Why I disagree with Dame Meg Hillier's broadband review!

On 19 January 2022, the Public Accounts Committee published a scathing report that, following an inquiry into the progress of gigabit broadband networks in the UK, states that DCMS is relying too heavily on commercial providers to rollout gigabit broadband and that it is perpetuating the digital divide. We disagree and think that DCMS should be congratulated.

The Public Accounts Committee (PAC) is chaired by Dame Meg Hillier MP and its role is to examine the value for money of Government projects, programmes and services.

In 2021 the Committee undertook an inquiry and called officials from the Department for Digital, Culture, Media and Sport (DCMS), the government’s body for building of a digital economy and broadband, for an update on how the UK is progressing towards the Government’s timeline for achieving 85% gigabit coverage by 2025.

The inquiry report critiques the Department on many aspects including lacking consistency in data gathering, for not taking significant action to deliver connectivity to rural areas under the government’s GBP 5 billion Project Gigabit and for being overly reliant on the commercial sector to improve gigabit coverage. All this they say, ‘risks perpetuating digital inequality across the UK’.

We can’t comment on many of these aspects as we are just not privy to vital information, but we do think that the Department should be congratulated for relying on commercial network operators. There are several reasons why which we explore in greater detail below.

Governments should only intervene where there is market failure

In a free-market economy, such as the UK, success is created by allowing the market and competition to flourish. The critical feature is that governments only intervene, such as through subsidies, where there is market failure.

In economic terms, market failure occurs when there is an inefficient distribution of goods and services in the free market. In a telecoms context an example of market failure is where network operators don’t build out gigabit broadband networks, usually due to poor network economics, typically in areas of low demand or rural areas.

Alternative fibre operators such as CityFibre and HyperOptic have been established in the UK for over a decade and have grown their presence significantly. And, although the UK has consistently featured at the bottom of the fibre availability league tables compared to its European counterparts, the last five years or so has witnessed an unprecedented increase in the number of alternative fibre network operators (altnets) establish themselves in the UK. This has resulted in an extensive rollout of commercially led gigabit and fibre networks.

Research undertaken by Intelligens Consulting shows that the UK now proudly boasts over 50 fibre altnets with the top 10 alone investing over GBP 5 billion private money on building full fibre networks, see ?Figure below. In addition, this figure ignores the many wireless ISPs now considering ‘flipping to fibre ’.

The GBP 5 billion private investment dwarves the GBP 1.2 billion currently allocated by the Department and it delivers significant value for money for tax payers. It is hard to see how this is a failing market.

We have a healthy ecosystem of altnets serving smaller towns and rural areas

Upon further analysis of our research, we estimate that all the altnets are likely to provide fibre coverage to around 22 million premises which is just under 80% of household premises. The 22 million figure is in addition to plans made by BT Openreach to provide fibre to 25 million premises and Virgin Media O2’s plans to provide fibre to 14 million premises.

Although some overbuild is inevitable, we believe this is more likely to occur in areas where BT and VMO2 have a presence, rather than in areas being targeted by altnets due to the care taken by them and their investors to identify and target unserved areas.

A critical observer might argue that many of these fibre altnets are targeting the most attractive areas of the UK, such as large cities, leaving other areas unserved. It is true that while some altnets will target built up areas this is too simplistic and broad brush an assumption to make.

We know that, for example, many altnets such as NetOmnia and Jurassic Fibre actively target smaller towns. Further, it is no secret that altnets like Gigaclear and Truespeed target rural areas in the UK using alternative passive infrastructure to reduce the cost of premises passed.

With the above in mind, the Department is right to rely on commercial operators to build the UK’s gigabit broadband infrastructure and any government intervention should be confined to the other 20% of premises less likely to feature in their plans.

Government interventions are notoriously complex

There are other benefits to limiting government intervention. Government funded programmes are notoriously complex and are a significant drain on public resources.

Government interventions consume a significant amount of officer time in documentation, review meetings and adhering to rigid and complex procurement processes. In our experience, these projects can take many years to deliver any fibre infrastructure.

Government interventions also have an unnecessary side effect as once a government intervention is announced it can deter private investment.

In our experience, a carefully designed ‘market led’ intervention programme can unlock millions in private investment in digital infrastructure at a significantly faster pace - and deliver greater value for money - than any public subsidy or government intervention programme. This while having the benefit that the intervention can be tailored to suit local authority needs.

How We Can Help

Intelligens Consulting has advised several local authorities to unlock hundreds of millions of pounds of private investment in fibre, 5G and IoT networks at zero cost to the taxpayer resulting in GBP billions in economic impact and creating smarter connected places.

Our team of technology, strategy, economic, procurement and finance experts can also provide strategic, technical and procurement support, research and economic analysis and we can source private funders to finance the development of digital infrastructure.

Please contact us should you wish to learn more about our approach and anything else discussed in this article.?