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Government position on rural broadband is 'nonsense'

Thursday, November 6th 2014 by Phil Wilkinson-Jones

The Government has got itself into a “funny little trap of thinking BT is the only answer” to rural internet problems, a broadband boss has said.

Mark Collins, director of strategy and public affairs at CityFibre, said the Broadband Delivery UK (BDUK) rural broadband programme wasn’t ambitious enough and was only ever going to end in BT winning billions in Government funding.

The programme’s aim was to provide universal access to 2Mbps broadband across the UK and to get 95% of the country on ‘superfast’ speeds of 30Mbps.

“If you set the bar at such a low level then for anyone coming in to compete for the Government funding and to assist in that programme has always got a difficult position – it’s not a level playing field,” said Mr Collins.

“The easiest way to get there is to do a small incremental upgrade to the copper network of BT and the only people who can do that are BT.

“If they’d said ‘no, we want 100Mbps and every city has got to be Gigabit’ then the realisation is the infrastructure that BT has isn’t fit for the purpose of doing that, which means you need to replace it with something better, which then creates a more level playing field.

“But because they didn’t take that approach – and it’s not totally Government’s fault because there are EU directives that they’re following – you have this situation where a lot of companies went in and tried bidding for the Government funding but the only company that could do it was BT.”

BT Openreach says it has already delivered fibre to two-thirds of the UK and is working to extend superfast broadband to 95% of the UK by the end of 2017.

“Because Government is funding that, politicians have fallen into the trap of thinking the only answer is BT but they’re ignoring what’s actually happening in the rest of the industry in smaller niches,” said Mr Collins.

“Now it would be true to say, when you look at it UK-wide, that Government has put £1.2 billion into BT in the superfast programme, it’s about to put another billion into BT over the next couple of years so Government has got itself into this funny little trap of thinking that BT is the only answer.

“That’s a load of nonsense and there’s real private investment coming in from the private sector to leapfrog that initiative and start to create a view as to what the real infrastructure should be for the future.

“If you put the BDUK programme to one side because that is a programme that’s running and there isn’t the ability for anyone in the market to compete against BT in that because the programme was set up not to help the rest of the industry, you’ve got a lot of new players in the market.

“There is Hyperoptic in the niche of multi-dwelling units, in the rural space you’ve got Gigaclear and in the urban city space, CityFibre is becoming very well established.”

In response, a spokesperson for BT said: "Rolling out fibre broadband is an incredibly expensive and complex business, even more so in parts of the country that are less densely populated and BT is delivering excellent value for money.

"We face a payback period of more than 15 years on our rural broadband investments, and that’s in spite of the subsidies available.

"The Department for Culture Media and Sport has imposed a rigorous auditing process, meaning we provide 100% auditable transparency of the costs we claim under BDUK contracts. Every single item of cost will be evidenced and auditable. In fact, The National Audit Office[i] has recognised this, and stated that “compared to alternative funding models, the model favoured by local bodies [has] reduced public cost and risk to government.” The NAO also stated that “The process seems robust and, in particular, should allow Local Bodies to validate that equipment costs are correct.”

"Around nine companies were involved in the competitive process at the beginning of the BDUK programme, and there was competition between BT and Fujitsu at the crucial stage when prices were set. If other companies eventually dropped out, it was because they simply weren’t prepared to accept the same terms as BT were.

"If there was really an easy buck to be made out of delivering this stuff, then the queue of companies lining up to do it would’ve stretched a lot longer than just BT.

"The whole BDUK model is based around BT delivering first and accepting that payback for our shareholders will take a long long time. We made a guarantee that our costs would be consistent with the costs of our commercial deployment, and if costs do overrun or there are revenue shortfalls, BT accepts the loss. Meanwhile if take up and revenues exceed the targets, then the money is reinvested back into the community – so the contracts represent a win-win for local communities.

"Cornwall is a great example of this. We’ve been able to make savings and find efficiencies, so we’ve ploughed that money back into the project there and we’re making the network available to more people than originally planned.

"Independent research shows a £20 benefit for every £1 being spent by the government on this programme – and overall BT is spending more than £3bn on rolling out fibre. No other company has committed anything like that level of investment."

A DCMS spokesperson said: “We put in place a fair commercial process that reduced risk and cost to the taxpayer, and nine suppliers took part in the competitive procurement process for the broadband framework contract.”

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