BSG Comment: Developments in reaching Universal Broadband Coverage

This weekend saw two big developments in the bid to create a Broadband Universal Service Obligation (USO) with the Government launching its consultation on the design of a USO and BT making a voluntary offer to deliver this service.

Firstly, some background on the USO story to date; the Government first announced its intention to bring forward a USO in November 2015. The USO would convey a legal right to request a broadband connection to be delivered to a premise. The legislative powers to do this were delivered through the Digital Economy Act whilst Ofcom was tasked to carry out some initial design work which it completed in December 2016.

During this time, it was apparent that Government was open to input on some design points but had a strong preference on others. I’ll discuss these below but the preference for a demand-led scheme alongside the mechanics of determining and retrospectively claiming costs to a Universal Service Provider made it clear that there would be few organisations able to efficiently provide the USO. One of these was BT, who yesterday also made public their offer to Government to voluntary provide this service. This would likely be legally binding but would not fall under the regulatory USO framework.

The Government’s USO Vision

In its consultation, the Government makes clear that it is looking at a specific level of service under the USO – which is not unexpected – of 10Mbit/s download and 1Mbit/s upload speed with specifics around contention and latency. It also states that it should have a minimum data cap of 100GB/month; this is important given the cost impact that it has on wireless solutions and is a softening of previous commitments from Ministers that it would be unlimited.

Government also addresses eligibility and cost thresholds for the USO. On eligibility, it makes the sensible and expected decision to say that only premises which do not have the specified service available to them can request a USO connection. For instance, if your connection is 5Mbit/s down but you could upgrade to a superfast connection but have chosen not too, you wouldn’t be eligible for the USO.

On a reasonable cost threshold, the Government sticks with the current telephony threshold of £3400 – this is the cost to connect a premise to a USO service. Over this, users would have the option of either paying for any extra costs or taking a satellite service. The BSG’s ‘Impacts of a Broadband USO in the UK’ report covered this in depth. Whilst we suggested a slightly lower threshold it is still likely to deliver positive benefits to the UK:

Government also covers off a number of important but ultimately technical issues around the review period for the USO, funding and minimising market distortion. These would need to be worked out with further Ofcom consultation. It also touches on designation of a USO provider – but in summary, it would take around 2 years to work this out.  This brings us to BT.

BT

BT had previously committed to delivering a universal service of around 5-10 Mbit/s as part of the discussions around the future of Openreach. Whilst the exact details are not yet known, they have proposed to meet Government’s preference for a stringent 10Mbit/s solution with a mix of technology. This would be met by a £450-600m investment programme from Openreach. It would similarly operate on a two-tiered solution with a satellite only option for 0.3% of premises in the country. It would have the potential benefit of being faster to rollout than a regulatory scheme and presumably have the efficiencies associated with a supply-led rollout.

What does BT get for this? Well it is a big question – and it looks as though it wants recognition of the costs incorporated into future regulatory decisions, such as in its 40 Mbit/s product under the Wholesale Access Review. Previously, other communication providers were in favour of cutting the cost of products like Openreach’s 40/10Mbit/s product.

What’s next?

So what happens next? Clearly Government and BT will continue to negotiate as Government will want to ensure that any commitment is legally binding and bottom out the exact details. One particular note is the technologies used to provide it, some of which such as long range VDSL are still under trial and brings some wider competition concerns.

Largely though, it will be the reaction of wider industry to the proposed deal that determines what happens. As a sector, we all support providing good quality broadband although it is fair to say there have been serious doubts over whether the USO is the best way to achieve this – particularly because costs deemed disproportionate to the USO provider would come from an industry fund. So whether the costs of a regulatory USO scheme are greater or less than any disadvantages to what BT are asking for will be the key decision driver.

Below is a table we will update on the two proposals as we get further details: