Scotland's Highlands and Islands Enterprise (HIE) is considering spending up to £480m to provide fibre-based broadband connections to premises throughout the region.
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A detailed report from market analyst Analysi Mason found only six of the 384 exchanges in the region were unbundled to provide ADSL2+ services (up to 24Mbps), but they covered about 20% of premises.
Most phone lines could provide up to 8Mbps. But there were 80 exchanges covering 3% of premises that could use Exchange Activate technology to provide broadband at 0.5Mbps with a limited number of active users at any time.
"In the Highlands and Islands, as with most rural areas, it is more challenging to put forward a convincing case for widespread telecoms connectivity provided by the private sector," the analyst said.
It estimated it would cost around £81m to deploy fibre to the cabinet (FTTC) right across the Highlands and Islands, and £480m to deliver fibre connectivity directly to the region's households and businesses.
HIE director of regional competitiveness Alex Paterson said, "Technology is so important to our economy that it underpins almost everything HIE is trying to achieve. There has been considerable public sector funding put into overcoming the challenges of connecting services, businesses and individuals in the Highlands and Islands.
"The role of the internet and mobile technology is increasingly pivotal in everything from education, to supporting health care services, to opening up new markets to business, and nowhere are the benefits felt more keenly than in remote and rural areas."
Paterson said broadband take-up was higher in the area than for Scotland or the UK. "The area has already had to think innovatively to tackle the issues surrounding connectivity and our next step, given the additional costs in rural areas, is to provide strong business and social arguments as to why we should be a priority for next generation access (NGA)," he said.
NGA involves replacing some or all of the current copper phone line and fibre optic cables to offer significantly higher broadband speeds, typically faster than 40Mbps.
The report said roll-out of NGA could be commercially viable for around 40% of Highlands and Islands premises because costs would be in line with those anticipated for other UK roll-outs. However, this left a funding gap which HIE wished to close.
Paterson said HIE was committed to ensuring that the region attracted funding to build NGA broadband coverage. "It will be key to our ambition to be one of the most competitive regions in the world," he said.