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Government may consider state-owned broadband provider

A public sector-owned broadband infrastructure provider is one option on the table as DCMS consults on the future of the £1.7bn BDUK scheme

The Department for Culture, Media and Sport (DCMS) has launched a consultation seeking input on the future of the £1.7bn Broadband Delivery UK (BDUK) scheme. It has also mooted a number of proposals, including the creation of a publicly-owned broadband provider.

The consultation, titled National Broadband Scheme: Market Engagement on Procurement Approach is taking place because the previous European Commission decision on state aid for BDUK expired on 30 June 2015. The government must now come to a new agreement with Brussels’ competition authorities to commit more taxpayer money to BDUK.

DCMS aims to maintain the key principles of its previous guidelines that networks built with public funds must be fully open to all providers. However, it suggested a number of options in terms of redesigning the project and procurement process to achieve a more appropriate competitive environment – something it has been criticised for.

It may consider adopting investment gap funding, where implementing bodies procure infrastructure through a private sector supplier or consortium of suppliers through a service contract; a public private partnership, where implementing bodies form a joint venture (JV) or special purpose vehicle (SPV) with suppliers; a concession to build-operate-transfer, where implementing bodies let a concession contract to build and run a network that will later revert to public ownership; or – what may be the most radical option – a public sector-owned supplier.

Under this final suggestion, an arms-length company– owned by one or more implementing bodies – would invest in and provide broadband infrastructure services to end customers through service contracts.

Smaller projects

DCMS said it anticipated that future BDUK projects would involve much smaller size procurements than have been let so far, reflecting the extent of the current roll-out and the lessons learned from it. It said changes will also need to be made to how intervention areas are determined, with geographic dispersion of properties, technology and local geography all factors.

It said implementing bodies would need to adopt new methods to make sure smaller projects were still attractive to as many bidders as possible, and will seek input on allowing aggregation of smaller lots to reduce project management costs and achieve economies of scale.

In terms of technology used, the consultation document set out similar proposed technical specifications to those used previously around fibre, masts and antennae. The document reiterated that a “supplier must in all cases offer new forms of network access, to both existing and new network infrastructure used in the intervention area, where requested by any commercial or public telecommunications operator demonstrating ‘reasonable demand’ for a product that is not already available”.

Wholesale costs

The consultation will also explore approaches to wholesale pricing for service providers running a broadband product over, for example, a BT-built network, as is generally already the case.

It said that new and existing products would in general be priced according to the principles of long-run incremental costing, typically calculated as an annuity to reflect the whole-life incremental commercial investment – excluding public subsidies – and maintenance costs of deploying infrastructure and an anticipated level of network sharing.

When new products are required, it recognised that suppliers may incur further costs around initial deployment and maintenance; new access product development and re-engineering; and network assets left defunct and stranded by new technology.

It said the access seeker – meaning the provider seeking to run services over the network – would always be required to pay for deployment and maintenance. However, it said the seeker was not required to meet product development or stranded asset costs as those would need to be paid either by the supplier or the public sector.

In the former case, said DCMS, the additional risk transferred to the supplier could result in higher bid costs from the supplier. In the latter case, it would create a potential unbounded financial liability for the implementing body over the lifetime of the contract.

A DCMS spokesperson said: “The new state aid cover will have different requirements, in particular in regards to offering wholesale access to the new network. We are engaging with the market to ensure that the proposed process can result in successful procurements.”

Ready and willing

BT, which has benefited from BDUK to the tune of approximately £700m, declined to comment directly on the consultation. However, BT said it stood by statements made in its whitepaper, Delivering Britain’s Digital Future, launched in September 2015.

In the paper, BT said it stood “ready and willing” to expand the reach of fibre broadband – meaning fibre-to-the-cabinet (FTTC) in the majority of cases – beyond the current ceiling of 95%. It also said that it believed such services should be extended further and – should the current public funding model continue – that it was willing to support the government in connecting the most difficult and commercially inaccessible areas.

“We have committed hundreds of millions of pounds to the current government-supported fibre roll-out, on top of our £2.5bn commercial investment. Nor do we assume that all funding comes to BT. We welcome the contributions of other players,” said BT.

Matthew Hare, chief executive of rural fibre supplier Gigaclear, said that the consultation document opened up a range of potential new models that could be used to deliver better broadband in the UK.

“One of the biggest suggested changes is to break down procurement into smaller lots. This opens the market to more bidders and increased competition, which has been long overdue in this market,” said Hare.

“I also like the idea of giving preference to ISPs offering open access to their infrastructure. This doesn't inhibit future developments and services that are good for the UK economy from being rolled out across the country. In addition, an open tender process will make the procurement of broadband much like that of other local authority services. At first glance the new rules seem to open up lots of opportunities for companies like Gigaclear to bid for projects.”

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