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Written evidence submitted by Truespeed Communications Ltd

 

Parliamentary Select Committee on Digital, Culture, Media and Sport

Inquiry on gigabit fibre and 5G

19th June 2020

 

  1. Summary

Truespeed delivers a full fibre multi-gigabit infrastructure and provides services to businesses, homes and schools in the South West and is backed by Aviva Investors.

The independent sector is an essential contributor to nation-wide gigabit deployment, with funds now committed comparable with that of BT Openreach.

The Covid virus has thrown into relief the importance of good reliable high capacity residential connectivity. It is unlikely that work patterns will return to wholly office-based business which reinforces the importance of national gigabit connectivity. Whilst the Covid virus has delayed some fibre deployment, it will have the longer-term effect of increasing demand and reducing the cost of finance[1], and thereby making fibre infrastructure a more attractive asset class to institutional investors.

As it stands, we believe the original target of 2025 for national full fibre coverage will take significantly longer if the current rate of around 3 million homes passes a year is not increased.

We believe that regulatory interventions that could help to support faster delivery are as follows:-

i)        Prevent Ofcom proposal to reduce copper prices and incentives to BT to overbuild existing full fibre multi-gigabit operators like us in areas designated by OFCOM as only supporting one infrastructure provider. Ofcom’s proposals for what it labels “Area 3” are at odds with experiences in Europe where raising copper prices[2] accelerate the move to fibre. Overbuilding wastes investment and time by unnecessarily duplicating the effect of which is to divert funds from the more demanding rural areas.

ii)      Do not allow BT to be subsidised with government funding to reach areas where no competition exists, only for BT to recycle that money in overbuilding other areas that are equally difficult and expensive to reach where competition does exist.

iii)     Reform business rates which are highly favourable to BT. Business rates on other operators has the unfortunate effect of taking government money from DCMS to subsidise roll-out, and passing that money straight back to Government in business rates which is at the least inefficient. The current rates relief either needs to be extended beyond 2022 until roll-out is complete, say 2030, or preferably reformed completely by taking fibre out of rating entirely. This could be made fiscally neutral by returning buildings such as BT local exchanges into the individual local rating list, where they originally resided prior to the privatisation of BT.

iv)     Reform wayleaves by granting “piggy back” rights to users of BT duct and poles and other infrastructure owned by other utility infrastructure providers so avoiding negotiating of new wayleaves when using the infrastructure on or over private land. For other areas, a standardised statutory wayleave agreement would accelerate roll-out. In some instances, with belligerent landlords, it can take up to a year to negotiate a simple wayleave. A statutory instrument with say 3 cases of wayleave would help to avoid unnecessary delays.

v)       Granting of 5 year exclusive licences in areas where there is currently no full fibre provider could increase institutional funding and reduce the need for government subsidies. This form of “pioneer’s preference” was used in the US to stimulate roll-out of mobile in the early years in rural areas.

vi)     Some consideration should be given to completely separating BT’s passive infrastructure into a new and independent non-BT owned company, to ensure equal treatment of downstream users. At present, BT Openreach does not “consume” its own so-called PIA regulated products, which results in preferences to BT and which is discriminatory. This can lead to unnecessary cost and delay of roll-out by the independent sector.

vii)   “Tied” content to copper broadband provision should be prohibited. There is no reason why all content cannot be provided over an independent gigabit fibre network. Content owners who also provide copper broadband use “tied” content contracts to prevent consumers moving to new fibre connections with other providers where they do not supply full fibre broadband. This is anti-competitive and dampens demand in fibre areas, slowing full fibre take-up. We believe the supply of content should be entirely independent of the method of delivery.

 

  1. Introduction

We welcome the opportunity to submit evidence for this important inquiry.

Truespeed Communications Ltd (“Truespeed”) provides advanced full fibre multi gigabit active ethernet connectivity to businesses, homes and schools in Somerset and the surrounding areas. It has financial backing from Aviva Investors who have committed some £75 million to the roll-out of fibre[3]. Truespeed will have passed 40k properties by year end and are on course to deliver 500k by 2025.

Our basic consumer packages use full fibre and start at 200Mbps on a gigabit bearer, customers are able to take 10,000Mbps symmetrical service if they wish. Our networks are also “point to point” meaning that there is no sharing of the local connections that are dedicated to each individual customer. This is superior to other fibre solutions, such as those supplied by BT which share fibre with up to 64 other users.

We build our infrastructure with a view to it being in service for at least the next 25 years but see no reason why it should not last for many years longer than that.

We make use of existing infrastructure where it is economic to do so, including the local electricity distribution network, and in particular the ducts and poles of BT, who are now required by regulation to allow other operators to use their passive infrastructure.

Truespeed is a member of Independent Networks Cooperative Association (INCA)[4] which is also making a submission to this enquiry to which we have also contributed.

 

  1. 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?

We do not believe that is achievable, for the reasons outlined below. Our best estimate is that roll-out will take a minimum of a further 8 years due largely to the speed at which it is possible to implement and build fibre networks. We do not believe that funding is fundamentally a limiting factor.

3.1     Regulatory barriers

We believe Ofcom is fundamentally hostile to the independent sector from the recent consultation on the Wholesale Fixed Telecommunications Market Review[5], which proports to “promote investment and competition” in fibre roll-out.

In that review, Ofcom divides the UK up by postcode sector (some 3,000 addresses) into three areas in which it applies different regulatory remedies.

i)        Area 1 is defined as that area in which there are a number of infrastructure providers and where regulation (on BT infrastructure) will therefore be progressively reduced. There is currently no area of the UK which meets this requirement.

ii)       Area 2 is where there are two or more infrastructure providers. It applies to most urban areas.

iii)     Area 3 is the area(s) in which only one infrastructure provider can be economically supported. This would apply in say, mid and west Wales and a large part of Scotland but also those lower densities which exist in every county.

Whilst the methodology of determining Area 3 is unclear, Truespeed already operates in settlements in which BT has yet to invest in Fibre to the Cabinet. That suggests that it considers those areas of reduced economic interest, and thus probably therefore Area 3.

From defining Area 3, Ofcom then leaps to the conclusion that if only one infrastructure provider is sustainable, it has to be by default Openreach, despite the fact that a substantial number of independent operators and community fibre providers operate in that very part of the market outside large conurbations. That is particularly difficult to accept, as the so-called PIA remedy operators such as Truespeed are using the same basic poles and ducts as BT. We have seen no evidence that BT Openreach’s costs on using its own ducts and poles are materially different from our own. If there was a difference, it would only be from defects in the construction of the remedy itself by Ofcom, aimed at reducing BT’s dominance of downstream markets. It should therefore be corrected if that was the case. Ofcom can’t have it both ways. If the playing field is level, there is no need for preferring BT Openreach.

If the playing field is not level, it needs correcting.

It attempts to justify its conclusion by dismissing operators such as Truespeed as “broadband only” by erroneously presuming those independent operators can’t provide voice or content.

Truespeed and other operators provide full voice services referred to as SIP or its equivalent. All high capacity fibre operators provide access to content in what is referred to as “over the top” suppliers, such as Netflix and others. There is now little important content which cannot be provided on an independent gigabit fibre connection. There is no need to “own” the content for a customer to access it.

 

3.2     Financial

As of April of this year, various estimates placed fibre to the home or premises (FTTH or FTTP) penetration in the UK at between 13% and 15%[6].  This is well behind other European countries with Spain, for example at some 56.8 % according to the FTTH Council Europe. A contributing factor to this high penetration was the raising of copper service prices which improves the fibre case, and increases take-up.

It is worth considering what total investment is required, and how much investment is currently available. On the basis of some 28 million residential properties in the UK, and an aggregate cost of say, £700 per home, the total sum required is somewhere around £19 bn. There is not universal agreement on this figure, for several reasons. The actual cost per household depends upon the extent of additional infrastructure to connect settlements – so called “backhaul” and the number doesn’t fully take into account the additional expense of the more remote properties in say, the Western Isles of Scotland.

It should be noted that whilst BT has been mentioning in reports costs of £300 - £400 per home, that is net after the substantial subsidies they have been receiving. We cannot find a publicised gross figure of BT’s performance, but can’t see any reason why BT should be more efficient when compared to smaller operators, who mostly use the same or similar contractors, and the same BT poles and ducts.

At present, BT claims around 2.4 million homes passed, and the independent sector 1.2 million, but we estimate the rate of roll-out by BT and the independent sector now to be very similar, at around 3 million per annum in total. At this rate the target for complete coverage will take around a further 8 years, to 2028. This may be optimistic as the harder to reach areas may consume more time in planning and implementation.

A recent study undertaken for the trade association INCA identified some £6.6 billion of investment committed to fibre[7]. That represents some 35% of the requirement committed already. That report also projects that those operator’s plans could reach some 15 million premises, but with a degree of double counting.

We know that there is further institutional interest in the sector, and from our own discussions, believe we can raise substantially more than we already have committed.

This could be accelerated by the granting of exclusive licences for say 5 years in those area where there are no existing fibre investments. This needs further consideration.

 

  1. 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?

We refer to our list of recommendations above, each of which either address an obstacle or improve economics.

We have little exposure or expertise in 5G so will not comment further on those. However, the deployment of 5G is largely dependent on the availability of fibre infrastructure.

 

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

We fully support the aims of “outside-in” and have demonstrated the feasibility of rolling out fibre in areas which are considered to be on the margins of economic deployment.

We believe that the criteria applied to determine those areas where grants are needed to be clearly defined.

In addition, for the reasons given above, we believe that Ofcom’s proposals for so called Area 3 to provide decreased copper pricing and regulatory incentives to BT to overbuild existing operators needs to be stopped.

In particular, given that BT Openreach is claiming it will build everywhere, we see no reason for it to be given grants in difficult areas for those monies to in effect be recycled to overbuilding in areas already served. Of course, we can see the commercial reason for its position, but the effect will be to lengthen the time to reach full fibre connectivity by wasteful duplication.

  1. 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?

One of the main challenges we have had to overcome is re-educating customers on the fundamental differences between a high-quality fibre network, and the far poorer performance from copper-based services.

The allowed use of “superfast fibre” by the ASA was unfortunate and unhelpful, in that it implied to the customer that what were copper based services were of a similar quality to fibre, and the only metric that mattered was headline speed.

Our network provides far higher levels of quality in terms of availability, jitter, latency, packet loss and consistency than is possible over a legacy copper network that may be over 80 years old.

 

  1. 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?

The Covid virus has highlighted the importance of proper and universal connectivity. There can be little doubt about the potential economic damage of poor connectivity and the restrictions it places on being able to function. The importance to distance learning should not be under-estimated. We expect one of the effects of the virus epidemic will be an increase in the availability of distance learning material. Truespeed already connects schools in its coverage areas for free which facilitates both access to on-line material, and the ability for teachers to conduct remote lessons in a safe environment if required.

  1. 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?

BDUK works closely with industry, and government on the whole understands the issues faced. We have some concern regarding the approach that Ofcom is potentially taking regarding their defined intervention ‘area 3’. We feel that their approach to the independent sector falls short of being fair, and does not promote competition, and we would like this to be understood.

We know of some other operators who have had difficulties with planning and licensing for physical construction, as referred to in the INCA submission, but we have very good working relationships with the local authorities we are delivering to and have found them to be very supportive.

 

 


[1] 30-year Treasuries now have a yield of 0.61% which is unprecedently low. Average yields for the last 200 years, are, according to the Bank Of England, around 5%.

[2] France, Germany and Spain all raised copper prices which has contributed to Spain’s penetration of over 50%

[3] https://www.avivainvestors.com/en-gb/about/company-news/2017/07/truespeed-secures-75-million-from-aviva-investors/

[4] https://www.inca.coop/

[5] https://www.ofcom.org.uk/consultations-and-statements/category-1/2021-26-wholesale-fixed-telecoms-market-review

[6] https://www.thinkbroadband.com/news/8724-ftth-council-suggests-uk-was-at-15-full-fibre-coverage-back-in-september-2019

[7] https://www.inca.coop/news/altnet-full-fibre-growth