In this second part of our interview with the minister for culture, communications and creative industries, we discuss the alleged favouritism the government has for BT and Chancellor George Osborne’s mixed up spectrum auction figures
The BDUK process for the broadband roll-out ended up with just two providers – BT and Fujitsu – able to compete for the contracts. Many smaller providers couldn’t get involved because of the caveats you laid down to applying and now Fujitsu has pulled out, accusing the government and local authorities of favouritism towards BT. How do you respond to that?
[We are conducting the roll-out] at a county level, broadly speaking. If we drilled down to give a small community operator the chance to compete [and] had done a roll-out parish by parish, it would have been a nightmare and people would have said it was ridiculous.
Other people have said why didn’t we do a national programme, but then again we might have done a national tender, BT might have won it and people would have said if you [had] done a more local programme, others would have had a chance to compete.
We wanted competition, [but] the key point is state aid rules require open access. Virgin Media, a big company that could well have taken on BT, doesn’t want to compete on those terms. That’s fine, that is their business model. They don’t want an open access model, they want a closed model, serving their customers very well and providing very good competition for BT in places where the market justifies that competition.
We would have loved more competition [but] we certainly didn’t favour BT
We had nine people express interest and go through the process. We would have loved more competition [but] we certainly didn’t favour BT and we provided a competitive environment.
But what about Fujitsu? They made it through but pulled out feeling there was no point in applying for contracts because the decision had already been made for BT was to win them all.
Well, it is absolutely not true; I can say that hand on heart. Fujitsu competed on exactly the same terms as BT and there was certainly no intention by us to favour BT – or exclude Fujitsu in anyway. We absolutely welcomed the fact that Fujitsu were competing.
To return to the 4G spectrum auction, the figure George Osborne gave in his autumn statement was significantly higher than what the process achieved. Where did he get that figure from? Were you involved, as you said previously, you have a good relationship with all the operators?
It was a figure, as I understand it, authorised by the Office of Budget Responsibility (OBR) [and] they made their own independent assessment.
There was a range of estimates and, although I don’t want to sound facetious because you are talking about billions of pounds, the margin of error was comparatively narrow.
We had a reserve of about £1.1bn, Labour came up with a figure of £4bn, the OBR came up with a figure of £3.5bn.
Although to you and me it is quite a big range, £1bn-£4bn, if you look around Europe there were some [auctions] that were very high, like the Dutch, and there was some concern that level of bidding might hamper roll-out.
We were well above our reserve price, it was a good result. I think the auction was conducted well and efficiently.
Although I don’t want to sound facetious because you are talking about billions of pounds, the margin of error was comparatively narrow
Had this just been an estimate you had given in a speech, that would be one thing, but the chancellor used it to balance the books. This week there has been talk that the National Audit Office (NAO) is investigating the process of the auction and the fact that it didn’t bring enough money in. Is that the case?
No. The NAO is conducting a standard audit of a big government programme. It did exactly the same with the 3G auction, where receipts as you know were very high.
My understanding is that this is an absolutely standard procedure. There is nothing sinister about it. It is not as if the NAO have been called in because there has been a mess-up. They are doing exactly what we would expect them to do and I don’t expect their report to cause us any concern. From where I stand the auction was conducted very well.
Ed Richards, the CEO of Ofcom, said it wasn’t the regulator’s job to make the government money but to look out for the consumer, and operators paying less should mean more money for infrastructure and roll-out. Do you agree?
Well, in terms of the European rules that frame the auction, it is not a revenue-raising exercise, it is an exercise to auction spectrum at market value and it was very important the auction was constructed in such a way that didn’t allow people to bid up prices effectively unfairly to game the system.
So certainly, it would have been entirely wrong for the auction to have been conducted in such a way that increased revenue for government. It was designed to get a fair market price.
Ofcom should be focused on conducting the action according to the European rules which I think they did brilliantly.
Do you have superfast broadband at home and do you use 4G?
I have superfast broadband but I don’t use 4G because I am not a customer of EE, but I am looking forward to being able to use it.
This was first published in April 2013