Building on the NAO Report into the Rural Broadband Programme

Do read the full NAO report not just the press cover. Then enjoy some of the blogs, such as those of Andrew Ferguson, Mike Kiely , or Ian Grant . Then consider whether you want to join the blame game or to look ahead to what Ministers should do now to expedite broadband roll-out as whole, urban as well as rural – and to put the UK back on the path to world leadership – as it was before 1997. 

As some readers will know, I worked on the pre 1979 policy studies that led to telecoms  liberalisation and privatisation and the policy of duopoly leading to competition in the local loop, as opposed to local loop unbundling. My views on the regulatory regime that would be needed were formed listening to David Myddelton and Michael Beesley at the  London Business School . The hole dug for Ministers by Ofcom, by their officials in DCMS and by the consultants brought in to run BDUK, is a direct consequence of the abandonment after 1997 of the principles behind the regulatory systems created, under Michael Beesley’s direction, for the newly privatised utilities. Those responsible for that change (including policy advisors, officials and consultants) and their successors have reverted to the pre-1980s “cost plus” mindset (with all its incentives to preserve built-in inefficiencies and unnecessary overheads).

Michael Beesley’s core message was that it is impossible for officials or regulators to understand that cost bases of the industries they seek to plan or control. Therefore they should not try. They should instead focus on quality of service, price and barriers to competition (particularly those blocking innovative new entrants), leaving those regulated to work out how to exploit opportunities to make more money by using innovation to deliver better services at lower cost.

That message was all the easier to grasp because David Myddelton had made us spend the first five minutes of the first half dozen lectures of his course, on the principles of accounting, chanting “price is not a function of cost”. The punch line after chanting the mantra was, “Price is what the market will bear. If you cannot make it for less you should not be in business. If you can find a way of making it for a lot less, keep quiet and hide your profitability, let alone how you do it, from your competitors”. 

My appreciation of the need to apply those principles to the regulation of BT was helped by my first job, with STC Microwave and Line. I learned my “trade” working on production control systems for technologies that were about to transform the provision of telecommunications to remote areas. I lived in a hostel alongside engineers who were testing some of the systems, prior to flying out to install them on mountain tops surrounded by jungle.

The basic reason that so many different costs are being quoted for rural broadband (or any other broadband) is that engineers design and build in line with whatever budget the customer has on offer. Thus BT’s internal costings (let alone what it quotes publicly) for providing unsubsidised broadband to Framley  Parish Council or to Barchester Enterprise Zone will be different to those for providing subsidised broadband (under the BDUK framework) to rural Barsetshire.   

The key message is, therefore, that “fun though recrimination is” we should learn the lessons and move on to the task of expediting the roll out of “real” broadband across the UK, using whichever technologies are affordable, given the communities to be served and the budgets on offer. Perhaps with BDUK reverting to the role originally announced and planned .

We should, however, remember that it is not only rural broadband that needs the impetus of competition. I was shocked yesterday to have my ear bent by a firm in London EC1 which currently has a 2 meg leased line and is being offered the choice of a flaky ADSL service or paying for fibre to the premises.  Apparently they cannot get BT Inifinity because …
I have asked for details, although they wish to remain anonymous because  the situation is so embarrasing.  More-over, they have no wish to support unproductive recrimination. They want a win-win way forward.

Hence also my previous blog on the need for move rapidly from confrontation to co-operation.  I also need to clarify one point  in that blog. I was not envisaging that BT would necessarily pay the local partners to use their networks, although it might. I was, howver, envisaging that the local partners might pay BT, and/or its competitors, to connect their users to the rest of the world. In a genuinely open market  there are a wdie variety of business  models and one of the tasks of a good regulator is to ensure that  those business models (and not just the underlying technologies) are inter-operable and non-predatory.  

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