Br0kenTeleph0n3

Following the broadband money

Geo’s exit from NGA leaves questions for Ofcom

with 10 comments

Geo Networks and earlier, Vtesse Networks, abandoned plans to provide high speed broadband to rural communities and other not-spots because they faced a break-even period twice that of BT’s.

This is due to restrictions tolerated by communications regulator Ofcom on BT’s Physical Infrastructure Access (PIA) product, expected to be formally launched this month, that exclude at least half the potential revenue from would-be tenants.

Despite trials with Fujitsu to provide fibre to the home in Wales via BT’s poles and ducts, the restrictions are expected to leave BT’s monopoly in some two-thirds of the geographic UK intact, and to ensure that few if any residents receive broadband speeds greater than 24Mbps.

The restrictions are a ban on traffic aggregation, which excludes the village ‘digital pump’ idea, a ban on selling leased lines, which excludes local businesses and public sector customers, and a ban on selling backhaul, which excludes customers such as mobile and satellite network operators.

These bans restrict PIA tenants to providing services to residential customers for the part of the network between the local exchange or street cabinet and the home.

Geo Networks’ CEO Chris Smedley estimates that these restrictions exclude tenants from 50% and 60% of the potential revenue stream in rural areas while allowing BT access to the entire stream.

This reduction pushes tenants’ potential break-even period to 20 to 25 years. This is double BT’s expected break-even period for its Infinity fibre to the cabinet programme.

BT has none of these restrictions. According to Bill Murphy, the man in charge of BT’s next generation access programme, Infinity will break even in 10 to 12 years, while Openreach’s general manager for next generation roll-out Kevin McNulty says BT can break even in 12 to 14 years  with just a 20% uptake.

Smedley says he has patient shareholders and capital lenders. But none is prepared to wait 25 years for a return, especially when BT can fund a competitive offer from cashflow in a market where in many cases it is already the monopoly supplier.

Geo Networks was a credible competitor to BT, and would remain so if the PIA restrictions were removed. Smedley says it has the country’s newest national fibre network, and carries two-thirds of the country’s internet traffic, thanks to deals with banks, mobile operators and ISPs.

Extending the Geo network into rural communities could be done at marginal cost, if Ofcom removes the restrictions.

We don’t know what persuaded Ofcom that allowing the restrictions was the right thing to do. However, if it was to protect BT in fulfilling its universal service obligation, Ofcom may have acted against BT’s wishes.

In its comments to government concerning the implementation of the European Commission’s electronic communications directive, BT said, “Given the increasing number of technological options for communications service delivery in different areas, we are disappointed that BIS did not take the opportunity when amending the Universal Service Order to remove the presumption of uniform national pricing which was never a strict requirement in the old Directives.”

If that was BT saying it was prepared to compete on a level playing field, then Ofcom has questions to answer on one of its main roles, which is to promote competition in communications markets.

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Many who read this blog may feel that they have been left in the dark over decisions related to the procurement of high speed broadband in Britain, if only because some of the announced decisions appear to fly in the face of common sense.

The Information Commissioner’s Office is now inviting the public to tell it what information public authorities should release proactively.

The survey is intended as a supplement to Freedom of Information Act requests, and to short-circuit the time-consuming rigmarole of the FOIA process.

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Written by Br0kenTeleph0n3

2011/11/26 at 18:55

10 Responses

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  1. Geo say: ‘As well as providing fibre to any location in the UK we can also service your European locations so you can easily run data networking across the same infrastructure’

    ‘to any location in the UK’

    Somerset

    2011/11/26 at 19:41

  2. PIA only covered exchange to home, this was stated ages ago.

    But Geo can provide (fibre, wet string, etc.) links to anywhere in the UK using it’s own circuits or those from BT, VM, C&W etc. So for this it’s ‘simply’ a costing issue.

    Maybe there is not yet the demand for higher speeds from enough people and those close to exchanges with eg. Sky packages would be unlikely to change.

    Somerset

    2011/11/28 at 22:57

    • I know you put ‘simply’ into quotation marks, but that’s being disingenuous. BT was gifted the network that taxpayers paid to build. Everyone else’s network has been paid for by shareholders. In addition, BT’s universal service obligations have been compensated by a de facto monopoly in local and middle mile markets that has only recently started to yield to deregulation and competition.
      As the Wik report shows, incumbents only spend money when competitors force it to. Otherwise BT would not have duplicated the Virgin Media footprint, but gone after customers where it is the monopoly supplier, only it din’t (and doesn’t yet) have a compelling competitive offer to Sky and VM for content.

      Ian Grant

      2011/11/28 at 23:54

  3. […] more…. Geo’s exit from NGA leaves questions for Ofcom by Ian Grant revenue……reduction pushes tenants’ potential break-even period to […]

  4. Seen this:

    A.111 Rural broadband – The Government will support rural broadband by

    considering new approaches to make the roadside telecommunications network available to
    enable points of access for third party services such as broadband for rural businesses.

    Somerset

    2011/11/29 at 13:52

    • “,,,by considering…” is quite a big step from mandating. Besides, BT has turned its face against developing a national database of network assets, which would really help local operators, saying it would be too costly. One would have thought that BT (and all the other opeators) already had such a database, so they could quite easily run off a spreadsheet, merge them and there you’d have it.
      So is it for purely competitive reasons that the database doesn’t exist, or because, as I have been hearing from Subex, which is selling a data integrity management service, there is an up to 60% error rate between operators’ inventory data and actual network data.

      Ian Grant

      2011/11/29 at 14:08

  5. […] bid for NGA business under the BDUK rural procurement framework withdrew because of PIA. They said restrictions on usage (especially the ban on selling leased lines) meant they could not recover costs from as wide a […]

  6. […] the NAO has merely scratched the surface. It could have explored and said much more about why the BDUK Framework process attracted just two bidders from nine invited. These were BT and Fujitsu, which pulled out in […]

  7. ‘few if any residents receive broadband speeds greater than 24Mbps.’ Wrong! ‘if any’?

    Even those next to a FTTC cabinet in a village?

    Somerset

    2013/07/05 at 07:54


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