The UK Government has described how it plans to spend the £400 million investment aimed at bringing bring ‘full fibre’ connections – installing fibre-optic cables to individual properties – to two million more homes across the country.
The £400 million was originally announced in the Chancellor’s Autumn Statement 2016 to back up its ambition for more fibre-to-the-premises (FTTP) connections in the UK (see Policy shift sees the UK start on a full fibre diet). Currently, only two per cent of households in the country have access to full fibre connections, according to the regulator Ofcom.
There are limited funds available for the task, so the government plans to use its cash to catalyse investment from the private sector. It hopes that the Digital Infrastructure Investment Fund (DIIF) will unlock more than £1 billion for full fibre broadband and kick start the demand for better broadband connections across the country.
Launching the fund during a visit to Peterborough today, the Exchequer Secretary to the Treasury Andrew Jones MP said: “We are investing £400 million to make sure the UK’s digital infrastructure is match-fit for the future. As technologies change and people’s habits move with them, it is crucial we play our part to ensure Britain stays at the front of the pack.”
The government hopes that the new fund will change the dynamic in the industry, resulting in more alternative network providers entering and expanding in the market. The fund will be managed on a commercial basis by private sector partners, to generate a commercial return for the government.
Deputy chief executive of the Infrastructure and Projects Authority (IPA) and government head of project finance, Matthew Vickerstaff, said: “Full fibre digital communication networks will be a crucial part of our future infrastructure and will require substantial investment from the private sector. The launch of the Digital Infrastructure Investment Fund will help accelerate the roll-out of ultra-fast digital networks by increasing access to private finance for companies delivering them.”
Peterborough, where the announcement took place, was cited as an example of how such an investment could be put to work. The city has a 120km core fibre network built by an independent network builder CityFibre that connects 300 sites, including schools, hospitals, and all six business parks. With the Peterborough core network established and benefiting from a motivated local authority, the city is now a prime candidate for further extension of the network to residential areas, which the DIIF could help finance.
Two infrastructure investment firms have been appointed to manage these funds: Amber Fund Management Limited, and M&G Investments, part of Prudential Plc.
The fund will be split into two portfolios, with Amber managing the National Digital Infrastructure Fund (NDIF). International Public Partnerships, (INPP), a FTSE 250-listed infrastructure investment company to which Amber is an advisor, has committed up to £45 million to the fund, in additional to a commitment of £5 million from Amber and £150 million from the government.
M&G Investments will team up with merchant bank Cameron Barney to launch a dedicated vehicle for broadband investment: Digital Infrastructure Investment Partners (DIIP). M&G intends to raise additional money from its pension fund clients to invest in broadband connections across the country while M&G’s infrastructure debt business will also make funds available to businesses rolling out new networks across the UK.
Commenting on the news, John Mayhew, M&G Investments, said: “We are pleased to be working with HM Treasury in order to play our part in delivering world class, high-speed broadband infrastructure in the UK. This approach ensures that Britain is ready for the future and brings benefits to families and businesses across the country who rely on fast and greater connectivity, as well as ordinary savers through the returns generated for their pension funds.”
M&G Investments has previously invested in the broadband sector through its infrastructure arm Infracapital, including a major in investment in alternative network provider Gigaclear (see Pension fund invests in rural fibre provider Gigaclear).
Commenting on the announcement, Gigaclear’s chief operating officer, Brett Shepherd said: “Today’s investment announcement really does herald the UK’s next steps into the digital age. This £400 million, going as it does to predominantly alternative network providers, is vital in helping us reach the last seven per cent of the UK population who don’t have vital access to good broadband. It’s also fantastic news for the country as a whole, as it will enable further investment opportunities and greater competition within the broadband marketplace. It will benefit businesses, consumers and the economy via improved infrastructure. And we hope that this is just the beginning.”
However, whilst his company “absolutely welcomes this announcement”, Shepherd observes that far more needs to be done. “Sadly, even £400 million is nowhere near enough to help provide full-fibre connections to everyone, and significant private investment, from companies like Gigaclear, is needed to supplement this public grant,” he said.
He has a point. Consultancy firm Analysys Mason in 2008 pegged the cost of rolling out FTTP across the UK at about £25 billion. Even though costs will come down over time, as technology and installation methods improve, that’s still an order of magnitude greater than the investment currently on offer.
Those who are interested in accessing the fund are encouraged to contact the fund managers directly, who will be able to advise on how the investment process will work.