable. Openreach carries out around 250,000 streetworks activities each year, of which around a quarter require some form of traffic management.

 

  1. As we accelerate the scale and scope of deployment, the bureaucracy and delays which streetworks management involves increases, and has a negative operational impact. We have set out a number of proposals to DCMS, and continue to believe that action is required to help operators accelerate deployment.  We’ll also need to work with devolved administrations to resolve issues.

 

Delivering for harder to reach areas

 

  1. There are a number of premises which are not commercially viable for any operator to reach, meaning public subsidy is required. The £5 billion the Government has committed to supporting deployment in the hardest to reach areas is vital.

 

  1. It is important that this funding is attractive for operators of all size – as a project of this size and complexity cannot be delivered by a single operator.

 

  1. DCMS and BDUK are continuing to identify the most effective manner in which this funding could be delivered.  We’ve been encouraged by the positive and constructive dialogue which DCMS and BDUK have taken in working with the sector, and think the emerging approach they are considering should help to enable deployment by different operators.

 

  1. We set out our views on how the £5 billion could most effectively be procured later in our response.

 

Supporting private sector investment

  1. The private sector will be responsible for funding the vast majority of the network. As a result, it is imperative that operators are able to make credible business cases to attract this funding

 

 

  1. The business rates system imposes significantly higher rates on new full fibre infrastructure compared to the existing network. Investing in full fibre therefore increases the rateable value of these networks, and acts as a significant disincentive to investment.  Many operators and trade bodies have asked Government to extend the existing relief, or to exempt full fibre from business rates for a period. 

 

  1. We would continue to pay business rates on the existing network, but doing this would help support investment in critical infrastructure.  The benefits to the UK economy of accelerating deployment are obvious, meaning this support would drive economic growth and productivity gains across the UK, with clear benefits to the Government. 

 

  1. This issue affects the entire sector, and is holding back investment from operators of all size.  The existing relief is due to end in 2022, but the Government’s failure to extend the relief, or exempt new full fibre from attracting rates, is already having an impact. Operators need to continue to accelerate deployment now, if the 2025 goal is to be met, so deferring decisions to later Budgets will simply serve to make the goal more difficult to meet.  The Scottish Government has taken action to extend the relief – replicating this across the whole of the UK would offer a real boost to investment.

 

 

  1. Ofcom have published their proposals in the Wholesale Fixed Telecoms Market Review (WFTMR) to support future investment in full fibre. We have now responded to the Ofcom consultation, which provides positive support to incentivise investment in full fibre.

Addressing other Government priorities

  1. While the 2025 ambition is clearly a Government priority, there are other competing issues which Government is considering, or being asked to address, which would make it more difficult to meet this goal.

High risk vendors

  1. While much of the political debate has focussed on the use of high risk vendors (HRVs) in supporting the deployment of 5G networks, it is important to note that this debate also affects fixed networks as well – and decisions taken about the future use of HRVs will have consequences for the future of fixed line infrastructure.

 

  1. The security and resilience of our network has always been our top priority.  We have robust controls, testing, and design principles in place for all equipment and software used within our networks, to ensure they meet the standards we and our customers expect. 

 

  1. We work closely with the UK’s National Cyber Security Centre (NCSC) and the Huawei Cyber Security Evaluation Centre (HCSEC) to ensure the security of our networks is maintained. In collaboration with the wider UK telecommunications industry, we align with the NCSC and UK government on security assessments, controls, and architectural principles.

 

  1. As a result of this security assurance framework, and in line with Government guidance, we have used Huawei as a vendor for both the existing superfast network and in our current and planned full fibre deployment.

 

  1. Our security and network architecture principles result in Openreach adopting a proportionate usage of Huawei equipment, and only using them in our access network. We do not use Huawei equipment in the ‘core’ – i.e. the intelligence or control planes – of our network, or for higher level network management functions.  This distinction will not change as we upgrade from the existing superfast network to a full fibre – ultrafast - one.

 

  1. We have also taken further steps to improve the security and resilience of the full fibre network.  We’ve diversified our supply chain by introducing two new vendors (Nokia and Adtran), which will allow us to ensure that we can meet the new requirement that HRVs make up only 35% of the network. 

 

  1. The incoming Telecoms Security Requirements (TSRs) also represent a step change in risk management, introducing 134 new principles, 250 different requirements and 227 new tests which operators will need to comply with.

 

  1. The steps we have taken will allow us to continue to build full fibre at scale, while increasing the level of security and network resilience.  Introducing the 35% cap, and introducing TSRs will not be simple for operators to comply with, but do represent a proportionate balance between improving network security and generating the benefits that a full fibre network could unlock.

Impact of a full ban

  1. If operators, including Openreach, were required to remove all Huawei equipment from full fibre networks in a short time frame, meeting the Government’s manifesto commitment to deliver nationwide gigabit capable networks by 2025 will not be possible. 

 

  1. Much of the existing full fibre network operated by Openreach currently uses Huawei technology, although our supply chain diversification means new network is increasingly being built with non-Huawei vendors.  This will allow us to meet the 35% cap – moving to a 0% cap would require us to ‘rip and replace’ existing network.

 

  1. Huawei currently provide equipment within local exchanges and in the home – effectively the active equipment at either end of a fibre line. The in-home and exchange based equipment is not inter-operable between different vendors, meaning if we were required to remove Huawei equipment from the exchange, we would also have to re-provision every home in that area which we have provided full fibre to. This would be immensely operationally challenging.  There would be service disruption for customers during this period as a result.

 

  1. We estimate rip and replace would take years rather than months, and would in effect reset all the progress we have made over the past few years to install ultrafast connectivity. We would need to switch our engineering workforce to removing equipment, and rebuilding the existing network, rather than building new network to the millions of homes we currently have planned.  The significant costs involved in carrying out this work would also reduce available cash to support further network deployment.

 

  1. Having access to a number of different equipment providers also generates further positive externalities, including increased innovation. For example, a challenge we have found when deploying full fibre networks in rural areas is that there are distance limitations which can constrain the range of the full fibre network, making it harder to deploy to rural communities which are far from the serving exchanges. We have overcome this challenge by developing the capability of remote nodes (otherwise known as subtended headends) which have allowed us to bring full fibre to customers much further from existing exchanges. This technology was first developed by Huawei.  

 

  1. We recently announced plans to build full fibre networks in over 220 rural communities, and if we’re able to continue to grow the network into more rural areas, being able to take advantage of these type of innovations will be vital.

 

  1. We will of course comply with any Government regulations, but we want to stress that taking a new approach beyond the 35% cap will impact our existing and future network deployment.  This will also mean the UK will miss out on some of the benefits which a full fibre network would provide.

Access to labour and skills

  1. Openreach has made significant investments in building a network of training centres. We are one of the largest private sector recruiter of apprentices, and are one of the largest employers of veterans.  This focus on skills and training means we are fairly well positioned to continue to scale up to meet our deployment targets. 

 

  1. At the same time, it is important that the future immigration system reflects other Government priorities, such as the ambition to support the delivery of nationwide gigabit capable digital infrastructure.

 

  1. With competition from other infrastructure projects (including the major roads upgrade, Heathrow, HS2 and Hinckley Point), it is important that network operators are able to access labour easily in order to support our delivery.  This will be especially important for lower skilled roles like road operatives and other civil/construction engineering roles.

 

  1. This could also be more important for our sub-contractors, who are more exposed to challenges if they are not able to use European workers.

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

  1. Openreach has unparalleled experience in building full fibre in rural communities – both through BDUK and as a result of the 227 rural locations we are building full fibre in. Our use of different voucher programmes, and our innovative Community Fibre Partnership programme, have also given us experience in deploying in rural areas. No other operator is building in rural areas at the same scale and pace.  This gives us unique insight into how best to design a funding system which delivers value for money and efficiency of build. 

 

  1. The scale of this challenge does mean that other operators will need to build in rural areas as well.  We have proposed the following principles, which we believe will enable operators of all size to bid for funds, and deploy networks in the hardest to reach areas:

 

1.     Funding should only be focused on areas of commercial failure.  Public money should only subiside build where no operator would otherwise build – ensuring value for money.

2.     Funding should be used to ‘top up’ and extend industry build plans.  Openreach (and others) are building in harder to reach areas, or in locations where there are high numbers of difficult premises near by. It will be cheaper and quicker for teams to then extend out from where they are already building, rather than going back at a later date

3.     Creation of not spots must be limited to only where delivery is not commercially/operationally feasible. It will again be quicker and more cost effective to limit not spots as far as possible – reducing the need to go back and infill at a later point.

4.     Contracts must be simple and easy to administer.  This will make the process smoother, and will be more commercially attractive for operators to bid for.

5.     Lots must be sensibly sized. Economies of scale are important in lowering overall costs, so lots must be sized with regards to this, as well as enabling smaller operators to bid for smaller lots where possible.

6.     Transparency of build plans will help promote build in Area 3, and allow funding to follow industry build plans.  Openreach already gives advance sight of the locations we intend to build in.  This approach was agreed with DCMS and enables other operators to avoid overbuild as they choose locations to build in.  Extending this approach across the industry will help DCMS identify areas where no operators intend to deploy, and will offer opportunities for other providers to identify areas which may be commercially attractive for them to build in – reducing the scale of the areas to be addressed by public funding.

 

Funding Approach

  1. We’ve looked at how a simplified mechanism may be feasible and believe two separate approaches are required:

 

1)     Top Up: Funding targeted to top up industry plans allowing investment in planned areas to reach further. This should be used to generate rapid deployment in the 80% to 90% range of the UK.

2)     Final 10%: For the harder to reach areas mechanisms more akin to today’s arrangements should be considered – but again simplified and not at the expense of the pace generated by top ups.

 

  1. In the hardest to reach areas of the UK alternative technologies must also be considered to take coverage to 100%.

 

 

In the Interim

  1. We’ve demonstrated that the ‘top up’ model works through the Rural Gigabit Connectivity voucher approach.  We will continue to work with the DCMS team on growing this whilst we work together on the framework currently being developed by DCMS.  We believe the approach we’re proposing will also help with gaining state aid approval, which is a critical prerequisite for delivering this programme.

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?

  1. Openreach is currently building ahead of consumer demand. This is clear from looking at take up rates for superfast services, where too many consumers remain on lower speeds than they could get – with Ofcom estimating recently that only 57% of those who could take a superfast service currently do so.[2] They estimated that take up of full fibre services was around 30%.

 

  1. We have, in consultation with industry and Ofcom, set out a process by which we can migrate consumers onto the full fibre platform as deployment continues. This will give consumers the benefits which full fibre offers, and would allow us to retire the copper network where it is no longer needed. 

 

  1. It is important that as many consumers as possible choose to upgrade in coming years.  The sector, with support from Government, needs to further demonstrate the use cases for full fibre so that residential and business consumers can better understand what the benefits would be in taking up these services.  Pricing will also play an important role in stimulating demand, and Openreach has already taken steps to support retail providers to accelerate take up of higher speed products.

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?

  1. Openreach has constructive working relationships with local, devolved and central Governments.  Through organisations like the Broadband Stakeholder Group, ad hoc working groups and industry trade bodies, the sector has also been able to provide a clear set of priorities to central Government.

 

  1. We do need to see a cross-Government commitment to tackling these barriers.  While DCMS clearly sees accelerating full fibre deployment as a priority, it is not always clear that this is shared across other relevant Departments, despite the clear focus on this issue from the Prime Minister. It is vital that other Departments provide their support where needed to remove barriers.

 

  1. It is also important that the UK Government works effectively with local and devolved Governments, and ensures that policy delivery is coordinated and implemented as effectively as possible at all levels of Government.

 


[1] CEBR, Full Fibre Broadband, A Platform for Growth. Available at https://www.openreach.com/full-fibre-impact

[2] Ofcom, Connected Nations, December 2019. Available at https://www.ofcom.org.uk/research-and-data/multi-sector-research/infrastructure-research/connected-nations-2019