Written evidence submitted by Scottish Chamber of Commerce (DCS0097)

CALL FOR EVIDENCE: DIGITAL CONNECTIVITY IN SCOTLAND

WRITTEN RESPONSE: SCOTTISH CHAMBERS OF COMMERCE NETWORK

SCOTTISH AFFAIRS COMMITTEE

About the Scottish Chambers of Commerce Network

Scottish Chambers of Commerce (SCC) is Scotland’s largest business network. SCC brings the views of the business community together, forming a clear and powerful expression of Scottish business opinion through its network of 26 accredited Chambers of Commerce, representing 11,000 members.

Introduction

Scottish Chambers of Commerce welcomes the opportunity to respond to the Scottish Affairs Committee on the issue of digital connectivity in Scotland.              While it is clear that service providers, in concert with government, have made significant progress in improving connectivity in Scotland, the issue remains a consistent pain point in Scotland – particularly with regard to rural communities and businesses.

Uniform access to connectivity is undoubtedly one of the most critical modern challenges faced by society, and lack of connectivity has a significant impact on the areas which thus far have struggled to attain it.

From our perspective, there is clearly disproportionate impact on rural areas across the UK, but particularly within Scotland as the statistics show. As the committee is aware, mobile connectivity in particular is substantially behind the UK average, especially in rural Scotland.

From our own research and consultation with the wider network, this is contributing to a broad range of difficulties across these areas. Businesses have indicated through chamber research that it damages their ability to compete, and research from academia highlights the numerous issues that lack of acceptable connectivity causes in rural communities, damaging regional competitiveness and the economic diversity of those communities.

There’s no single solution to this issue, but it is clear that innovation is needed. Although Chambers of Commerce welcome the Scottish and UK Government efforts to improve connectivity, through R100 and the Universal Service Obligation as just some examples, many of these projects leave rural areas excluded from acceptable levels of connectivity for far too long. Furthermore, as discussed at the committee session, caveats around provision (such as £3,400 price cap per property on the USO) suggest that these projects will still experience some difficulty in bringing access to 100% of premises. R100 in effect has a similar price cap as the UK Government’s USO, with the 178,948 identified properties competing for £600M of funding (approximately £3,350 per property).

Many of our regional Chambers have also worked closely with local authorities on bids for LFFNs, and we look forward to the outcomes of these decisions and the potential here to improve productivity and economic outcomes in these areas.

Our research, and case study evidence shows a clear lack of awareness not just in terms of superfast provision, but also around alternative avenues for funding for businesses in areas with the slowest connections. Chambers of Commerce stand ready to assist governments

and providers in ensuring that businesses and well informed of the alternatives available to them.

Fundamentally, connectivity is essential to ensure equality of economic outcomes for rural areas. However, digital skills within the workforce are also essential to ensure that firms are aware of the benefits of upgrading to superfast connections.

With this in mind, it would be wise to ensure that any programmes focused on increasing uptake of superfast connectivity have partner programmes that focus on either attracting individuals with digital skills into the area, or on upskilling the local workforce in the benefits that these connections can offer.

It is clear that digital connectivity in Scotland is improving, the challenge is to ensure that all businesses receive adequate access in some form as quickly as possible, and this will likely require more innovative thinking and an openness to alternative solutions.

Context

Digital connectivity, and particularly the level of digital connectivity in Scotland, has come under increasing scrutiny over the past few months as the UK and Scottish Government’s debate the success of programmes designed to provide increased provision of access, and as businesses and individuals recognise the increasing necessity of digital services.

The increasing necessity of digital access was illustrated at the prior Scottish Affairs Committee session which was attended by the Scottish Chambers of Commerce, on Royal Bank of Scotland branch closures. Although there was a debate about the overall mix of services to replace closing bank branches, individuals and businesses will be increasingly dependent on digital connectivity to access services which may have had a physical presence in their community prior.

What is the current state of Connectivity in Scotland?

To provide some context based on our first party data, in 2017, SCC, in partnership with the British Chambers of Commerce, surveyed our membership on their perception of digital connectivity in the UK.

These findings will be summarised in detail within our evidence, but some key findings that emerged from this research include:

• Approx. 20% of businesses rate their broadband connections as unreliable.

• 37% of businesses state that their mobile business connections are either “not very

reliable” or “not at all reliable”.

• Almost universally, businesses rated both speeds and uptime as “extremely important” to their operations.

• Although most firms were not concerned about Cyber-Crime, approximately a quarter (24%) of businesses stated that concerns around cyber-crime were preventing business growth in some form.

From the Scottish component of the sample, it is clear that although many businesses are satisfied with their broadband connections, there is a sizeable minority that are dissatisfied with the reliability of their current connections.

Caithness, Sutherland and Easter Ross, the constituency which Wick is based in, suffers from broadband connectivity which is significantly below the UK average. Based on a House of Commons analysis (this analysis is used as it codes the data by constituency level) using 2017 Ofcom data, approximately 18% of connections in the constituency are unable to receive speeds of 10 Mb/s, compared to a UK average of approximately 3%. It should be noted however that this is significantly improved on the ~25% recorded in 2016.

Furthermore, 44% of connections were receiving “slower” speeds in this constituency

(meaning speeds of under 10 Mb/s), in contrast with a UK average of 24%.

When it comes to mobile connectivity, the latest 2017 Connected Nations report from Ofcom highlights the challenges that Scotland faces in this regard.

As can be observed from the mobile scorecard included in the Scotland focused Connection Nations supplementary report, Scotland has a significantly lower percentage of geographic coverage (both in terms of voice and data) covered by the four main operators,

and also a higher percentage of “not-spots” which lack suitable mobile coverage for data

and voice.

Furthermore, the urban / rural analysis above highlights that there is a significant split in how this coverage is distributed across Urban and Rural locations.              Generally, the Ofcom data suggests that rural constituencies such as Caithness, Sutherland and Easter Ross suffer from poorer levels of connectivity than their urban counterparts. It should be noted that, in percentage terms, there have been significant improvements in rural provision, however this still lags behind urban coverage substantially.

Finally, in relation to this, it should be noted that rural areas within Scotland, such as Highlands and Islands (and within this, Caithness and Sutherland), tend to have a higher proportion of older individuals and an ageing population.              This has the potential to further impact on the uptake of digital services, even when the connectivity is provided.

As part of our consultation process with regional chambers in Scotland on connectivity, tourism businesses were often mentioned as a key challenge. Trudy Morris, CEO of Caithness Chamber of Commerce cited the challenge thusly:

“With regards to specific sectors, tourism is probably the most disproportionately affected. Modern tourists expect every aspect of their journey – from dream to purchase and beyond – to be manageable digitally, and any company or organisation which is unable to maintain an active, up-to-date digital presence is likely to be disadvantaged. In addition, in order to effectively promote and manage bookings through Online Travel Agencies (one of the major sources of custom), tourism businesses require fast, reliable connectivity.”

This is illustrated succinctly by a member business in Ballantrae, Ayrshire. For reference Ballantrae is situated in the Girvan and South Carrick ward, for Ofcom’s / House of Parliament analysis purposes.

In 2016, over 35% of connections in this ward were unable to attain speeds of 10Mb/s or above. In stark contrast to the 2016 UK average of 4.9%. The ward is ranked approximately 7,500 out of 8,668 wards for average download speed, and 8,000 / 8,668 for percentage of connections faster than 30Mb/s.

When analysing 2017 Ofcom data, we can see there was some improvement, but the constituency is still well behind the UK average. The latest data suggests that 21% of connections are still unable to receive 10 Mb/s, in comparison to a UK average of 3%.

The ward also ranks 644th out of 9,131 for wards in terms of connections unable to receive 10 Mbp/s – placing businesses here in one of the weakest areas in the UK with regards to this metric.

Ayrshire Chamber of Commerce was approached by a member business in this constituency with a particularly difficult case.

Multiple businesses are run out of the premises, with the main focus being a tourism business / guest house.

The member originally approached BT / Openreach with a ring trip issue, in addition to extremely low speeds.              The ring trip (whereupon the internet connection disconnects when the phone rings, or when 1571 is used to answer the call) impacted significantly on their business – causing difficulty with bookings and payments.

As stated by the member, aside from basic business functions such as payments and bookings, “modern essentials” such as free WiFi access, a core expectation for a tourism business in the current market, simply cannot be offered with a reasonable degree of certainty.

Referencing Visit Scotland research, the member highlights that the average guest travels with an average of three WiFi enabled devices. Indeed, the member has been forced to find alternative accommodation for guests due to internet access complaints in the past, damaging their brand reputation and leading to refunds / additional costs.

Indeed, it is testament to the member’s level of service that despite these challenges,

they have been able to retain a 5 star rating on TripAdvisor.

Furthermore, the area suffers from poor mobile signal, further increasing the necessity of a reliable hard-line connection, both for guests and the business.

The 1571 / Voicemail service is similarly essentially, both for the core tourism businesses and for additional ventures served from the premises.

BT / Openreach were able to provide an initial repair to the line, which restored some stability, although actual speeds remained low. Unfortunately, this repair essentially required two lines to be run to the property, to ensure both a stable line and the availability of the 1571 service.

At last contact with the member, BT reiterated to the member that due to this line split, the member must either choose to pay for the additional line, or opt to remove the 1571 service if they wish to retain their internet service at its current level of stability. Their final communication from BT also emphasised that the situation was “at deadlock”, and that further resolution would require Ombudsman involvement.

The member has contacted several organisations, outside of BT, and has been directed towards the Better Broadband Scheme by the Scottish Government, however, they are unclear exactly how to proceed with resolving their issue.

This highlights the real challenges for edge cases in resolving issues and accessing acceptable levels of connectivity. It is worth noting that technically, the nearest exchange is enabled for fibre, but the local infrastructure prevents this area from receiving improved speeds.

It also highlights the need for improved communication from outreach teams to businesses in these challenging areas to communicate alternatives and to properly signpost businesses towards courses of action / remedies under schemes such as the Better Broadband initiative.

From Chamber level data, most of the respondents were in receipt of a fibre based product or some type of dedicated internet access product.

Our survey broadly links in to the wider connectivity / availability statistics, with approximately 20% of businesses stating that their landline connections were reliable overall.

Highlighting the disparity between mobile connectivity and landline access, 37% of businesses stated that they believed their mobile connections lacked reliability, almost double that of the landline figure.

To further emphasise this, four-fifths of firms stated that they had experienced drops in mobile coverage in their local area, either in the form of total “not-spots” or partial not- spots in which there is only coverage by a small number of providers.

It’s clear that businesses would be able to unlock significant productivity benefits from

more reliable, faster broadband connections.

A couple of points here are particularly relevant for rural businesses:

• Over a third of firms (36%) would increase their use of cloud services & cloud storage. Aside from generally acting as a more reliable, secure means of data storage in theory, cloud applications also allow for more efficient access to data from offsite.              This generally helps to promote flexible working arrangements as workers are able to access essential files regardless of location.

• The focus on flexible working is further emphasised by the fact that over a quarter of businesses (26%) would expect remote access by employees to increase if their connections were more reliable.

In Scotland, there are some broad differences in productivity between rural and urban areas, with ONS data released in 2017 suggesting a gap of approximately 17 percentage points between these areas. Furthermore, “very remote rural” and “accessible rural” areas displayed even starker differences, with a 30 percentage point difference in productivity levels.

There are a number of underlying reasons for this, including the consolidation of industries with low productivity (as measured) in these areas such as agriculture. Those in rural Scotland are significantly more likely to pay a cost premium for travel, due to longer distances generally between population centres and this is mirrored by businesses operating in these areas.

An early report on broadband impact, which estimated the value of broadband investment in the UK at about £17Bn additional GVA uplift, suggested that much of this would be achieved through the reduction of business travel.

The report from SQW suggests that about 9% of business travel would be reduced by improved connectivity, which our survey data supports in terms of behavioural change.

Rural businesses are likely to benefit disproportionately from this reduction in travel. Commutes and travel distances are significantly longer on average in both accessible rural and remote rural areas, with 14% of remote rural workers travelling 30km or more to their place of work, compared to 6% in Urban Scotland:

As discussed at the prior Scottish Affairs Committee on bank branch closures, digital connectivity is also critical for businesses to be able to access basic services in the modern era, with online banking likely to act as the initial touchpoint for banking services for many rural areas.

A 2017 Paper by Townsend et al, in the Journal of Rural Studies, illustrates some the benefits for rural businesses particularly within the creative economy.

Considering digital skills specifically, the study suggests that:

“A promise of good broadband connectivity made by Internet providers was instrumental in their decision to relocate to a more rural location…”

Emphasising the importance of broadband in attracting those with digital & creative skills in to the rural economy. The study also emphasises how important effective connectivity is for marketing and promotion of creative endeavours, and even in showcasing basic levels of “professionalism” by being able to send large files promptly and to network with collaborators / keep abreast of competitors.

As summarised by the report, acceptable levels of connectivity are becoming increasingly crucial to rural areas to ensure the economy is adequately diverse. In terms of the creative industries, connectivity is critical in terms of collaboration and ensuring that profitability of ventures is not adversely affected by travel costs to creative hubs where appropriate.

Providing reliable superfast access to these areas will be instrumental in attracting professionals drawn by the many benefits of living in a rural community, however, as emphasised by the report, multiple professionals had either relocated to better connected areas, or shifted to a different career path.

This emphasises the critical nature of connectivity in terms of ensuring regional competitiveness, and diverse, economically sustainable communities.

Over 40% of Scottish Chamber surveyed stated that they did not have appropriate access to fibre broadband provision in their area. This suggests that there is still some work to be done by both providers and government to emphasise where fibre is available and aid in increasing uptake.

As summarised in the section on digital skills, uptake is generally low, and this suggests that the lack of uptake may not purely be driven by either a lack of appropriate skills internally within businesses, or simply a satisfaction with the current level of speeds provided.

Chambers of Commerce are of course available to work with Government and providers to increase awareness of the benefits of superfast and uptake in appropriate areas.

Broadly within our research, there was a clear concern in terms of digital skills across Scottish businesses, with many unaware of the correct avenues to go down to even approach training their own staff and upskilling them appropriately.

If there is an issue with uptake, outside of provision challenges, then it is likely that a stronger digital skills base, particularly in rural areas, would increase demand for superfast products and generally improve productivity across Scottish businesses.

It is clear that businesses are aware they lack these skills, with over 80% of firms indicating some level of shortage (approximately 25% stating this is “significant” or “critical”).

Firms are also aware of the impact created, with over half (57%) suggesting that this is impacting their existing staff by increasing workload, ~40% suggesting it impacts their ability to deliver for clients, and approximately a third (34%) stating that it has an effect on their operating costs.

There is still a significant uptake issue, both in Scotland and across the UK, with Scotland holding 87% superfast coverage, but only 39% take up according to Ofcom.

Part of this may be linked to digital skills generally, as a business with more awareness of the advantages offered by digital products will be more likely to upgrade to faster connections as these become available.

Summary of Themes from Chamber Feedback:

Alongside the summarised evidence, SCC engaged with the Chamber Network to gain feedback from individual chambers around their experiences of connectivity.

1.     Chambers as clustering mechanisms:

One of the key points from this, which was raised in verbal evidence to the committee, was the ability of the Chambers Network to structure clusters of firms, using our regional insight / member intelligence. This would assist in increasing uptake for initiatives such as Gigabit vouchers, which are challenging for businesses to engage in at an individual level.

2.     High levels of engagement with local authorities

Many chambers were involved in discussion with local authorities, with Aberdeen & Grampian, Inverness and Glasgow Chamber of Commerce regularly engaging in dialogue with local governments around improving connectivity in their area.

Aberdeen & Grampian, Inverness and Caithness Chamber of Commerce all cited the Local Full Fibre Networks Challenge Fund as an area of engagement with local councils, and as mentioned, Chambers of Commerce stand ready to provide the means to engage with businesses and connect them to initiatives appropriately.

3.     Mobile connectivity challenges & consistency of connectivity

Mobile connectivity continued to be outlined as a significant issue, with Dumfries & Galloway; Borders Chamber, Moray Chamber and Forth Valley detailing some of the challenges experienced in this regard.              Dumfries and Galloway Chamber explained that for members in certain parts of their area, it was more effective to connect to Ireland’s mobile network than UK operators (assuming their operator had a roaming agreement in place).

Perthshire Chamber was one of many that highlighted the issue of consistency within regions. From mobile not-spots to landline connectivity, including business parks, levels of connectivity vary widely within the same areas, which has led to members assuming that connectivity would be available in new premises, only to discover lack of availability upon arrival.

4.     Waiting periods

For rural chambers such as the Cairngorms Business Partnership, the timescales for R100 pose challenges. 2021 is seen as a significant period to wait for businesses that are already experiencing the impacts of poor connectivity, and the caveats which will accompany R100 leave open the possibility for a percentage of businesses to be left with connectivity below the acceptable minimums (whether that is 10mbps or 30mbps), beyond 2021.

5.     Holistic view of connectivity provision alongside existing infrastructure

Finally, rural chambers expressed the need for connectivity to be considered alongside the wider infrastructure mix in rural economies, such as roads, rail and other transport modes. As discussed by Borders Chamber, digital connectivity is consistently cited as a motivating factor for the removal of certain services (such as physical banking services as discussed at the prior RBS session of the Committee).              Without consistent connectivity in every business location, challenges arise in accessing digital replacement services, which are increasingly positioned as the first touchpoint for access to essential business services.

6.     Future focus and economic sustainability

As was raised at the committee, there was also some discussion of the future viability of 10mbps, or indeed 30mbps as a future standard. Verbal feedback from Glasgow Chamber of Commerce emphasised the differences between rural and urban areas, citing the needs of financial services as a sector which requires ultra-low latency connections with the resilience to maintain constant uptime.

It follows that the economic diversity and regional sustainability of areas that cannot provide connections of this level will, regardless of other concerns, face challenges in attracting certain sectors which need these base levels of connectivity as a basic operational requirement.

Furthermore, as will be highlighted in a supplementary submission to the economy, these basic levels of connectivity will be essential in unlocking efficiencies in the rural economy, through the digitisation of sectors such as agriculture.

Scottish Chambers of Commerce

February 2018