Future Telecoms Infrastructure Review

On 23 July 2018, the Government published its Future Telecoms Infrastructure Review.

The Review and the Government’s policy position is born of frustration. The UK has just 4% fibre to the premises (FTTP/FTTH). This is a national disgrace; the UK is lagging far behind other EU countries.

Obvious and simple measures to support investment are being brought forward by government. They are needed because Ofcom has failed to support short-term investment, preferring to encourage retail service level competition. For example, Ofcom has only supported very limited access to BT’s Duct and Pole infrastructure; the government will go much further and enable third party investment.

Preiskel & Co has been closely involved in pressing for these changes. We acted for CityFibre in a regulatory appeal against Ofcom regarding the BCMR, which implemented regulation which foreclosed, rather than encouraged, competing infrastructure investment. Tim Cowen also works with ResPublica, pressing for greater government involvement. We have met with the Treasury, BEIS and DCMS officials, seeking to persuade them of the virtue of infrastructure investment both in the market for fibre and its substitutes, and as a general-purpose technology for the country generally. We also made a submission to DCMS in the course of the Review, and are pleased to see that our recommendations have been accepted.

We remain concerned that Ofcom will not follow the position as established by Government. The Regulator has fought to prevent Duct and Pole access over the last five years or more, both in a case brought by Colt, and the CityFibre case referred to above. The future does not bode well either; after losing the case in which we acted for CityFibre, meaning their BCMR decision was quashed, Ofcom then invoked emergency powers to avoid the Competition Appeal Tribunal decision. This shows a flagrant disregard for the interests of consumers that have been denied full fibre connectivity, a highly undesirable approach to investment and the promotion of fibre buildout, and a bizarre approach to the rule of law from a public body.

The Culture Secretary, Jeremy Wright, stated in the foreword that “there is a real opportunity for the UK to become a world leader in digital connectivity – increasing our competitiveness, boosting productivity and meeting future demands of consumers and businesses.”

Fibre

The Government has set a target for the UK’s digital future whereby 15 million premises will be covered by full fibre by 2025, with nationwide coverage by 2033.

The justification for this focus on digital infrastructure is that “full-fibre and 5G are the long-term answer to the UK’s connectivity needs”, essentially future-proofing our infrastructure as much as possible. The Government’s research has indicated that, without policy intervention, full fibre networks would at best reach only three quarters of the country, and this would only be achieved after twenty years.

The current UK performance in fibre infrastructure buildout is as follows:

Work commissioned by the NIC estimates that “net benefits from investment in FTTP with 100% coverage” to be “up to £28 billion (in present value terms) by 2050,” while a recent Ofcom study has also found that investment in broadband significantly benefits the UK economy.

The Review has focused on five key issues to tackle and “get right”:

1. “Making the cost of deploying fibre networks as low as possible by addressing barriers to deployment, which both increase costs and cause delays;
2. Supporting market entry and expansion by alternative network operators through easy access to Openreach’s ducts and poles, complemented by access to other utilities’ infrastructure (for example, sewers);
3. Stable and long-term regulation that incentivises competitive network investment;
4. An ‘outside in’ approach to deployment that means gigabit-capable connectivity across all areas of the UK is achieved at the same time, and no areas are systematically left behind; and
5. A switchover process to increase demand for full fibre services.”

The Digital Economy Act 2017 set out the Government’s role, defining the strategic priorities and outcomes in relation to telecoms. This is done through a Statement of Strategic Priorities, which Ofcom must then have regard to when regulating. The Review will apparently be followed by such a Statement of Strategic Priorities in due time.

In particular, the Review focuses on the possibilities of implementing effective Duct and Pole Access, where smaller fibre infrastructure builders would be able to use BT’s national network of duct and pole infrastructure to install their own cables, significantly reducing the costs of fibre buildout. The review states that Duct and Pole Access “could transform the business case for investing in competing full fibre networks.” There is currently a form of Duct and Pole Access in operation in the market, but for various reasons it is not always fit for purpose. Preiskel & Co’s Tim Cowen highlighted this point in a submission to the Future Telecoms Infrastructure Review consultation. The review implicitly acknowledges this fact as it states that “if the evidence shows that this remedy is not being implemented properly by Openreach, all options should be considered to ensure compliance.”

Moreover, where Duct and Pole Access would not be feasible, for example in areas where BT’s duct are already at full capacity, the Review recommends careful implementation of other options to enable market entry by alternative networks, such as access to dark fibre, provided the implementation of these remedies does not undermine the business case for other operators to invest in their own networks via Duct and Pole Access. Dark fibre is where alternative networks are able to use BT’s unused fibre assets, using their own electronics at the end of each fibre to “light” the dark fibre and thus provide a service to end users.

The Review outlines as a clear strategic priority for the Government the need to promote efficient competition and investment in world-class digital networks, stating that “it is the Government’s view that promoting investment should be prioritised over interventions to further reduce retail prices in the near term, recognising […] longer-term benefits” such as “choice, service quality, innovation and price over the longer term.” The Review outlines that Ofcom must have regard to this in exercising its regulatory functions.

Interestingly, however, the Review highlights that their preferred model for implementation of full fibre nationwide is one which promotes competition where possible, and intervention only where necessary.

In order to achieve this strategic priority, the Review sets out the following target outcomes:

1. “Greater regulatory stability and clarity, through the availability of longer five year market review periods and a framework whereby firms making large, risky investments can have confidence that any regulation reflects a fair return on investment commensurate to the level of risk.
2. Recognising the convergence of business and consumer uses of networks, through unified access market reviews, where appropriate. […]
3. Regulation only where and to the extent necessary to address competition concerns and ensure the interests of consumers are safeguarded as fibre markets become more competitive.
4. Recognition of the differences in local market conditions across the UK, through, where appropriate, a geographically differentiated approach to wholesale regulation. For areas where there is actual or prospective competition between networks, we would expect there to be less need for regulation.
5. Flexibility for firms to develop new approaches to reduce deployment costs and manage risks through commercial arrangements.”

The Review proposes that delivery of full fibre networks can be done through the existing BDUK superfast broadband programme, and that a Fibre Switchover Strategy will be developed, led by industry in coordination with Government and Ofcom, which will be underway be 2030.

Mobile

In terms of mobile, the Review focuses on the need to develop 5G, aided by policy and spectrum management creating conditions that grow a competitive mobile market and support investment and innovation.

The Review highlights a recent EU study which estimated that in 2025 “benefits from the introduction of 5G capabilities could reach €113.1 billion per year across the region.”

In particular, the Review identifies four priority areas:

1. “Make it easier and cheaper to deploy mobile infrastructure and support market expansion, including the implementation of the wide-ranging Electronic Communications Code (ECC) on site access and consideration of further planning reforms;
2. Support the growth of infrastructure models that promote competition and investment in network densification and extension;
3. Fund beneficial use cases through the Government’s £200 million 5G Testbeds and Trials Programme that helps de-risk business models for 5G; and
4. Promote new, innovative 5G services from existing and new players, through the release of additional spectrum. We should consider whether more flexible, shared spectrum models can maintain network competition between MNOs while also increasing access to spectrum to support new investment models, spurring innovation in industrial internet of things, wireless automation and robotics, and improving rural coverage.”

The Government will keep 5G policy under regular review, as “5G is at an earlier stage of development than full fibre fixed services.”

Network Convergence

The Review also recognises the likelihood of network and market convergence as fibre and 5G technology further develop. As the Review puts it, “the distinction between fixed networks and mobile networks is increasingly being eroded.” As a result, there are likely to be strategic advantages for operators who invest in both types of network, deriving from economies of scope and higher utilisation of network capacity, and the ability to offer consumers bundled services.

The Review highlights that convergence may benefit consumers, allowing for more seamless delivery of content and services across networks, and simpler billing and tariffs. As a result, the Review states that obstacles which could prevent or impede greater convergence should be removed. An example highlighted is that restrictions on the purposes for which Duct and Pole Access is available for should be removed, preventing such limits on convergence.

Please contact Tim Cowen if you have any questions regarding the Review.