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Written evidence submitted by Octopus, Jurassic Fibre Limited and Swish Fibre Limited

 

 

 

Response to Inquiry: Broadband and the Road to 5G

 

 

Introduction and overview

 

0.1              We welcome the opportunity to submit evidence to the Committee on this important topic. Full-fibre broadband is critical to the success of the UK; businesses rely on a reliable, future-proofed network to operate and increasingly people expect to be able to access full fibre from their homes. This makes full-fibre rollout critical to the UK’s economic recovery.

 

0.2              Octopus invests in critical infrastructure in the UK, from knowledge-intensive small businesses, to renewable energy, real estate and now fibre broadband. The £9bn that Octopus currently has under management includes around £2.5bn of growth capital, which is invested into some of the UK’s most exciting and innovative small businesses. We are the largest solar investor in the UK, and our renewable energy assets generate enough electricity to power 730,000 homes.

 

0.3              In the last 18 months, we have invested £50 million into two fibre broadband businesses Swish Fibre Limited and Jurassic Fibre Limited. The two businesses aim to bring full-fibre broadband to underserved homes and businesses in the UK.

 

0.4              Jurassic Fibre is a broadband provider currently building a fibre to the premise network across Devon and Somerset, in particular in and around Exmouth, Honiton, Barnstaple, Yeovil, Wellington Taunton and Bridgwater. With committed funding of £250 million, over the next four years it plans to build over 350,000 properties providing gigabit capable services to homes and businesses across the region.

 

0.5              Swish is a full-fibre broadband provider, bringing exceptional connectivity services to homes and businesses in the Home Counties. £250m of equity funding will enable Swish to deliver its initial business plan to build past 250,000 properties in the UK.

 

0.6              Octopus currently plans to invest a total of £500m through these companies alone, and has appetite for me.

 

0.7              We welcome the Government’s commitment to bring full fibre and gigabitcapable

broadband to every home and business in the UK by 2025. We look to support this by building state-of-the-art FTTP networks, focused in areas which are currently poorly served by existing broadband providers.

 

0.8              Our comments in this response are focused on the difficulties of delivering fibre networks, and the substantial benefits they can bring. We do not comment on 5G networks.

 

 

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?

1.1  We welcome the Government’s ambition to deliver nationwide gigabit-capable broadband by 2025, but believe that significant challenges remain to achieving it.

 

1.2  Full fibre broadband by 2025 can only be achieved with significant investment by a range of providers operating in a genuinely competitive market.

 

1.3  The market has already seen that this finance is available. Investment has flooded in to the altnet sector during the past year, as full fibre providers have exploited BT’s failure to upgrade its network. However, this investment will only continue, and be used effectively, if the altnets attracting this investment operate within a market that supports it.

 

1.4  DCMS activity generally supports Government full fibre targets, by seeking to stimulate roll-out in the hardest-to-reach and less commercially viable areas. This is a welcome shift from its previous approach to providing superfast connectivity over copper, which saw rural areas left till last.

 

1.5  Furthermore, through its public procurement programme, DCMS is sensibly agnostic as to whether it is BT, Virgin or altnets (or any combination thereof) that build in these difficult areas. There is no difference to the quality of the networks that each of these players can deploy.

 

1.6  However, there is an inconsistency in the way that the regulator, Ofcom, views the market. Unless Ofcom changes tack and adopts a regulatory approach for its 2021-26 market review which supports fibre competition, instead of seeking to favour BT, rural fibre investment will dry up and the Government’s gigabit targets will not be met.

 

1.7  This would require Ofcom to align its regulatory approach with BDUK’s approach to distributing financial incentives. Failure to do this will see the hardest to reach areas left behind once again.

 

1.8  There are also challenges regarding the speed at which rollout can happen. Even for the largest players, laying fibre will not begin in earnest until 2021. This is also when BDUK procurements will start. This leaves just four years to deliver gigabit connectivity to the 86% of premises that don’t currently have it.

 

1.9  The task will be exacerbated by a shortage of skilled labour available to help deploy new networks. It is important that Government takes strong action to train the next generation of engineers, as well as encouraging foreign engineers to come to the UK. We have already seen recruitment challenges following the inability of foreign engineers to enter the UK during the COVID crisis.

 

 

2.      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?

2.1  To date, the regulatory regime has been largely supportive of fibre roll-out. For example, whilst the process needs improvement, allowing industry regulated access to Openreach’s ducts, poles and masts has helped speed up network deployment considerably.

 

2.2  However, under the plans proposed in Ofcom’s new Market Review (covering 2021-26), this will change. Under Ofcom’s current proposals, Openreach will be allowed to offer localised price discounts in 30% of the UK if it lays fibre there, making it impossible for alternative providers to compete. This is an abuse of BT’s dominant position in local broadband, but also makes it impossible for other providers to operate in around a third of the UK, damaging competition and discouraging investment.

 

2.3  This area defined as ‘Area 3’ in Ofcom’s Market Review is supposed to include only the hardest and most expensive parts of the UK to connect. The incentive exists because the regulator doesn’t believe that anyone other than Openreach will build in these areas. But the way the area is currently defined means that huge parts of the UK which are already competitive are included. It includes parts of the UK where we are building already.

 

2.4  In reality, it means that BT can go anywhere that an alternative provider has laid fibre, put down a new network alongside them, and then charge half as much for the same product until the competitor goes out of business. Then BT can put prices back up to more than their rival would have charged in the first place.

 

2.5  If Ofcom persists with its proposals, we, along with most other altnets, will no longer invest in rural and geographically dispersed areas. We will instead shift our focus to larger towns and cities, which are also targeted by larger players. In addition, we will reduce the total amount we will invest in UK fibre.

 

2.6  In terms of meeting the Government’s targets, this in theory wouldn’t matter. If Ofcom’s proposals to clear the ground of competition for BT mean that it agrees to cover the countryside with fibre, then the UK would benefit, even if this was at the expense of network competition.

 

2.7  But this won’t happen. Knowing that its threat to over-build and undercut deters altnets in rural areas, BT can instead focus on extending its fibre network to the more lucrative urban locations already covered by Virgin, without risking loss of market share. It can push out plans to do the more difficult parts of the countryside to 2025-2030 (or, indeed, never).

 

2.8  This approach is entirely consistent with BT’s current track record. Almost all of its fibre rollout to date has been in urban areas already covered by Virgin. It is altnets, not BT, which are currently connecting the countryside with fibre.

 

2.9  If the Government’s gigabit targets are to be met, then private sector investment must be encouraged rather than discouraged. This means that distortions to the market, including Ofcom allowing BT to offer geographic price discounts to BT in rural areas, should be avoided.

 

2.10       The Government should also urge Ofcom to only incentivise Openreach in areas that nobody else will build, and keep that area as small as possible. We would argue that with the Government’s “Outside-In” approach, this area could in fact be removed completely, as all of the UK could be economical to build a network in, if the Government spends the£5bn it has allocated wisely

 

 

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  BDUK funding is available to any operator which chooses to bid. It can be used in areas where no commercial deployment is likely (the bottom 10% of premises) and areas that can support one network (the next 10%). We support this approach, provided BT is not also given a regulatory advantage in rural areas.

 

3.2  As things stand, under Ofcom’s proposals, BT will effectively get to ‘double dip’. It can bid for BDUK money, but, if it doesn’t win, it can then overbuild and undercut whoever does win. This would mean that an area which DCMS had identified as supporting either 0 or 1 network on a commercial basis, will in fact find itself with two networks deployed, but only one of which is operating. This makes no commercial sense in a market attempting to achieve network roll out over the entirety of the UK.

 

3.3  Furthermore, knowledge of this overbuild/undercut risk will deter many full fibre providers from bidding. This is effectively what happened under BDUK’s Superfast Procurement framework in 2012, when only BT ended up bidding. This cannot represent value for money for the UK taxpayer.

 

 

4.      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?

 

4.1  There is clearly huge demand for fast, reliable broadband across the whole of the UK and this is part of the reason that investment in the sector has been so forthcoming. We have very few concerns about demand for fibre services and the speed of take-up. Jurassic recently covered a small village in rural Devon, and, within one month, over 50% of its residents were customers. And once people experience fibre, there is no going back - it’s like getting hot water for the first time.

 

4.2  The COVID crisis and consequent expansion in the need to work from home has only made this requirement more obvious. We are very confident that this trend will continue.

 

4.3  That said, there is a general need to get across the message that full fibre is the only way to secure an instant, reliable, no-buffering, no-fault, ultrafast broadband service. Some operators deliberately play on consumer confusion by advertising as ‘fibre’, services which use copper from the cabinet to reach customer premises.

 

4.4  In addition, it is vital that Ofcom creates a new switching service which enables customers to move from the copper network to new fibre networks without needing to interact with their old provider. (Unfortunately, Ofcom is considering a process which would require them to do just this). This has been highly successful in improving customer experience and reducing monthly bills in the mobile sector, where it has encouraged competition through switching. This could be repeated in the broadband sector too. The incumbents will hate it as it could impact their profit margins, but customers love it.

 

 

5.      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?

 

5.1  Quite simply, they will be economically left behind, in much the same way that towns which didn’t get passed by railways slowly declined.

 

5.2  They will find it harder to join the video-conference-based home-working revolution which has taken off so strongly over the past three months, and this in turn will have a poor impact on the environment as more people would need to commute every day.

 

5.3  They will find it difficult to keep pace with new developments in remote medicine and education delivery and will not be able to receive cutting-edge services and products. For example, the next Olympic games will be broadcast in 8K resolution. This will only be available to countries with significant full fibre networks.

 

5.4  There are also serious sociological impacts. People will move away from locations without good connectivity, which is already becoming one of the major decision factors for people moving house. Similarly, businesses will move to areas where they can rely on good connectivity, creating a huge divide between areas in the UK with fibre connectivity and those without.

 

 

 

6.      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?

 

6.1  The progress made by the UK broadband industry to date is evidence that clearly some relationships are productive and conducive to a successfully operating market. Relationships between  industry  and  government,  both  local  and  national  are  positive,  with    regular consultation and a generally transparent approach. Similarly, BDUK’s approach is sensible.

 

6.2  However, a sensible Government approach is only viable if it is consistent with the incentives and environment set out by the regulator. From our perspective, it appears that there is almost no linkage between the proposed interventions under Ofcom’s market review and government’s approach: