Broadband policy could bring back BT monopoly, claims Lords report

The government's broadband policies risk giving BT even more of a monopoly over the UK's super-fast fibre broadband networks than it used to have over copper, a group of peers has said in a report.

The Lords Select Committee report on Communications, published on Tuesday, accuses the government of focusing too much on short-term speed targets and not enough on future upgradeability. The peers also criticised the government's approach to subsidies for rural communities, saying it had effectively eliminated competition to BT in those areas and failed to serve urban citizens who are on the wrong side of the 'digital divide'.

"Government policy has become preoccupied with the delivery of certain speeds to consumers. This, in our view, has had a detrimental effect on policy-making and the long term national interest," the lords said. "The delivery of certain speeds should not be the guiding principle; what is important is the long-term assurance that as new internet applications emerge, everyone will be able to benefit, from inhabitants of inner cities to the remotest areas of the UK."

The peers acknowledged that full fibre-to-the-home (FTTH) across the UK would be ideal, but currently too expensive to roll out. So they suggested an alternative solution: open-access fibre hubs across the country. These, they said, would ensure real competition and future upgradeability.

"Fibre-optic cable, the most future-proof technology, must be driven out as close as possible to the eventual user," they continued. "Then, as well as mandating open access to this optical fibre from the cabinet to the exchange, we need to ensure that there is open access to links between the exchanges that feed the cabinets, and to the higher level links into national and global networks."

The peers also suggested other moves to boost connectivity, such as switching off digital television in favour of an all-IP broadcast system, so as to free up more spectrum for mobile broadband.

Monopoly money

Little over a decade ago, BT was forced by regulators to split its retail and network operations (the latter of which became Openreach). In a process called unbundling, Openreach has to let rival ISPs install their own equipment in BT's exchanges, so that they effectively take control of the copper connection between the exchange and the customer's premises. This lets those ISPs create differentiated services and avoid having to resell BT's wholesale connectivity.

In the fibre age, there is as yet no direct equivalent. Instead, Ofcom has mandated something called 'virtual unbundling', or VULA. As the lords pointed out, this is similar to full unbundling, but it requires the smaller ISPs to have BT's equipment at both ends of the line — in other words, it means they have to resell BT's services again, with no differentiation apart from the branding.

The European Commission has insisted that virtual unbundling can only be a temporary measure, and that full unbundling will have to be imposed as soon as possible. However, Ofcom has given no suggestion that full unbundling is on its way at all.

Meanwhile, the government is handing out £530m to ensure that certain speed targets are met: 24Mbps to 90 percent of premises, with the rest getting at least 2Mbps, by 2015. In rural areas, it has become clear that BT is the only ISP still in the game — all its competitors (with the possible exception of Fujitsu) have pulled out, either giving up in the face of BT's sheer size, or complaining about the apparent unfairness of the procurement rules.

"This 'competitive flight' removes the threat of competition and hence the presence of any real pressure or urgency on BT to invest itself — a set of circumstances which may have one of two outcomes: no investment, and no further infrastructure construction at all... or investments are made, perhaps stimulated by subsidy, but which may be short term, with no easy upgrade path to accommodate future demand for enhanced capacity, and which will not serve the interests of the UK more widely," the peers said.

Add that to the lack of full unbundling, the lords suggested, and you risk an effective monopoly.

"Government subsidy is being used to fund a new world in which there may actually be less competition than there was over copper — reinforcing BT's market power," they said.

Fibre hubs

According to the committee, open-access fibre hubs would give the super-fast broadband rollout more long-term viability.

The suggested scheme would effectively remove public subsidy from the 'last mile' connection into the premises, trying instead to make it more attractive for local ISPs or councils to invest in the last mile by offering them a fairer deal than is currently available.

The idea of hubs is not new — indeed, the government itself kicked off its broadband policy by calling for a "digital hub" in every community, but then quietly let it drop over time.

"A key feature of open access fibre-optic hubs would be the fact they are precisely that — open access, meaning any third party, not merely the incumbent provider, would be able to use them," the committee wrote. "This would enable any type of access network to be built by any local community, SME or infrastructure provider to make the final connection between the hubs and people's properties, so long as they meet certain mandated technical standards.

"To that end, once fibre is driven out to the hub, we anticipate the emergence of a new industry of infrastructure providers who will be able to respond to local demand and build out local access networks accordingly."

The idea does not come without its problems. The peers admitted that they had not costed the scheme, but said the government should do this instead, because it would be saving money by not subsidising the last mile.

Additionally, BT's network currently does not use open standards, so new national standards would have to be agreed upon to make all these community networks properly interoperable.

The hubs would also need to use BT's dark fibre, which is fibre that BT has laid but that is not yet switched on — effectively, capacity for a rainy day. The Commission wants this fibre to be opened up, but that would require a rule-change in the UK. Ofcom will be consulting on such a change later this year.

Muted response

The report is very lengthy, so it is unsurprising that those at whom it is aimed — Ofcom and the government — have both said little more than "we will respond in full in due course".

The Department for Culture, Media and Sport (DCMS) added that it believes "that working with the private sector and local authorities is the best and most cost effective approach", and said it was on track to hit its targets.

BT responded by claiming it was already delivering an "open network" to as many communities as possible.

"This new network — which already passes 11 million homes and which will soon pass millions more — is open to all ISPs on an equal basis and more than 50 ISPs are using it," BT said. "Companies can also lay their own fibre using BT’s ducts and poles should they wish so there is plenty of room for competition. This level of open access is unparalleled in Europe and so the UK is well placed to have one of the best super-fast networks in the continent by 2015."

However, the Independent Networks Co-operative Association (INCA), which represents localised ISPs and has long called for more community fibre schemes, welcomed the report.

"The Lords Report proposes that state funding should only go to operators that are prepared to provide open access down to the passive layer - i.e. dark fibre. This is strongly supported by INCA members, many of whom are keen to contribute towards building this new national infrastructure, but only on terms that don't disadvantage them in competition with BT," INCA said.

"The original ideas for community hubs were put forward by groups developing community broadband projects, often in the most challenging areas for extending broadband reach," the co-operative added. "By ensuring that all communities have access to fibre backhaul, accessible on a non-discriminatory basis, local schemes can flourish, stimulating demand, raising investment and partnering with the private sector."