ANALYSIS & OPINION

Policy shift sees the UK start on a full fibre diet

This week, the UK government handed broadband operators a double helping of encouragement to deploy fibre networks all the way to homes and businesses.

In the Autumn Statement outlining its future spending plans, the government allocated £400 million over four years to invest in deployment of full fibre networks, while also offering a five-year moratorium on the business rates charged on fibre networks.

It hopes the investment will bring fibre networks to millions more properties by 2020. Currently fibre to the home connections are only available to 2 per cent of households in the UK, according to the regulator Ofcom.

This “heralds a significant shift in [broadband] policy, with the Government taking a technology-specific, rather than technology-agnostic and outcome-based approach,” points out Alex Holt, KPMG partner and head of technology, via a statement.

Previously the UK had targeted the roll-out of superfast broadband – defined as download speeds of 24Mb/s or more – to 95 per cent of the UK population by the end of 2017, overseen by Broadband Delivery UK (BDUK). Around £1.6 billion of public investment from both local and national authorities has been channelled through this programme.

In the next phase, outlined in the Autumn Statement, the government has pledged to make at least a further £1 billion available to catalyse investment in digital infrastructure. “This will bring faster and more reliable broadband for homes and businesses across the UK, boost the next generation of mobile connectivity and keep the UK in the forefront of the development of the Internet of Things,” stated Chancellor Philip Hammond.

Under the proposals, the new National Productivity Investment Fund (NPIF) will be created with £23 billion in funds to improve roads, rail and other key infrastructure assets over the period to April 2021 – part of the government's plan to shore up the UK economy in the wake of the Brexit referendum.

From this fund, £740 million will be used to stimulate the roll out of fibre networks and support 5G mobile connectivity trials: £25 million in the coming fiscal year, £150 million in 2018/19, £275 in 2019/20 and £290 million in 2020/2021.

It was also confirmed that £400 million will be put into a Digital Infrastructure Investment Fund, to stimulate investment in new full fibre networks over the next four years. The finance will be aimed at emerging fibre broadband providers looking to scale up, who will be expected to at least match the amount invested.

A slice of the £740 million, we assume, will also be used to invest in what the government calls “a much bigger fibre ‘spine’ across the UK”, making it easier for businesses to get fibre connections and bringing together public sector demand. The government will work in partnership with local areas to deliver this, but doesn’t yet know how it will be achieved. A call for evidence on delivery approaches will be published shortly, the chancellor said.

Coming as a surprise to many was the announcement of 100% business rates relief for new fibre infrastructure for five years from 1 April 2017. This should improve the near-term business case for operators deploying fibre networks, but does not address their real concern – the fact that lit fibre cables are considered a taxable asset of significant value. The telecom sector was in uproar in September over proposals to increase business rates on fibre fourfold from next April, which they insisted would hamper investment.

Reactions: we have reactions

Commenting on the news, Malcolm Corbett, CEO of the Independent Networks Co-operative Association, which represents alternative network providers, said, “The Altnets are the entrepreneurial companies and communities building new, future-proofed, pure fibre and wireless networks. They are doing a fantastic job and the Chancellor's support signals that Government is serious about creating a more competitive environment for new digital infrastructure. Digital Minister Matt Hancock said that pure fibre and wireless networks are the future. We agree and we are building those networks today."

Matthew Hare, chief executive at rural broadband provider Gigaclear, also welcomed the government’s proposals this week. “Chancellor Philip Hammond’s Autumn Statement is a pro-business, pro-infrastructure, pro-fibre announcement. As a company delivering new fibre networks to rural England, this sets the tone for helping Gigaclear to accelerate the rollout of great fibre up and down the country. The relief on business rates for those building new fibre infrastructure from April is, of course, welcome,” he said in a statement.

Major broadband providers BT and Virgin Media were less enthusiastic, however. In an interview with the Financial Times (subscription required), Virgin Media chief executive Tom Mockridge ridiculed the government “for spending money that it doesn’t have”, in view of the high levels of public debt. The Virgin Media head also argued that public subsidies were not needed, given that Virgin is spending £3 million to expand its network, including reaching 2 million more homes with full fibre (see Virgin Media doubles fibre to the premises target).

BT, which has been the main recipient of government broadband subsidies to date, had previously outlined plans to invest $6 billion of its own money on ultra-fast broadband, which includes rolling out FTTP to some 2 million homes. But the operator’s main push is to reach 10 million properties with G.fast, a technology that uses existing copper wiring to transmit signals over the last few hundred meters. BT also appears to be preoccupied with an ongoing regulatory review, and the question of whether the Openreach network business can remain part of BT (see BT avoids breakup following Ofcom digital review).

Broadband rival Sky took the opportunity to renew its call for Openreach to be split away from BT. “We welcome the Government’s announcement on broadband investment, which chimes with our view that the future is full fibre. … But we won’t achieve the necessary step change in driving full fibre investment across the country unless Ofcom also takes bold and decisive action on the future of BT Openreach,” said Andrew Griffith, Sky’s Group chief operating officer.

Stuart Orr, advisory partner at EY, has the final word: “Additional funds to fuel the rollout of faster broadband come at an important time. While the UK scores well compared to other markets in roll out of ‘entry level’ fibre broadband, other countries and their economies are already benefiting from extensive coverage of ‘full fibre’. At the same time, a continued focus on connectivity speeds in rural areas must remain a priority for providers.”

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