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Written evidence submitted by CityFibre Holdings
DCMS Select Committee Inquiry: Broadband and the road to 5G
1. Executive Summary
Even before COVID-19, it was clear that upgrading the UK’s digital connectivity to fast, reliable full fibre and 5G was key to growing our service-based economy and levelling up opportunity across the country.
CityFibre has therefore been an enthusiastic supporter of the Prime Minister’s target of nationwide ‘gigabit- capable’ connectivity by 2025. As the UK’s 3rd digital infrastructure network, with a £4bn investment plan to build full fibre to at least 8m premises and spark competition in the market, we are able to play an important role in fulfilling that ambition.
We are making good progress towards this target, with build underway or planned in 62 towns and cities (including Middlesbrough, Newcastle, Wolverhampton, Preston, Sheffield, Rotherham and Doncaster), full fibre connections to 6,500 public sector sites (including hospitals, GP surgeries, care homes and schools) already built or planned for 2020, and major customers (Vodafone, TalkTalk and Three) on our wholesale network.
Now, with COVID-19 forcing many aspects of our lives to be conducted from home, our reliance on digital infrastructure has never been greater. Rightly, Government moved quickly to classify telecoms as a key sector, enabling operators like us to maintain and repair the networks that are keeping us connected.
Critically, Government is also supporting us to build new networks during the crisis, so that we can continue to expand network capacity and resilience. This is to be strongly welcomed: widespread availability of full fibre and 5G will play a significant role in rebuilding Britain’s economy.
It is therefore right that attentions start to turn again to the strategy needed to build networks fit for the future. Having launched this inquiry to examine the deliverability of the Government’s 2025 ambition, the Committee now has an even more important role in exploring what that post-COVID strategy might be.
In parallel, we believe that Committee should examine whether Ofcom’s strategy – currently under consultation through its Wholesale Fixed Telecoms Market Review (WFTMR) – is aligned with this ambition. Government, Ofcom and industry must pull in the same direction if we are to take this vital opportunity to build the connectivity we need to thrive as a nation and enable us to compete effectively with international peers. Before COVID-19, CityFibre viewed the PM’s target as challenging but viable if urgent but deliverable steps were taken to adjust the Government’s policies and Ofcom’s regulatory approach. Without these steps we predicted a coverage shortfall, with millions of homes – often those in the towns most in need of economic regeneration – receiving neither commercial nor subsidised rollout, leaving them on the wrong side of a digital divide.
In short, while the political ambition is right and the investment climate is favourable, at present the Government and regulatory strategy – and the execution of that strategy – falls short of what is required for the industry to deliver that ambition.
Many of our concerns about the current policy remain, but we must now also factor in the broad effects of the COVID-19 crisis across the economy. With Government support, CityFibre is addressing these short-term challenges to keep building, but it is too soon to fully understand the long-term picture. This submission therefore explores the issues the Committee should consider now, while recommending that this subject is revisited later this year. Our submission centres on five main points: 1.1. Nationwide gigabit-capable connectivity, with the principal focus on full fibre, remains the right ambition
Full fibre is the gold standard digital network, with studies repeatedly showing that its fast, reliable and future- proof connectivity delivers transformational economic and social uplift over and above copper-based networks. Rolling out full fibre nationwide – so that everyone benefits and no-one is left behind – should remain a key plank of the Government’s policy as it aims not only to level up opportunity but to rebuild our economy after COVID-19.
There is general industry consensus that the 2025 target is very stretching. There is a temptation, therefore, to ease the target by including other technologies into the mix, such as upgraded Hybrid Fibre-Coax (HFC) cable or Fixed Wireless Access. This explains the language change from ‘full fibre’ to ‘gigabit-capable’ in the ambition.
The Committee should understand that unlike full fibre, none of these other ‘gigabit-capable’ technologies provide the reliable, future-proofed capability needed to support the UK’s long-term digital ambitions, including its 5G goals.
We warn against a Government strategy that encourages public and private investment in networks which will themselves need to be replaced with full fibre by the end of this decade. To avoid a long-term digital and economic divide, we strongly believe the focus on nationwide coverage of full fibre should remain.
1.2. We must sustain the spark of competition to drive rollout in urban cities and towns
Private investment will deliver the vast majority of the Government’s target. But for this to happen, all sources of investment need to be tapped. More than ever it is clear that rapid nationwide coverage is too big a job for the existing duopoly of BT Openreach and Virgin Media. Several national players are needed to complete the rollout as quickly as possible and secure a competitive market for the long-term benefit of consumers.
In the main, the infrastructure competition model adopted by Government and Ofcom has set the industry on the right path: it has been a strong catalyst for the development of our business, helping us to emerge as one of those national scale challengers, and has also sparked BT Openreach and Virgin Media to invest in new build at an accelerated rate.
However, infrastructure competition requires a period of proactive and vigilant regulation by Ofcom, as it is very easy for the incumbents to squash competition in its early stages and we do remain in the early stages of building full fibre, at less than 10% coverage. There are encouraging signs that Ofcom is shifting towards the right regulatory model but Ofcom will need to referee the market more rigorously than it has to date.
There is also a risk that infrastructure competition will result in excessive and in some cases targeted overbuild of networks in some locations at the expense of national coverage and long-term competitive investment. This risk increases with the potential economic consequences of COVID-19, which may put pressure on the investment case.
It may therefore be necessary to re-evaluate whether duplication is the most effective way to achieve nationwide coverage. This does not mean the market should revert to monopolistic provision, but that duplication could be managed for a strictly limited period of time whilst the focus is on completion of the coverage ambition.
To get the most from competition, Ofcom also needs to ensure that Duct and Pole Access (DPA) – the regulatory intervention enabling competitors to access Openreach’s existing physical infrastructure – is workable at scale, cutting through the bureaucracy and misaligned incentives within Openreach that have seen DPA fall a long way short of delivering the promised cost reductions and faster deployment.
1.3. Government can help extend commercial build to semi-urban and rural areas so nowhere is left behind
Even if competitive deployment fulfils its potential in urban areas, a coverage shortfall is likely. Government and Ofcom estimate that the coverage shortfall could be up to 30%. We all have a part to play, CityFibre included, in completing the build to prevent a digital – and economic – divide.
The Treasury has already allocated £5bn for an ‘Outside-In’ programme, to subsidise rollout in the most rural areas. However, a 30% shortfall will include not just remote rural hamlets and villages, but millions of homes and businesses in smaller market towns, seaside resorts and ex-mining and industrial communities.
We believe a portion of the £5bn fund should be ring-fenced for an ‘Inside-Out’ approach, to help commercial players extend their builds into small towns: public subsidy combined with private investment to build out from urban locations (which require no subsidy) into adjacent semi-urban or rural locations will deliver more ‘bang’ for the Treasury ‘buck’, and greater coverage, than if financial support is focused solely on rural alone.
An ‘Inside-Out’ strategy could include a renewal of the Local Full Fibre Networks programme, which has already successfully helped CityFibre to extend its network into small towns in West Sussex and Suffolk, as well as funding for backhaul between dispersed but large communities, such as ex-mining towns.
Government should also follow advanced EU fibre nations and its own role in creating the UK mobile sector’s Shared Rural Network, by creating a safe-harbour for industry to explore co-investment and infrastructure sharing.
1.4. To enable rapid, efficient rollout we need to address build barriers and workforce shortages
The legislation recently laid by Government to enable operators to secure wayleaves from absent landlords and mandate full fibre in new build developments is helpful. However, there are two other principal build barriers slowing CityFibre’s deployment which are worth highlighting. Firstly, existing legislation needs to be amended to allow historic wayleaves signed by BT to be shared with competitor providers, to address a current incumbent advantage held by BT’s network Openreach and speed up competitive rollout.
There also is a broader question as to whether full fibre should treated as critical infrastructure like other utilities for the purposes of securing wayleaves, perhaps on a time-limited basis to 2025. In particular, a more practical approach to wayleaves for social housing, care homes and other multi-dwelling units would speed up deployment of full fibre to these residents, who are often the most vulnerable in society, and enable remote delivery of public services, something which takes on more importance post-COVID.
Secondly, CityFibre is already experiencing a significant shortfall in the workforce required to complete our 8m build. This shortfall will increase if we cannot use DPA at scale (and are forced to use a greater number of underground operatives) and with the advent of the Government’s new points-based immigration system. Other major operators share our concerns: workforce shortage is therefore a significant risk to the full fibre ambition.
CityFibre is investing heavily in a nationwide scheme with our supply chain partners to recruit, train and mobilise 2,500+ operatives from within the UK in the next two years. To support us Government could create a time- limited sector-specific visa to enable us to recruit from overseas to address any remaining shortfall.
1.5. A strategy is needed to help consumers switch to and benefit from full fibre
To enable UK consumers and businesses to reap maximum benefit from full fibre networks once they are built, they need to be able to easily switch to them as they become available. However, insufficient attention from either Government or Ofcom has so far been given to the demand side of the UK’s journey to full fibre.
Government should set up the ‘switchover’ mechanism it proposed in 2018 and work with Ofcom and industry to help consumers switch-over easily onto the range of competitive full fibre networks. This includes:
o enabling consumers to make an informed choice to switch to fibre, by introducing clearer consumer information, for example traffic light labelling to differentiate between part- and full-fibre, and prohibiting the misuse of the word fibre.
o Ofcom introducing true ‘Gaining Provider Led’ switching – the regulatory process best placed to promote competition and enable consumers to switch quickly and seamlessly from legacy services to full-fibre.
o Government and Ofcom setting out principles for a copper switchover that supports competition and consumers, acknowledging that in many parts of the country consumers will be able to switch from Openreach’s copper to a competitor’s fibre.
1.6. In conclusion
Nationwide rollout of full fibre at pace is more important now for the UK than it has ever been. CityFibre remains fully committed to playing our part in getting fibre done.
To help us to deliver the networks needed to rebuild the UK’s economy, Government and Ofcom now need to unite industry behind a refreshed plan that is fit for the accelerated timescale and a post-COVID world by: protecting the spark of competition; helping us to do our share of rural; addressing build barriers and workforce shortages; and enabling consumers to understand and switch to full fibre. 2. About CityFibre
CityFibre was established in 2011 as a commercial response to a significant problem: the UK’s poor quality broadband infrastructure and in particular, a then virtually non-existent footprint of Fibre to the Premises (FTTP, or ‘full fibre’).
BT was the monopoly owner of the national copper network and had a stranglehold on the broadband infrastructure on which the UK’s citizens, consumers, businesses and digital economy was increasingly relying. With only limited competition from Virgin Media’s cable network (which is a closed network and hence not available to rival ISPs), BT had underinvested in its Openreach network for years and the UK telecoms market had become defined by lack of choice, high prices, poor quality of service, and faltering and unreliable speeds.
Rather than investing in the gold standard of ‘full fibre’, BT took the decision in the late 2000s to conduct a partial upgrade of its copper network to fibre, creating Fibre to the Cabinet (FTTC) and enabling BT and the ISPs that consume BT’s network to deliver Superfast Broadband (up to 30mbps).
While this did offer better connectivity for homes and businesses than was possible on basic (ADSL) broadband, ultimately it was a sticking plaster. The same underlying structural problems remained as a result of lack of competition: an overly cautious, patchwork upgrade to the UK’s network and under-investment at a time when the rest of the world was investing heavily in full fibre.
This meant that by the start of the 2010s, the UK was languishing at the bottom of the OECD of full fibre rollout rankings; the leading ISPs had banded together to campaign for ‘structural separation’ of BT’s network arm from BT Group; and MPs’ postbags were full of letters from frustrated consumers who had very slow unreliable broadband.
Against this backdrop, CityFibre was created with a clear, laser-focused mission: to create a challenger to BT that was committed to rolling out best in class full fibre to as much as the UK as possible; and to create the spark of competition that delivers higher quality of service, lower prices, innovation, choice and increased coverage.
We focused on working with the local authorities in towns and cities outside of the M25 who had suffered most from lack of investment and choice, and who could benefit most from a step change in connectivity, such as Peterborough, Milton Keynes and Coventry. We built ‘metro’ or ‘spine’ networks in these towns and cities, connecting local authority sites – GP surgeries, schools and hospitals – to full fibre. With the local authorities as our anchor tenant we were able to build out from these spine networks to connect businesses, mobile sites and, following a partnership with Vodafone in 2018, to 1m residential homes across 12 cities.
From this base we have grown rapidly to emerge today as the UK’s 3rd scale fixed digital infrastructure platform:
o We now have a £4.5bn investment plan to deliver full fibre to 8m homes, supported by two long-term infrastructure investment funds as shareholders. o Build is already underway or in plan in 62 towns and cities (representing the first 5m of our 8m plan), including in Middlesbrough, Newcastle, Wolverhampton, Preston, Sheffield, Rotherham and Doncaster (see the annex 1 for the full list). We will be announcing further towns and cities that complete the 8 million plan in due course. o Builds in our earlier cities, such as Stirling and Milton Keynes, are nearing completion with customers already coming onto our network to benefit from reliable gigabit speeds. o We already connect 3,000 public sector sites nationally with a further 1,500 in build and 2,000 in active/planned procurement through 2020. These include over 100 acute centres and GP surgeries in build in Suffolk, over 65 GP surgeries in build in Coventry and all 5 of NHS Greater Glasgow’s largest hospitals connected in high capacity fibre infrastructure. o In each of the 62 towns and cities we plan city-wide deployment of brand new, ultra-reliable, high bandwidth full fibre for all future digital use cases – residential, business, public sector and mobile (including 4G and 5G backhaul). o We are a wholesale operator, offering our networks on an open access basis at competitive prices to ISPs and partners across all market sectors, offering consumers choice and value for money. o Vodafone, TalkTalk and Three have all given us their vote of confidence by committing substantial amounts of their custom to us through a series of recent agreements across consumer, business and mobile verticals, the latter to support Three’s 5G rollout. o In April 2020 we completed the acquisition of FibreNation, previously TalkTalk’s fibre infrastructure venture, allowing us to add FibreNation’s 3m homes plan to our 5m, to create the 8m plan.
We are therefore well placed to make a major contribution to the twin policy goals of nationwide coverage of full fibre and a competitive market place that serves the long-term interests of the UK.
However, despite the fact that CityFibre and other key players in the market are now stepping up with substantial investment programmes, we remain concerned that 100s of towns and villages will be left behind in the move to full fibre. In short, while the political ambition is right and the investment climate is favourable, at present the Government and regulatory strategy – and the execution of that strategy – falls short of what is required for the industry to deliver that ambition. The remainder of this submission looks at the 5 key reasons for this and the achievable steps that are needed to resolve them.
3. Nationwide gigabit-capable connectivity, with the principle focus on full fibre, remains the right ambition
Before we consider whether the Government’s connectivity ambition is deliverable, it is important to revisit what that ambition is, why it is important and what the consequences are – for the UK, for communities and for individuals – of not realising it. It’s an ambition that has evolved rapidly over the past four years:
o In 2016 Culture Secretary Matt Hancock announced to the Broadband World Congress that “the future is fibre”, noting that “around the world the evidence increasingly points to fibre roll out as the underpinning of a digital nation” and Ofcom announced its own “strategic shift” to “large-scale investment in more fibre […] while reducing the country’s dependency on Openreach”. o In 2017 the Industrial Strategy introduced a target: “Our ambition is for ten million premises to be connected to the ‘full-fibre’ network, with a clear path to national coverage over the next decade.” o In 2018, the Future Telecoms Infrastructure Review (FTIR), set “an ambitious target for 15 million premises to be connected to full fibre by 2025, with nationwide coverage by 2033.” o In July 2019 Boris Johnson decried the FTIR ambition to be “laughably ambitious” and proposed that as part of his promise to level up Britain we “unleash full fibre for all by 2025”, repeating this pledge as he entered Downing Street and in his party’s Manifesto. o However, in October 2019’s Queen’s speech the target was amended to “gigabit capable broadband across the UK to achieve nationwide coverage as soon as possible”.
Each aspect of these subsequent ambitions – the network technology, the coverage and the timeline – has an important role to play in the outcome of the ambition and the extent to which it is achievable. 3.1. The network technology
The shift of policy and industry focus from copper to full fibre has taken place because of the significant economic and social opportunities that full fibre can generate over and above copper-based broadband in a world of exponential data growth and reliance of digital connectivity. In 2018 CityFibre commissioned economic consultants Regeneris to examine those benefits. The headline findings showed that over a period of 15 years, availability of full fibre in just 100 towns and cities is estimated to generate the following direct economic benefits:
o £2.2bn in business productivity o £2.3bn in innovation benefits o £1.9bn in flexible working benefits o £2.3bn from new business start-ups o £7bn in private household benefits
Furthermore, full fibre was expected to unlock significant economic value from wider technological developments:
o £1.1bn from future healthcare applications; o £5bn from smart city infrastructure; o £10bn from the Internet of Things in the manufacturing sector. o £28bn in 5G benefits.
In Regeneris’ words: “Full fibre will provide the core infrastructure required to kick start the next generation of digital technology and drive expansion of smart infrastructure in towns and cities where it is deployed. The result will be a modernised, more productive and innovative UK economy.” The scale of economic uplift from widescale availability of full fibre – over and above copper-based broadband – was also underlined by a 2019 report from CEBR and by a Broadband Stakeholder Group sponsored report by Oxera in 2019.
It is important to remind ourselves of these findings about full fibre because the Government’s ambition has shifted over the past year from ‘full fibre’ to ‘gigabit-capable’ coverage. This change in language is worth examination. Full fibre is one network technology ‘capable’ of delivering gigabit speeds, but it is not the only one. Once upgraded (from DOCSIS 3.0 to DOCSIS 3.1) Virgin Media’s cable network is also ‘capable’ of gigabit download speeds, as are some fixed wireless access solutions such as 5G.
But these ‘gigabit-capable’ networks have different capabilities and therefore offer different policy outcomes. CityFibre commissioned Plum Consulting to understand the implications of a Government connectivity strategy delivered by full fibre (FTTP) and by cable (HFC), the two principle ‘gigabit-capable’ candidates.
At present the Government defines ‘gigabit-capable’ simply as ‘a broadband connection of at least 1 Gbps/1,000 Mbps’. In Plum’s study, the two technologies were assessed according to a wider range of criteria considered relevant to positive policy outcomes, including:
o considering not just download speeds but other key technical performance indicators, such upload speeds, which dictate the users’ end experience and the services that can be supported; o assessing the networks’ reliability and resilience; o understanding whether the networks can support competition and their ability to carry multiple ISPs; o assessing how future-proof the network is and its upgrade path to meet future demand. Some findings of note include that:
o ‘FTTP offers symmetric data rate performance. HFC typically does not. Some applications such as dense 5G carrier services, cloud services, gaming, security monitoring, and virtual reality critically require symmetric service capability, and are therefore not supportable using HFC.’ o ‘HFC networks include metallic paths and active electronics which can be susceptible to water damage. FTTP is fully resilient to water damage.’ o ‘Fully optical access networks (FTTP) offer greater potential for future upgrades to higher data rate services, in excess of 10 Gbps.’
Plum conclude that while Fixed Wireless Access (including 4G and 5G) and HFC (cable) do have a role in providing improved connectivity, whether in rural areas or through upgrades of Virgin Media’s networks, following a “balanced assessment across a range of technical and commercial dimensions, […] FTTP technology offers greater resilience, economic efficiency, and support for policy objectives, and therefore is the natural choice for public investment and gap funded initiatives.”
Consequently, CityFibre believes that while the Government’s connectivity ambition may remain for ‘gigabit- capable’ connectivity, so as to offer flexibility in rural areas and short-term uplift in download speeds where Virgin Media upgrades its cable network, the Government’s strategy should specifically prioritise full fibre in its funding programmes and other policy interventions, as it is the better long-term network choice for the UK, (avoiding the repeated need for a large scale, disruptive and costly upgrade programmes), is an essential input for its 5G rollout (because 5G deployment requires dense full fibre backhaul) and represents better value for money for the tax payer.
3.2. Coverage
The scale of economic benefits created by full fibre availability over and above copper and part-copper networks (including FTTC and cable) means that there is a significant consequence of homes, businesses and communities either having access or not having access to full fibre. It creates not just a digital but an economic divide.
It’s important to remember that full fibre doesn’t just deliver great home broadband; full fibre is the network best placed to grow SMEs, boost business productivity, enable working from home, deliver data-rich public services, power 5G rollout and support smart cities development.
Full fibre can therefore play a major role in addressing rural challenges – enabling people to live and work where they choose – as well as the longer-term economic issues facing many UK towns and cities, which the Government is aiming to address through its levelling up agenda. The nationwide aspect of the Government’s ambition should therefore, in our view, be non-negotiable.
3.3. Timeline
The pace at which industry is being asked to rollout is the aspect of the ambition that has changed most over the past four years. The reason is clear: in 2016 the UK was 17th out of 19 OECD countries in full fibre rollout; a step- change in deployment was required if we were to avoid being left behind. While the 2033 target was generally viewed by the industry and informed commentators as achievable, the 2025 target is viewed as stretching. In CityFibre’s opinion, it is indeed stretching but possible with the right preconditions in place. Having a challenging target is no bad thing and the Prime Minister’s pledge has certainly boosted investor confidence and galvanised the industry to think radically about how it can go further, faster.
However, as we emerge from the Covid-19 crisis and different aspects of the ambition are potentially reassessed, it would be preferable for the Government to adjust the timetable for delivery than to sacrifice other elements of the ambition such as coverage or the choice of a genuinely future-proof full fibre technology.
The timeline should remain ambitious – momentum is vital – but the window of opportunity to invest in our future digital networks is limited. While the last few years have been an almost uniquely favourable time to raise capital for long-term infrastructure projects, that window is likely to close or at least narrow as the 2025 target approaches. It is too early to say but the impact of COVID-19 on the global economy may also diminish investors’ risk appetite. We therefore need to ensure that we need to make the most of this investment window by ensuring the right technology solution is rolled out to as many people as possible.
If ‘wiggle-room’ in the target is required, we think that it should be possible to have 80-90% of the coverage achieved by 2025 and a credible plan and commitments in place to complete nationwide full fibre rollout by the end of the decade.
4. Sustain the spark of competition to drive rollout in urban cities and towns
4.1. Why competition?
Both Government and Ofcom have been resolute in their view that competition should be the driving force behind rapid fibre rollout. We fully agree. Enabling scale infrastructure competitors to BT Openreach and Virgin Media to emerge in the full fibre market is critical both in terms of securing the extensive coverage required and creating a healthy market dynamic that ensures consumers reap the full benefit of the investments being made.
Scaling from today’s 10% to nationwide coverage in an ever-shortening timeframe is too big a job for one or even two players and all sources of investment will need to be tapped. Even Openreach through its new Fibre First strategy is only targeting 15m full fibre premises: half of the UK. This is going to have to be a team effort.
Critically, it is the increasing competitive pressure from CityFibre and others that has prompted Openreach’s newfound commitment to full fibre. As recently as 2018, Openreach’s plan was to prioritise the upgrade of its copper network G.fast with 10m premises, with just 2 million planned full fibre connections. The Fibre First strategy represents a 180-degree strategic turn that has competitive pressure at its source.
Competition has other important benefits over and above increased coverage – for example it is no surprise that Openreach’s wholesale prices to ISPs for broadband have reduced substantially in recent years as they seek to prevent their ISP customers signing up with CityFibre. Our wholesale prices for full fibre are comparable to those for Openreach’s copper product, proving that full fibre should not necessarily be seen as a premium product requiring the consumer to ‘pay more for more’. Competition will therefore deliver not only coverage but better consumer outcomes, including on price. 4.2. Protect competition
With Ofcom and Government having successfully laid the ground for infrastructure competition in their DCR and FTIR strategies between 2016 and 2018, scale alternative players are now emerging and CityFibre is on the cusp of establishing itself as the third national network player, with benefits already clear to see.
But we are not yet assured of securing a strong and competitive market for the long-term. The next six to twelve months is a critical phase, as the key ISPs make choices of full fibre supplier that will in turn shape the pattern of infrastructure competition and the ability of the market to achieve the maximum possible rollout. The effectiveness of regulation to nurture competition at this stage is fundamental.
By definition the emergence of competition means loss of market share for the incumbents. CityFibre is targeting 8m premises – over a quarter of the market. Openreach clearly has a duty to try and defend its market position and we do not expect it to sit idly by in the face of a threat to its dominant market position. We welcome fair competition but Openreach’s dominant position means that it retains the motive and the means to frustrate and even completely undermine competition in a number of ways.
The ability for anti-competitive behaviour by Openreach to destabilise and discourage competitors’ deployments – and put the Government’s rollout targets at risk – should not be underestimated. Potentially anti-competitive behaviour already witnessed includes selective geographic discounting in places where it faces a full fibre competitive threat and exploitation of its dominant market position to offer loyalty and volume discounts to its existing wholesale customers to bind them to their network, and keep them from ours. Taken together, and if left unchallenged in a timely way, these potentially anti-competitive behaviours will result in ‘death to competition by a thousand cuts’.
We had been concerned that Ofcom was not giving sufficient strategic and operational importance to the monitoring of Openreach for anti-competitive behaviour. There had been a tendency to consider behaviour on a case-by-case basis, rather than holistically as evidence of a pattern of conduct. Ofcom was also relying largely on its competition law powers to enforce competition issues after abuses have taken place, which can take years to resolve, rather than using ex-ante regulatory powers to prohibit anti-competitive conduct from the outset. Neither of these approaches addressed potentially anti-competitive behaviour swiftly enough.
This ‘sit back and see’ regulatory approach has already had a significant impact in the adjacent postal market: Whistl, a new entrant in the final mile market, raised a complaint with Ofcom about incumbent Royal Mail’s pricing tactics; Ofcom took 3 years to find in Whistl’s favour and issued a record £50m fine to Royal Mail, by which time Whistl had been forced to exit the market as a result of Royal Mail’s tactics. We cannot afford for the same thing to happen in the full fibre market. Ofcom needs to referee this market in real time.
We have seen much more encouraging signs from Ofcom in the past 3-6 months. Ofcom’s most recent consultation on its approach to regulation in the broadband market discusses extensively Openreach’s ability and incentive to use its dominant market position to foreclose rival network operators through wholesale pricing structures. It looks to make use of its sector powers, as we have sought, to prohibit anti-competitive pricing practices from the outset. The recognition of this threat by Ofcom is to be strongly welcomed.
Given the stakes and the urgency, we now look to Ofcom to set out a clear and well-communicated plan outlining how it will monitor and address anti-competitive practices. Government and regulatory policy must prioritise maintaining the emerging competitive pressure Openreach through the entire rollout period to 2025 and beyond – to keep the incumbent deploying at a rapid pace, so that we hit the targets, but also to prevent us slipping back to a market devoid of competition: under-investment, lack of choice, poor innovation, high prices. 4.3. Monitor the impact of ‘overbuild’ on the nationwide target
In addition to its ability to use potentially anti-competitive pricing strategies to undermine competition, Openreach also has a structural advantage in that it can choose to direct its own full fibre build programme to those geographic locations where it faces an imminent competitive threat from CityFibre and others, whilst de- prioritising other areas. An explicit expectation of Government and Ofcom policy is that such ‘overbuild’ will take place – this is, after all, infrastructure competition in action.
But vigilance is required to ensure that this ability is not used strategically as a means to ‘man mark’ competitors out of the market. We have sought assurances from Ofcom that it is monitoring the evolution of BT/Openreach build plans to ward against this kind of strategic behaviour. Greater transparency of Openreach’s plans, beyond the very limited forward look it currently provides, would give greater reassurance to CityFibre and other investors on this point.
The question of whether overbuild is a desirable approach per se and the meaning of competition in this context, has also been extensively debated given the challenging nature of the 2025 target. We believe the path laid by Government and Ofcom to support infrastructure investment in the last couple of years has been a strong catalyst for the development of our business. The policy model has been to encourage overbuild in urban areas which we believe has also been the spark for BT Openreach and Virgin Media to invest in new build at an accelerated rate.
However, there is a risk that if selected overbuild is pursued extensively at the expense of coverage the Government will not be able to realise its accelerated full fibre ambition. If the market structure that evolves is one of ‘islands’ of sub-scale overbuilders the long run competitiveness of the industry will be questionable, as those overbuilders will have limited financial capacity to keep investing at scale into the future compared to the incumbent operators. This is also unlikely to be welcomed by the major independent consumer ISPs and mobile operators, who we believe also have a preference to consume for national scale challengers.
The economic consequences of COVID-19 in mind in investment incentives and appetite for risk may force a reassessment of whether full fibre network duplication is the most effective way to achieve rapid coverage for all. This does not mean that the market should revert to monopolistic provision, but that overbuild could be managed for a strictly limited period of time whilst the focus is on completion of the coverage ambition.
4.4. Duct and Pole Access
Deploying full fibre nationally at speed requires us to make as much use as possible of the existing network of Openreach ducts and poles. Ofcom recognised this in its 2016 DCR, making duct and pole access (DPA) a key part of its strategy to drive fibre investment, predicting that it could reduce costs and time of competitive deployment by 50%. The Government also based its FTIR strategy, its network competition model and the original target of nationwide delivery by 2033, on Ofcom’s estimation that DPA could significantly speed up deployment and reduce costs for competitors.
We agree that DPA potentially has a pivotal role to play. We estimate that an effective DPA product could accelerate build in a typical medium-sized city by twelve to eighteen-months, as well as reducing disruption because of fewer road closures. CityFibre is the largest single user of DPA, accounting for 40% of all orders placed with Openreach since April 2019. We would like to use DPA in a substantial proportion of our 8m build, principally through the use of poles, which tend to be in a better condition and easier to locate than Openreach’s ducts.
Unfortunately, the promise of DPA has not yet been realised, with cost and time savings currently close to negligible compared with self-build. Progress in developing a workable product at national scale remains painfully slow, an experience shared across the industry. Our view is that the 2025 target will not be achievable unless there is a quantum and urgent shift in the ability to reuse these assets at scale.
While some problems experienced are being slowly addressed, the root cause is a misalignment of incentives: under the infrastructure competition model set out in the FTIR, Openreach is motivated to frustrate the development of DPA, which would otherwise lead to a loss of market share. Further, because Openreach is not required to consume its own ducts and poles on equivalent terms to alternative operators when rolling out its own full fibre network, a poor quality DPA product not only undermines competitors’ rollouts but gives Openreach a competitive advantage through its own deployments.
The current route to resolve these problems is through incremental regulatory and product development. The best estimate is that we are five years from having a DPA product that fulfils the claims initially made for it in terms of reduced cost and increased speed of full fibre rollout. This is inconsistent with DPA making any meaningful contribution to the 2025 target. For this reason, it is now time to consider more radical interventions, which could include:
o Forcing Openreach to consume DPA on a strictly equivalent basis as its competitors – this would address the competitive imbalance and provide clear incentives for Openreach to ensure DPA is effective.
o The separation of Openreach’s ducts and poles into a functionally separated business unit – DuctCo. Openreach itself was established to address BT’s incentives and ability to discriminate against retail competitors on its network. Now the policy focus has shifted to infrastructure competition, a strong case can be made for a further bifurcation of ‘DuctCo’ from the rest of Openreach.
Regardless of the solution, it’s now time for Ofcom, encouraged by Government, to make resolution of the DPA impasse a strategic priority.
5. Extend commercial rollout into semi-urban and rural areas to make sure nowhere is left behind
The infrastructure competition model will not deliver ubiquitous national coverage of full fibre. The economics of full fibre networks deployment get progressively weaker as the spatial density of properties to be connected diminishes. Ofcom estimates that the competitive market model may address up to 70% of the country; the Government has said that it believes that between 10% and 20% of the country will be so economically challenging that no commercial deployment (by even a single provider) is likely to take place without public subsidy.
This is not a problem confined to the most isolated properties or hamlets in remote parts of the country: millions of premises in semi-urban market towns, seaside resorts, ex-mining and industrial communities could be affected.
Given the substantial economic, social and societal benefits of full fibre coverage already discussed, it is clearly essential that policy instruments are deployed to plug this gap and that there is a collective industry effort to do so. We all have a part to play, CityFibre included, in completing the build, so that nowhere is left behind. HM Treasury has already allocated £5bn for an ‘Outside-In’ programme to subsidise rollout in the hardest to reach areas. This section argues that in addition to an Outside-In programme, a portion of funds and other policy measures, should be directed to addressing the semi-urban problem through a parallel ‘Inside-out’ programme.
5.1. Outside-in programme
The Outside-In programme has yet to be finalised, so the following comments are offered as initial thoughts based on our briefings from Government to date on its evolving policy approach. As we understand it the BDUK (Building Digital UK) team within DCMS is focusing the programme on the final 20% of premises. There are sound policy reasons for this approach – those currently experiencing the worst broadband connectivity must not be left until last again; and focusing on the least economically attractive premises first reduces the risk of the intervention programme inadvertently cutting across commercial deployments.
We understand that tranches of qualifying premises will be progressively released from next year onwards, under a centrally managed programme. Operators will be invited to bid for these tranches in what amounts to a ‘reverse auction’ process in which the bidder that requires the least level of gap funded subsidy to connect the premises will be awarded the tranche.
However, there is a risk that such an approach runs into the problem previously experienced with the Superfast Broadband programme: that only BT, realistically, can expect to win the resultant auctions and therefore is the only operator that mobilises to exploit the opportunity. The reason for this is that only BT has an extensive, pre- existing fibre network close to the target locations: ironically, much of it publicly supported via the previous Superfast Broadband programme. It follows that on a straight gap funding auction model, and if the locations are skewed towards the more remote rural locations, BT is realistically going to win close to 100% of the tranches.
This seems undesirable to us from a number of perspectives. In some respects it is inequitable for a single firm to be the recipient of up to £5bn of public funding in this way. But by its nature, if there is no competition for tranches, the prospect for the Government to obtain value for money is reduced as it is reliant on a single information source to determine what is, or is not, a viable level of gap funding required. Even with ‘clawback’’ mechanisms of the kind superimposed on the Superfast Broadband programme, this seems to us to be unsatisfactory.
In order to create greater scope for CityFibre and other firms to participate in the programme, we believe that two modifications of the approach would be required:
o ‘The Outside In’ programme to be complemented by an ‘Inside Out’ strategy allowing rival firms such as CityFibre to extend our core networks further into rural areas; and o Some modifications of the timescale for the delivery of the programme to allow us to participate.
On this latter point, our main focus between now and 2025 must be on the contractual fulfilment of our existing 8m rollout plan, which is focused principally on urban deployment. It would not be possible for us to separately mobilise to make significant contributions to the Outside In programme if this required us to divert substantial resources away from the execution of that plan and the resultant rural build was not additive to that plan.
Based on the last release profile we have seen, BDUK anticipate that the bulk of ‘bundle’ releases will coincide with our period of maximum effort to deliver our 8m plan. An added challenge is that despite BDUK’s aim of ensuring that some ‘bundles’ are adjacent to existing build plans, for challengers like CityFibre to be able to compete for bundles effectively with Openreach, who already have network in all locations (as noted above), CityFibre need to have substantial ‘spine’ network in place or in train within the location, to be able to extend out to these rural lots.
We will continue to engage with BDUK to discuss how the model can be adjusted to enable us to contribute. However, at present the only way that we could take part would be if there were to be a parallel ‘Inside-Out’ strategy and if a ‘resource crunch’ were avoided through careful design of these interventions so that the timing complements rather than competes for scarce resources.
5.2. Inside-out strategy
As we have stressed, full fibre rollout is likely to encounter not just a ‘rural’ problem, but a ‘small towns’ problem: significant numbers of premises will be uneconomic for commercial deployment, but not ‘rural’ enough for Outside-In funding. To address this problem a portion of the £5bn fund could be allocated to an ‘Inside-Out’ approach, aimed at extending commercial deployment into those small towns.
The economics of fibre deployment mean that when public subsidy is combined with private sector investment in these semi-urban locations, Treasury will achieve more ‘bang for its buck’ and greater coverage, than if it focuses solely on rural. A successful ‘Inside-Out’ intervention would also mean that CityFibre (and perhaps other commercial providers) would be well placed to participate in the Outside-In programme. We propose at least three strands to an ‘Inside-out’ strategy.
5.2.1. Local Full Fibre Networks programme
DCMS’ Local Full Fibre Networks (LFFN) programme was launched in 2017 to stimulate commercial investment in full fibre networks, by awarding funds to local bodies that assisted them to develop full fibre procurement plans (ie: the programme did not subsidise the cost of connectivity, but assisted the LA to think through its connectivity requirements and design an appropriate procurement vehicle, an inherently lower-cost form of intervention).
CityFibre has been heavily involved in the LFFN programme and we consider it a very successful example of how a fairly limited amount of public subsidy and guidance can enable us to substantially expand our network footprint beyond our core metropolitan areas into smaller towns and villages.
In our view the best way to extend full fibre build beyond the most urban areas is to prioritise investment in ‘spine’ networks in towns and cities, as they act as springboards for further commercial deployment. In turn, the most effective way to stimulate investment in spine networks is through the aggregation of public sector demand. This approach lies at the heart of LFFN and has successfully helped us to add the following locations to our build plan: Chichester, Arun (Littlehampton, Bognor Regis), Horsham, Adur (Lancing and Shoreham), Lowestoft and Bury St Edmunds, and public sector sites in Gosport, Fareham, Havant and Waterlooville.
LFFN also helps to create the right procurement behaviours within Local Authorities, shifting their focus away from immediate short-term requirements towards procuring for long-term connectivity needs.
For these reasons we believe that if structured and delivered correctly, further waves of LFFN funding specifically focusing on county-wide, rather than just urban deployments, would play a major role in helping CityFibre and others to extend our build into towns and villages that would otherwise be uncommercial. It would also provide us with the ‘bridge’ we need to engage with the rural ‘bundles’ that are part of the Outside-In programme. It would also, of course, enable non-metropolitan local authorities to reap the same direct benefits of enhanced connectivity that the existing LFFNs have afforded to successful bidders.
Crucially, the sums of money that would need to be set aside for further LFFNs is small relative to the cost of gap funding in rural. We estimate that a further wave of stimulus funding might involve a commitment of no more than £250m to unlock benefits of up to ten times this in private sector investment.
We are therefore concerned that our initial discussions with BDUK indicate that further stages of funded LFFN are not planned, and that it will be replaced with guidance to local authorities to encourage fibre procurement. In our view, without proper structuring or funding, this would be a major missed opportunity for a value for money public intervention that would have a material impact on rollout in semi-urban and rural areas. It would also significantly curtail CityFibre’s ability to contribute to the final 30%.
5.2.2. Backhaul funding
In some locations it is not the distance between properties that makes deployment economically challenging but the deployment of spine or ‘backhaul’ network into those communities. Many of the left-behind smaller towns and larger villages in the UK have the characteristic of being spatially separated from larger urban areas and have often had historically poor interconnection to the main telecoms spine networks. Examples of this include some of the UK’s densely populated ex-mining towns and villages that are dispersed across otherwise rural settings, where the cost of backhaul makes commercial full fibre deployment unviable.
One aspect of an Inside-Out strategy that should therefore be considered is ring-fenced funding for backhaul. Creative solutions to the ‘backhaul problem’ have already been demonstrated, most notably by one of our partners West Sussex County Council, where as part of the LFFN programme the LA retained some of their business rates income to subsidise the cost of backhaul. This approach seems to us to be a highly targeted form of assistance that can have material effects directly contributing to the Government’s aims.
5.2.3. Safe harbour for co-investment
Another approach that could play a major role in securing rollout in left-behind towns is co-investment arrangements between commercial players. Specifically, this could be a solution where deployment is viable for a single full fibre network but cannot support two competing full fibre networks, meaning that operators hold off from deployment for fear that overbuilding by a rival will fatally undermine the investment case. Ofcom and Government, in its FTIR, have already acknowledged that this ‘hold-up’ problem could occur in ‘some parts’ of the UK – we suspect that the problem may be larger than both have anticipated.
Co-investment arrangements between operators, often encouraged or mandated by Government and/or the regulator, have been a key feature of advanced full fibre markets , e.g. Spain and Portugal. Other EU nations, for example the Netherlands, are now encouraging these cooperation arrangements in an attempt to speed up or address specific shortfalls. These arrangements can take a number of forms including agreements to share existing infrastructure or co-investment agreements for future mutual build.
In the UK, the Government noted in its Strategic Statement of Priorities (SSP) that “it is important that firms are able to agree appropriate commercial deals that share the risks and gains from network deployment to support investment. There should be flexibility for firms to develop new approaches to reduce deployment costs and manage risks through commercial risk sharing and co-investment arrangements.” Government then asked Ofcom to step in: “although these will be commercial decisions for operators, the Government expects Ofcom to play a role in facilitating such arrangements where appropriate”. As far as we are aware Ofcom has not taken any steps to facilitate co-investment in the UK.
Without explicit action by Government, Ofcom and/or the Competition and Markets Authority to encourage and enable co-investment arrangements, industry is wary of engaging in meaningful discussions for fear of inadvertently breaching competition law. Major players are now calling for steps to be taken to address this, including BT CEO Philip Jansen, who at a recent Downing Street fibre summit told the Prime Minister that “rivals must be allowed to co-operate if the challenging economics of installing ultra-fast full-fibre networks for sparsely populated regions are to be overcome” and “that competition rules must be clarified”.
CityFibre agrees that Government and regulator action is required, noting that collaboration as a means to completing rollout has made significant progress in the mobile space with the agreement of the Shared Rural Network in March 2020. Now is the time for Government to use its convening power to create a ‘safe harbour’ for legitimate discussions between operators and regulators in the fixed market.
6. Remove build barriers
Early on in Government’s switch to prioritise full fibre, the importance of addressing physical barriers to deployment was recognised with the establishment of DCMS’s Barrier Busting Taskforce, which has achieved much good work. Legislation to address two barriers – absent landlords and full fibre in new build developments – have now been introduced into Parliament. However, while these Bills are welcome, they do not address two core barriers that CityFibre faces – shareable wayleaves and workforce shortages.
6.1. Wayleaves
Like other operators we experience many barriers relating to wayleaves, including: delays in negotiating wayleave agreements with large landlords; landlords demanding large payments; landlords signing ‘exclusive’ wayleave agreements with a single fibre provider, which limits the development of competition; and challenges and costs relating to establishing who has the legal right to grant a wayleave.
Planned legislation to make securing wayleaves easier is welcome, but more ambition and urgency is required to address the barriers cited above and, in particular to address the barrier that is having the most significant impact on our rollout and on competition: lack of shareable historic wayleaves.
Openreach, by virtue of its parent company BT and before it the General Post Office, has an assumed right to hundreds of thousands of wayleaves agreed historically. In these cases Openreach assumes an existing right to access land to be able to install fibre, whereas other operators must agree new individual wayleaves with each landowner. This creates a competitive advantage for Openreach and delays the rollouts of competitors.
This is creating significant challenges in our attempts to use DPA in Scotland, where c.50% of poles sit on private land. Whereas Openreach can access its own poles on private land using the existing wayleaves, CityFibre must negotiate with the landowner of each pole to secure new ones. This creates serious delays to rollout, which can be compromised by failure to agree access with a single landowner in a row of poles. This significantly undermines the principle of DPA as a means to speed up roll up and increase competition and also increases disruption for communities as we are forced to self-build where we cannot secure the necessary wayleaves.
In 2017, the Digital Economy Act rendered unlawful any provision in a wayleave which prohibits sharing the rights granted by that wayleave. However, the problem remains for wayleaves granted before 2017. We would strongly welcome an extension of the reforms to make this provision retrospective, extending it to all wayleaves for the purposes of sharing to allow installation of fibre under the DPA.
There remains the general question as to whether full fibre should be treated for wayleave purposes as critical infrastructure like gas, electricity and water. One observation of the Covid-19 crisis is that many public services which can address the health and safety of UK citizens can be delivered over a full fibre connection. We find that the practical process of securing wayleaves for social housing, care homes and other multi-dwelling units remains time consuming and expensive even when the residents and tenants in these premises want to buy a full fibre product. We see many vulnerable people living in this type of accommodation. We believe an examination of granting enhanced wayleave rights to fibre builders to these types of premises for a time limited period up to 2025 would be beneficial.
6.2. Workforce
CityFibre outsources the construction of our networks to civil engineering contractors, who in turn either directly employ or sub-contract workers across a range of job types, skillsets and remuneration bands, including civil operatives or ‘gangs’. We estimate that our programme will require between 5,000 operatives (if we can make good use of DPA, as above) and 7,000 operatives (if we must build predominately underground).
However, we are already observing an operative shortfall well before we reach our maximum rollout rate. If we cannot address the shortfall it will have a material impact on our deployment plans. We understand that others in the telecoms industry – who are attempting to resource their builds from the same pool of contractors and sub- contractors – share our concerns: shortage of workforce should therefore be seen as a significant risk to the Government’s full fibre ambition.
The existing shortages are significantly aggravated by a number of factors:
The UK’s points-based immigration system: up to 60% of the contractors for underground deployment are non-UK citizens, predominantly from Eastern Europe, Portugal, Spain. They tend to be highly mobile and price sensitive, and can easily serve the broader utilities construction sector, as well as telecoms.
Under the Government’s new points-based immigration system, from 2021, when we will be approaching our maximum run rate, there will no longer be a visa route for these non-UK workers: o They do not have a ‘job offer’ as they are usually self-employed through our contractors. o In the main they do not meet the minimum salary threshold of £25.6k: they are paid per metre or homes passed and most gangs will not exceed this remuneration level. o They do not meet the skill or education threshold: on-the-job health and safety training is required, but not at the level to amass points. o These jobs are not currently on the Migration Advisory Committee’s Shortage Occupation List, which is not designed to anticipate future shortages.
In short, the new Immigration Strategy will prevent workers from overseas being resourced to address the existing shortfall and may cause many workers already here to choose to return home, thereby making the shortfall worse. DPA use is far from optimal: Around twice as many operatives are required for ‘green field’ underground deployment as for aerial deployment using Openreach’s poles. These operatives also tend to require higher qualifications and training, generally receive higher salaries and are therefore more likely to qualify for a visa. This means that a workable scalable DPA product is critical not just to speed up deployment and lower costs, but to minimise the number of ‘at-risk’ underground operatives required.
The network competition model: Government and Ofcom’s preference for head to head network competition is resulting in multiple deployments from competing operators in the same location, which heightens competition for workers and causes prices to rise. It also increases the level of build activity overall.
To address this critical resourcing challenge, CityFibre plans to recruit, mobilise and train many new operatives in the next 2 years. Our aim is to unlock a wider pool of labour within the UK, with non-UK workers utilised if required, by acting as ‘broker’ for our contractors, who are often SMEs that do not have the scale, capacity or internal expertise required to ramp up recruitment and training to the level required.
We have appointed a nationwide recruitment provider to target applicants from a variety of backgrounds, including ex- offenders, ex-armed forces (through the armed forces covenant), career transitions, school leavers and construction colleges. We will work with our supply chain to develop this new talent through accredited training schemes and to retain them in the sector, so that telecoms represents a long-term career option.
As we look to proactively address the resourcing shortfall, support from Government can play a decisive role:
o by ensuring that available Government apprenticeship schemes align with our needs, and by helping us to expand capacity and competition in the training provider market, with the three available BT- accredited providers are already at capacity; o providing consistent and transparent funding support to upskill and put people to work; o enabling time-limited access to non-UK fibre workers to supplement recruitment from within UK.
On this last point, we acknowledge that the objective of the points-based system is to “shift the focus of our economy away from a reliance on cheap labour from Europe and instead concentrate on investment in technology and automation.” We are investing heavily in recruiting and training UK workforce, but we may not be able to scale the workforce quickly enough to allow us to deploy at the pace the Government requires.
In its report to Government on the points-based system the MAC indicated a way forward: “some of the largest expected impacts are in sectors that primarily employ lower-skilled workers that would not be eligible under the proposed restriction to medium-skilled and higher-skilled workers. If the Government is concerned about these impacts, it could address this through another route; for example, something like the temporary worker route which was proposed in the Immigration White Paper, or via sector-based schemes which were mentioned during the election campaign.” We therefore believe Government should explore a tightly defined visa allowing non-UK fibre operatives to work in the UK, which is time-limited until nationwide coverage is complete.
7. Enable smooth full fibre adoption to unleash the benefits
For UK consumers and businesses to reap maximum benefit from full fibre networks once built, they need to be able to easily switch to them. Similarly, to benefit from competition, consumers must be able to switch away from incumbent networks if they choose to do so. The demand side of the market is also inextricably linked to supply: adoption of full fibre will be the greatest enabler of investment in and deployment of full fibre. However, to date, insufficient attention from Government or Ofcom has been given to the demand side of the full fibre journey.
In its FTIR in 2018, Government begun to consider these issues, saying that it would set up “a mechanism with Ofcom and industry” to oversee the switch-over process, and outlining a number of principles:
A timely switchover; efficient, so that switchover is smooth with minimal consumer disruption; transparent, so that customers have the information they need to make informed choices and clearly signalled via notice periods, so operators have certainty; consistent, with existing regulatory and consumer obligations; pro-competitive, so processes are in place to support easy switching between networks; and a fair deal for consumers, including adequate safeguards for vulnerable customers.
At the time we welcomed these principles, but two years on neither a coherent switchover strategy nor a mechanism to oversee them has been established. We are particularly concerned about progress in tackling three switchover barriers: misleading consumer information; a lack of a regulated process to make switching itself as smooth as possible; and a copper switchover strategy that supports competition.
7.1. Enabling consumers to make an informed choice to switch
A persistent problem over many years in telecoms has been the mis-selling of products – for example in relation to ‘up to’ speeds. Now a new front is opening up: the doorstep reaction where CityFibre is building is often: ‘We don’t need this – we already have full fibre.’ Except of course, the customer does not: they have been sold a part- fibre connection advertised as ‘the ultimate fibre broadband’ or something similar.
It is a long-standing concern of ours that not enough is being done to require clarity in the labelling of different types of product. The Government agrees. The 2017 Digital Strategy said broadband advertising should “accurately describe the technology used, using terms like ‘fibre’ only when full fibre solutions are used”. Digital Minister Margot James MP said that part-copper connections described as ‘fibre’ is “misleading advertising”.
In 2017, the current Digital Infrastructure Minister Matt Warman MP, then a backbencher, led a Westminster Hall debate on fibre advertising, arguing that “where a service is advertised as fibre, it should be entirely a fibre service” and called on the Government and the ASA to take action. The current DCMS Committee Chair Julian Knight MP, who also took part in the debate agreed, saying that “fibre should refer only to actual fibre broadband, not to part-fibre, part-copper or aluminium solutions. I hope the Advertising Standards Authority understands that fundamental point and that that message rings loud and clear today.”
Despite these clear calls for action, the issue remains unresolved three years on from that debate. Millions of consumers now have access to full fibre, and millions more will have access within the next 12 months and yet the rules still permit part-fibre broadband to be advertised as ‘fibre’.
The ASA did consider the issue in late 2017, but concluded according to its own narrowly defined complaints-led criteria that fibre advertising was not yet a problem because not enough people yet had full fibre, effectively passing the baton to Ofcom. Ofcom said in its 2020/21 work plan that it will consider “whether [consumers] would benefit from more information about the characteristics and capabilities of gigabit-capable / ultrafast fixed and mobile broadband technologies” as part of a wider piece of work “to ensure that people and businesses have the right information to make informed decisions about the broadband services best for them”. But as yet this project has no terms of reference or a predicted date for conclusion.
We continue to believe that as part of coherent full fibre strategy, Government, Ofcom and industry must work together to clearly present the full fibre case to consumers. This includes finding ways to enable consumers to differentiate between part and full-fibre, which are fundamentally different products. The UK could learn from Italy, where the regulator has introduced a simple traffic light system, which categorises broadband products according to whether they are copper, hybrid copper/fibre or full fibre products. Simultaneously, as has been the case in France, we must bring to an end advertising practices which deliberately exploit the existing confusion, and lax advertising rules, to keep consumers on inferior copper products at a time when it is the Government’s clear policy priority to move all consumers onto superior full fibre products.
7.2. Enabling smooth switching full fibre
Levels of switching in the fixed telecoms market are low compared with other regulated sectors, as is illustrated in a recent Which? study. But to realise the benefits of full fibre, consumers will need to switch away from their current network, potentially to a competing infrastructure. Given consumers’ lack of propensity to switch, it is imperative that once the decision to move provider has been made that the switch itself is as hassle-free as possible. Regulatory processes exist to ensure smooth switching in other parts of the telecoms market, for example when switching mobile providers, with the ‘Gaining Provider Led’ process (GPL), where the provider that wins the customer manages the migration without the customer needing to contact the losing operator, seen as the gold standard.
The industry is currently in dialogue with itself and Ofcom to agree the process for fixed (phone and broadband) switching that will apply from 2021 onwards. Ofcom are being presented with two options, ‘true GPL’, which is like to significantly increase propensity of consumers to switch by minimising the number of active steps the consumer needs to take to effect the switch and an alternative approach that would require the consumer, on their own initiative, to cease their existing contract and obtain a code that permits them to switch supplier.
Not surprisingly, some of the incumbents with most to lose from easier switching to competitors are resisting the more consumer-friendly ‘true GPL’ option in favour of one which places hurdles in the way of the consumer moving away. Ofcom needs to act with firmness to mandate a true GPL switching process in order to ensure switching becomes easier and competition is promoted.
7.3. A competitor neutral switchover from copper
While insufficient policy and regulatory attention has been paid so far to the voluntary adoption by consumers of full fibre, there has been greater focus on creating a path for Openreach to ‘retire’ its copper network – ‘copper switchoff’. Before such a switch-off can take place, in addition to gradual voluntary migration, there will likely need to be forced migration of many consumers from copper to fibre, which will take a huge collective effort from Government, Ofcom and the wider telecoms industry.
Government recognises this and has asked Ofcom to consider ‘a switchover process to enable consumer migration to gigabit-capable services’. However, Ofcom’s section on ‘Copper retirement’ in its WFTMR consultation presents both the issue and the proposed remedies entirely as an Openreach issue – the migration of consumers from Openreach’s copper to Openreach’s fibre. This is concerning, because an Openreach dictated mass migration ahead of copper switch-off risks distorting competition and putting consumers at risk.
Ofcom do not appear to have considered how the migration will take place in areas where – in line with its own strategy for competition – Openreach has not deployed fibre networks but competitors have (which could constitute millions of properties) or where Openreach’s fibre will be competing directly with fibre from an alternative provider. In either scenario, both ISPs and consumers should have the choice of switching onto this alternative full fibre network. These scenarios are likely to come to pass sooner than might be thought, with build in our earliest cities, for example Stirling, already exceeding 75% coverage, the threshold that Ofcom has said would trigger Openreach’s switchover process.
In anticipation of this, and absent sufficient regulatory guidance, CityFibre has decided itself to consult the telecoms industry and other stakeholders on how ISPs can migrate their customers smoothly onto our networks from Openreach, while protecting consumer interests. We will be sharing the learnings of our consultation with Ofcom and Government and urge them to work them into a competitor neutral copper switch-off strategy.
8. Conclusion
We have welcomed the increasing full fibre ambition of the Government over the past four years. Johnson’s 2025 nationwide target, although incredibly challenging, is the right ambition and has successfully galvanised the industry to speed up and search for ways to go further, faster.
The upsides of nationwide full fibre availability, and the risks of leaving parts of the country behind on copper, are all the greater in a context where we are not just trying to level up across regions but rebuild our economy. For those reasons we urge Government stick with the core elements of the Prime Minister’s promise to the electorate by choosing the right long-term technology – full fibre – for the vast majority of the build across the whole country, as soon as possible, with 2025 remaining the right target to aim for.
However, to be able to come close to this timeline, both Government and Ofcom need not just to speed up the delivery of their existing strategies but ensure those strategies themselves are aligned to the revised schedule. At present, without the steps we have outlined in this submission, the plan on the table is unlikely to deliver 2025.
The Government’s official blueprint for full fibre rollout remains the 2018 FTIR document, which foresaw completed rollout in 2033. It is not enough to simply to turn the wheel on existing policies and expect 8 years to be shaved off delivery. As well as overseeing the full fibre delivery strategy as a whole, Government should look again at the elements of the plan it can control – for example in relation to ‘the final 30%’ and build barriers – and ensure that its strategies align with an accelerated timeline.
Similarly, Ofcom, who hold responsibility for two of the principle levers – competition and consumers – need to give sufficient weight to full fibre market both in its overarching strategy and its day to day work. This will become increasingly difficult as Ofcom’s overall remit expands to cover online harms. For example, we were concerned that in its Annual Plan 20/21 only one workstream is aimed squarely at full fibre delivery – Duct and Pole Access – with no mention of work monitor and enforce anti-competitive behaviour or work to help consumers transition from copper to full fibre. Ofcom’s WFMAR contains some encouraging signs in relation to competition. Under the new CEO, these words now need to be turned into action and promised workstreams on the consumer side need to be started, completed and joined fully to the supply side strategy. Coordination between Government and Ofcom is also key – although rightfully independent, the shared full fibre ambition will not be realised if Government and Ofcom do not work in tandem. This means that guidance offered in the Government’s ‘Strategic Statement of Priorities’ to Ofcom outlining the areas where the regulator needs to take action, must be fully baked into the regulator’s own workplan.
From the part of industry, CityFibre remains fully committed to the Prime Minister’s ambition and remain optimistic about our ability to deliver:
We can complete rollout in urban cities and towns, if Ofcom protects the spark of competition. We can do our share of rural and semi-urban, so nowhere is left behind, if Government programmes help us to extend our urban rollouts. We can deploy at pace to meet the 2025 target, if Government removes physical build barriers We can level up access to full fibre and close the digital divide, if Government and Ofcom help consumers to understand and switch to full fibre.
As we look to rebuild our economy, now is the time for Government to bring stakeholders together, to update and execute a refreshed full fibre plan. Parliament, through the Committee, has a crucial role in scrutinising this plan at regular intervals, as we will not get another chance to get this right.
ANNEX 1
62 CityFibre announced build locations
Barnsley Maidenhead Bath Middlesbrough Blackpool Norwich Bognor Regis Nottingham Bracknell Poole Brighton & Hove Portsmouth Bury St Edmunds Preston Chatham Reading Cheltenham Sheffield Chester Solihull Chichester Stoke on Trent Christchurch Weston-super-Mare Crawley Wolverhampton Dundee Worcester Eastbourne Aberdeen Gateshead Adur & Worthing Gillingham Batley Glasgow Bournemouth Gloucester Bradford Halifax Cambridge Horsham Coventry Littlehampton Derby Dewsbury Milton Keynes Doncaster Newcastle-upon-Tyne Edinburgh Northampton Huddersfield Peterborough Inverness Rotherham Ipswich Slough Leeds Southend Leicester Stirling Lowestoft Swindon