When the Prime Minister used her closing conference speech to say it is “just not right” that “half of people living in rural areas, and so many small businesses, can’t get a decent broadband connection” we knew something really had changed. Martyn Warwick saw alarm bells for BT when she added that her administration is prepared to “take big, sometimes even controversial decisions about our countries infrastructure” because “where markets are dysfunctional, we should be prepared to intervene”. That intervention may not, however, be bad news for BT shareholders.
Before the Conservative Party Conference I blogged on why the fringe meetings on Broadband would matter. I did not fully appreciate just how significant they would prove.
First came the Res Publica meeting on Sunday evening. Matt Hancock was an unannounced opening speaker and apologised to say he would have to leave early. He spoke briefly to say that the future is fibre, the questions is how get there. He then said that instead of answering questions he would rather listen to the other speakers. In the event he stayed to listen to all the presentations and into the beginning of the points from the floor, taking copious notes. Damien Collins, acting chairman of the Culture Media and Sports Committee, put the best case I have yet heard for GFast: as a means of giving short term benefit to those who might not get fibre for a decade. He also said that the status of Openreach is less important than opening markets to competition and holding Openreach’s feet to the fire on quality of service. He also raised the need to end the current/potential Openreach monopoly of supply to BT Retail and EE to competition. That theme was reinforced by a double act between City Fibre and the Wireless Infrastructure Group on the need for infrastructure competition. The pointed out that across Europe the main customers for the “independent” fibre and wireless utilities are the incumbent operators. Their UK equivalents need to be able to similarly supply BT Retail and EE, because the latter cannot afford the infrastructure investment needed and pay their pensioners without significant market and regulatory change. Were BT Retail and EE to be anchor tenants for independent fibre and wireless utilities we would see a surge in investment on a scale that Openreach could never afford on its own – even if it was spun out and Sky agreed a ten year contract to enable it to turn risk investment into a leasing deal.
The Conservative Technology Forum event was organised too late to appear in the Conference Programme. It was also outside the security zone in the IET, (not on the map of conference venues). Even so there was a full house (the picture below shows some empty seats but at the time it was taken there were more late-comers standing at the back than there were empty chairs). Mims Davies MP, PPS to Matt Hancock, arrived early to meet the audience and speakers and. like Matt at the Res Publica Event, took copious notes.
The aim of the CTF meeting was to illustrate the willingness of industry players to do what is necessary to prevent Britain from falling yet further behind France, Germany, Italy, Ireland and Spain, let alone Scandinavia and the Pacific Rim when it comes to installing “future ready” (i.e. fibre) networks. The aim was to address the question of how could/should network operators, property owners, technology suppliers and local authorities work together to use market forces to help the UK not only catch up, but leapfrog the competition.
Carlos Pierce, Head of Special Legal Projects, CTIL (owned jointly by Vodafone and Telefonica) began with comments on the need for the network operators to work in partnership with property owners (both urban and rural) to create win-win agreements to address not spots and prepare for a world of 5G and ubiquitous access which would need many more masts and cells. Chris Pateman, Chief Executive of the Federation of Communications Services then spoke on the need to introduce competition to the backhaul and maintenance markets.
The topic of backhaul competition has been neglected for many years. The over-reliance of the UK on a single, under-invested national network with long-standing bottlenecks and single points of failure needs urgent action as society becomes increasingly dependent on on-line services. We tend to forget that the mobile operators, broadcasters and emergency services are often critically reliant on overcrowded Openreach ducts – such as the bomb proof communications tunnel under Manchester, in which a fire also took out the supposedly resilient World War 3 MoD network for the NW.
I had not previously realised just how much the maintenance, not just construction, of the Openreach network depends on subcontractors working within legacy processes resonant of 19th century demarcation disputes. Openreach’s management of engineering subcontractors has been a major source of complaint for many years, leading to claims of consistent underperfomance, poor consumer experience and higher costs for its customers – the 500 or so fixed and mobile communications providers (including BT Retail, O2, Sky, Talk Talk, Vodafone etc.). We were told that service could be greatly improved by enabling communication providers to use their own qualified engineers or contract direct with the independent network construction and maintenance organisations who help build/maintain the BT/EE networks. These include global players like Babcock, Carillion and Fujitsu). It was suggested that current quality control and service management practices be upgraded and extended to meet international standards for coordination and licensing to deliver customer improvements without compromising the functionality of existing networks. This would also enable the engineering community to expand the UK skills base and exploit the fast growing world markets for network construction and support.
Peter Farmer of Gamma then raised the vexed question of business rates on broadband. Claims of unfairness (with small networks being charged over 20 times the average charge to BT for an equivalent circuit) are not actually addressed by the Chancellor’s threatened quadrupling of BT’s rates bill because of the way BT has been able to agree a single national deal whereby its rates do not go up if it invests in local upgrades – but those of its competitors do when they extend theirs. The parliamentary chairman of the CTF Digital Infrastructure Group, Kit Malthouse MP raised the subject in the second reading of the Digital Economy Bill . A sub-group is working on proposals for revenue neutral ways of addressing the issue within the current business rates. It is relatively easy to be revenue neutral because the current regime is killing off investment. A fairer regime would lead to more investment and thus more, not less, revenue.
A lot is said about the way that fragmented Local Government government planning and procurement processes get in the way of pooling local resources and expediting investment. They are, however, under extreme pressure to reduce overheads costs. Practical support for joining up is rather more useful than mere exhortation. Louise Lancaster, Head of Regulation and Policy for Relish, talked about how the suppliers should work together to help Local Authorities with practical examples of how co-operation to share scarce resources had saved money and improved service. At a time of pressure on both finances and expertise they need support not exhortation. This is particularly true when it comes to setting procurement standards so that incremental cost-saving investments (e.g. smart lighting) will fit together to save even more as the jigsaw parts of a part of smart city come together. Another sub-group is coming together to provide the necessary guidance.
Matthew Hare, chief executive of Gigaclear, one of the sponsors, reinforced some of the points on co-operation and rates, giving an example of where he would have been charged four times in business rates what it would have cost to rent an equivalent backhaul circuit from BT. The system was broken. John Light, of Modular Wiring Systems spoke of the many infrastructures over which fibre was being run across the EU and the irony of those producing it in the UK being unable to access it locally at competitive costs. Robin Tombs of Yoti spoke of the way the current situation places obstacles in the way of those trying to grow innovative UK-based new companies.
We then had a strong and positive response from Charles Trotman, of Country Land and Business, whose members own most of the surface of the UK, on the need for co-operation to create win-win arrangements to address the not-spots that impact those trying to run businesses across the country, rural as well as urban. This led to points on the need to improve information on what has already been installed and what it will actually deliver to help markets work: particularly with regard to the quality of service needed by businesses. The point was again made that they need security, resilience and “guaranteed”, not marketing headline, speeds.
Then we had a sharp firefight on whether the publicity for G-Fast was “catsplatter”, deliberately muddying the business case for rolling out a mix of future-ready fibre and wireless, or a low cost means of providing most broadband customers with access to 2 – 300 mbs. For once we had a BT response that was both well informed and passionate. It led me to consult one of the technical experts who had been unable to join us. My conclusion was that we will only know the answer where we are able to access reasonably accurate maps of what has actually been built over the past 50 years. For example, we need to know how much of the Openreach network is not copper but copper coated aluminum. The latter was initially developed for overhead lines because it was lighter. Then it was used across many, perhaps most, local voice networks installed from the 1960s onwards as copper prices rose. The downside is that the joints in a much repaired rural circuit, or that meandering though a 1960s or 70s high rise block of flats, mean it may go slower, not faster as these lead to sharply rising error rates when the latest digital technologies are used. Thus the entire network in Milton Keynes had to be replaced
By the time of the CPS meeting on the Tuesday of the Conservative Conference I thought I understood the issues. That meeting was addressed by Vodafone, Sky and the Institute of Directors. Until then I had not realised how much both depend on Openreach, even thought they have their own backhaul networks. Apparently Sky spends 800 million a year buying services from Openreach. Were Openreach to be separated from BT Retail, Sky might well be willing to enter into a ten year contract for improved services. Such a contract could then transform the ability of Openreach to move rapidly to replace those circuits that would not benefit from GFast with full fibre. I was also told the expected BT strategy is to use GFast to counter the threat from Virgin, not to take on the altnets. In other words it is not Catsplatter but a Virgin Killer. Either it looks as though we might yet see a genuinely competitive market emerging.
That leaves open the question of whether BT/EE can afford its share of the investment needed at the same time as funding its pensioners and the premier league. Faced by similar, but arguable less acute pressures, Telia decided to stop opposing plans for municipally led dark fibre utilities (like Stokab) and instead became on of the anchor tenants. a couple of decades alter it operates Stokab on behalf of its fellow tenants, but still does not own it. Interestingly the UK is unique in how little of its fixed and mobile communications infrastructure is owned by independent utility providers. In the US around 90% of communications masts are owned by utility companies who rent capacity to multiple operators. In the UK the independents, like Arqiva and the Wireless Infrastructure Group, own only about 30%. Given the stresses of investment for a Smart/5G world that is likely to rise – but how do we ensure that the pension funds and other long term investors of the world wish to invest in post-Brexit?
The all-party follow up to the CTF event (a Digital Policy Alliance Round table is being planned for the afternoon of the 25th October) is all about showing that industry is ready to do its part – provided it has a regulatory framework that will allow market forces to work – and not be constrained by a need to protect the past from the future lest Treasury has to pick up the tab for the BT pension fund.
Next week, on the 19th October, at the INCA Conference “Building Gigabit Britain”, I expect to hear how BT Openreach is planning to respond to that challenge – including by expediting its own fibre roll-out at the same time as using GFast to protect its core revenues from Virgin. But I expect to hear more. I do encourage those of you in Local Government or involved with plans to meet the needs of Commercial Centres and Business Parks to attend, sharpen your minds and then work out how to work together to get the future YOU want.