How to Get Broadband in Britain out of the Slow Lane

In my rural constituency in West Sussex, just 50 miles from London, about half of all premises now have access to superfast broadband.  Others are still waiting.  Some can’t access broadband at all.  Superfast broadband is generally defined as being capable of delivering speeds of 30Mbps.  Today, according to Ofcom, around 2.4 million homes and small businesses in the UK are unable to receive broadband speeds above just 10Mbps.  A third of SMEs, the lifeblood of our economy, currently don’t have access to superfast.

The good news is that the Government is guaranteeing basic broadband coverage to everyone by the end of this year (at least, if they’re willing to pay a few hundred pounds for a subsidised satellite link).  As the Culture Secretary told ConservativeHome recently, 95 per cent of premises are promised superfast by 2017, and a new broadband Universal Service Obligation will give everyone the legal right to broadband with speeds of 10 Mbps by 2020.

The problem is this will leave millions of households and rural businesses without superfast broadband or with speeds that are barely adequate for modern needs.  The Minister for the Digital Economy, Ed Vaizey, very helpfully attended a summit I recently held with the South Downs National Park Authority to explain how this ‘digital divide’ will be closed.  The plan appears to rely on new providers coming forward to link up communities with technology such as wireless.

There are questions to ask about the broadband programme so far.  £1.5 billion of public funds were meant to ensure that broadband would get to the parts that the market wouldn’t reach.  Looking at my own constituency, I’m not so sure that the funds haven’t subsidised BT to connect households it would have supplied anyway.  The broadband contracts in each area all went to BT: other providers simply weren’t there to bid, or they dropped out.

You can understand why these decisions were taken a few years ago.  With finite public subsidy available, before massive infrastructure investment became the name of the game, the imperative was to get fast broadband out to as many households as soon as possible, with as little disruption as possible.  Using BT’s old copper network, rather than aiming to get fibre directly to each business or house, seemed to make sense.

But the strategy has come at the price of building a network which may well not adequate for tomorrow’s needs.  A decade ago, the iPhone hadn’t been invented; now, two thirds of UK adults own a smartphone, and over half of UK households have a tablet.  We are seeing an explosion of data consumption that will only increase.

Back in 2012, the then Culture Secretary, Jeremy Hunt, observed that the inventor of London’s 19th Century sewage system, Sir Joseph Bazalgette, built in far greater capacity than was needed, arguing that “we are only going to build this once”.  150 years elapsed before we needed to plan for further expansion.  In fact we have shown nothing like the same foresight with broadband.  While other countries reap the benefits of a superior, fibre network, the UK will be left to play an expensive catch-up game as we struggle to meet future broadband needs on a network that has been built to meet the demands of today, not tomorrow.  Less than one per cent of the UK has fibre to the premises, with very limited plans to improve on this.

The problems can largely be linked back to fundamental flaws in the current market structure.  Openreach, as a monopolistic network provider fully owned by BT (though functionally separate), is simply not incentivised to deliver the investment and competition required for the network we need for the future.

Despite the Openreach network generating healthy profits and receiving public subsidies to deliver broadband in hard to reach parts of the UK, BT’s investment in the network has been flat, and in recent years growing below inflation.  Meanwhile the company has invested heavily in other areas of their business, including acquiring EE and developing BT Sport.

Vertical integration with Openreach has helped BT to secure upwards of 70 per cent of connections in the emerging superfast broadband market on its own network, putting it on track to regain a monopoly position and reversing the competition stimulated in 2005.  This has resulted in poor quality of service for both retail and wholesale customers.  Openreach’s standards of customer service are notoriously bad.  Residents of one village in my constituency have recently been disconnected from their phone lines for three months despite repeated pleas to the company for action.

None of this should come as a surprise.  It reflects the entirely predictable behavior of monopolies over the ages.  One response is to regulate the monopoly ever more stringently.  A better one is to consider whether the market structure can be improved to stimulate competition and investment.  That would mean structurally separating BT and Openreach.

Today GovernUp, the independent project for effective government which I co-chair, publishes a discussion paper, ‘Time for a Broadband Shake-Up?’ (In the interests of transparency, GovernUp’s digital communications project is supported by Vodafone).  The paper warns that unless bold steps are taken by regulators and policy-makers to transform the broadband market, there is a real risk that the UK will be left in the slow lane.

Ofcom is currently carrying out a once-in-decade strategic review of the broadband market.  At the very least this must recommend referring the market to the Competition and Markets Authority for rigorous assessment of what further steps are needed to ensure that the UK has a world-class, future-proofed digital infrastructure.

There are two futures for the broadband market in the UK.  One relies on more public subsidy, more regulation to squeeze better levels of service out of monopolistic providers, with inadequate infrastructure.  The other future relies on competition to unlock investment and innovation by new providers, and responsiveness to consumers, delivering ultra fast speeds.  Conservatives should be in no doubt which future we want.