Following the broadband money

Is the Urban Broadband Fund a dark fibre bribe?

with 21 comments

Is the government’s £150m Superconnected Cities initiative effectively a bribe to BT to offer a dark fibre product?

Ofcom holds the cities are already well-served by the market, so the plan surprised everyone when it was announced. The idea is to make available “up to” 100Mbps connections to businesses and residents of the country’s 20 largest cities. The government has set up the Urban Broadband Fund (UBF) to disburse the money.

Culture secretary Maria Miller said this week the first 10 will share £114m, with London, fibre-wise, already the best-served of all UK cities, getting most, £25m.

It emerged recently that ministers are considering a proposal from BT to bundle superconnected city procurements with the BDUK’s rural procurement framework. It is conceivable that BT has also asked that public service networks run by local authorities also be lumped in.

If ministers accede to the proposal, it could give BT economies of scale that the other 11 approved PSN suppliers already find hard to match.

The backhaul market

The cities up for funding (see below) are already shot through with fibre, coax, Wi-Fi and increasingly with high speed mobile broadband from 3G and LTE operators. To provide 100Mbps services to business and residential premises they will require multigigabit backhaul networks. Ofcom has just closed its consultation on the £2bn business connectivity market, essentially a review of the leased line market, and will report in 1Q2013.

Its opening comments show that Ofcom believes that BT has an effective monopoly for high speed (above 1Gbps) services throughout the UK, except in the Hull area and west, central and east London (WECLA). Demand for speeds above 1Gbps has been growing very quickly, it says.

“We believe that circuit volumes have increased more than threefold since 2006/07, and we expect that this rate of growth will continue throughout the coming review period.

“We estimate that BT’s share of volumes is 59 per cent. The market appears to be highly concentrated, with BT supplying more than six times the volumes of the second largest provider. Whilst the high growth and high average revenue per customer suggest that the prospects for competitive entry in this market may be favourable, BT derives a strong advantage from the ubiquity of its network.

“Most services in this market are delivered with WDM (wavelength division multiplexing) equipment whose technology currently does not support effective interconnection between different networks. Consequently CPs which use their own infrastructure need to do so throughout the entire route of such a service. This limits the extent of effective competition and gives BT a strong advantage,” Ofcom says.

In August BDUK published a prior information notice, asking interested parties to say if they are interested in bidding for contracts for both fixed and wireless network contracts, and if they wanted to be the lead contractor, which cities they wanted. According to a spokesman at the department of culture media and sport (DCMS), 17 firms replied. He declined to name them or the cities in which they were interested, saying this was “commercially confidential”.

Giving money to cities to build their own networks could make them competitors to commercial operators, including BT. The alternative, hiring the carriers to build and operate urban networks, simply distorts competition and shores up the winners’ profit margins.

Dark fibre

Indications from the European Commission, which governs the legality of state aid, suggest providing open wholesale access to dark fibre is almost mandatory to validate taxpayer funding for superconnected cities. BDUK’s Sullivan says wholesale access is the main sticking point in state aid negotiations with Brussels with respect to the BDUK framework.

BT does not offer a dark fibre product, which makes it hard to see how it could qualify for state aid, if indeed Brussels’ blessing depends on it offering a dark fibre product. Therefore putting the Superconnected Cities procurements under the BDUK framework risks cutting off the very people it is designed to help from the services they need.

The main reason for funding the urban upgrade is to reduce the price and improve the availability of high speed broadband available to start-ups, small and medium enterprises. Implicit in this is that they will pay much less than they now pay for leased lines.

Currently, an ‘up to’ 100Mbps fibre/coax asymmetric connection from Virgin Media costs around £35 a month; a guaranteed 100Mbps fibre symmetric connection, bursting to 1Gbps, from rural fibre network operator Gigaclear costs some £195 a month. A quotation from the hSO price comparison website for a single 100Mbps link over a 100Mbps circuit in the Thames Valley area came out at £377.83 a month for a three year contract.

There is anecdotal evidence that BT’s £2.5bn fibre to the cabinet upgrade, most of which is urban, excludes business lines and leased lines, even if they are served by the same street cabinet.

There are also lots of complaints about conditions governing access to BT’s physical infrastructure (PIA) such as ducts and poles. Originally developed in response to rural next generation access needs, these include a ban on leased line services, higher prices for Infinity-enabled ducts, and a 90-day cancellation clause.

City Fibre has partnered with Fujitsu for engineering and Macquarie Bank for the money in a £500m initiative to install gigabit-capable symmetrical services in 15 cities, starting with York and Bournemouth. Its aim is to bring infrastructure competition to those cities for public and private sector customers, including those needing to backhaul wireless transmissions. Once complete, he expects to provide access to one million homes and 50,000 businesses.

Mark Collins, COO of City Fibre Holdings, says, “We consider PIA as too restrictive, and therefore we don’t consider it appropriate for our network because it limits the number of business uses you can put across the infrastructure.”

Matthew Hare, CEO of Gigaclear, which is fibreing up rural villages with a fraction of City Fibre’s budget, says he deliberately avoids BT’s physical infrastructure for similar reasons.

While welcoming the government’s initiative as likely to boost his bottom line, Marcus Jewell, CEO of Brocade, which makes carrier and enterprise grade switches, says the £150m UBF “isn’t even a drop in the ocean” of money that’s needed to fibre-up cities.

“What would work better is more competition at the telco level,” he says. “If you compare the IP transit market, where telcos sell to each other, with the local loop level, we’ve done nothing to move away from last mile monopoly in rural areas and duopoly in urban areas.”

Jewell argues that tax breaks would be better at fostering competition, especially in rural areas. Bandwidth in towns is relatively cheap because of competition, but high in rural areas, where BT has a monopoly. “Why not give tax breaks to people that want to level that playing field?” he says.

The government needs to expand its sources of information, he adds. It tends to take advice from the biggest players, who have a vested interest in not encouraging competition but in protecting revenue share.

Jewell says he’s “pretty sure” BT will end up getting nearly all the Superconnected Cities work. This is partly because the rules help it, and, with rare exceptions, city councils lack the experience, skills and motivation to specify, procure, build and operate their own networks.

This raises the question of whether the money in the Urban Broadband Fund is there to compensate BT for lost leased line revenue, should it have to offer dark fibre to win Superconnected Cities contracts.

The Superfast Cities

The first ‘superconnected cities’  are:

Superfast City £m
Belfast 13.7
Birmingham 10.0
Bristol 11.3
Cardiff 11.0
Edinburgh 10.7
Leeds & Bradford (joint bid) 14.4
London 25.0
Manchester 12.0
Newcastle 6.0
Total 114.1

The chancellor’s autumn statement, expected in December, will say which of 27 more chartered cities will share a further £50m. Candidate cities are Aberdeen, Brighton & Hove, Cambridge, Chelmsford, Coventry, Derby, Dundee, Exeter, Gloucester, Kingston upon Hull, Leicester, Londonderry/Derry, Newport, Norwich, Oxford, Perth, Peterborough, Plymouth, Portsmouth, Preston, Salford, Southampton, Stoke-on-Trent, Sunderland, Swansea, Wolverhampton and York.

Written by Br0kenTeleph0n3

2012/09/21 at 23:02

21 Responses

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  1. If BT FTTC excludes business lines what is this about –

    Presumably cabinets serving business parks have relatively few premises and the sums do not work out on an individual cabinet basis.


    2012/09/22 at 22:42

    • Why don’t other utility suppliers follow that argument?

      Ian Grant

      2012/09/23 at 00:07

      • They do, there are still properties in remote areas without gas and electricity. However a broadband connection is available almost anywhere at a cost, and that’s the issue.

        What are the words about businesses being excluded to FTTC about? My link seems to disagree.


        2012/09/23 at 08:50

      • Yeah, everything is for sale at a price. So what? Are you saying that BT does not discriminate about which lines and cabinets it upgrades in its 2.5bn “commercially viable” programme? In that case some Suffolk gentlemen will be keen to know your source so that they can get BT back to hook up the lines to their business park. And they are not the only ones. It happens in Northern Wales too. Then again, perhaps it’s not BT’s fault but simply that of the people they use to do the upgrade work, *vide* Ewhurst .

        Ian Grant

        2012/09/23 at 20:52

      • Somerset

        2012/09/27 at 12:54

      • Except in Market 1 areas, i.e. 2/3rd of the country. But we’ve been here before.


        2012/10/02 at 22:23

      • So you are saying a VM managed internet circuit is not available in a Market 1 area?

        Or Level 3 –

        Please remember that the broadband market classification is nothing to do with telco circuits across the UK.


        2012/10/02 at 23:25

      • True. Bu try accessing them if you are a community network operator. Ask Cyberdoyle what she’s paying Geo for B4RN’s backhaul. And let’s not forget’t forget all the MoD fibre cables that connect military bases that are already or are being shut. I believe they get to some fairly remote spots, and will be dark for the foreseeable future. Could not some of those fibres be made available for private sector backhaul?


        2012/10/02 at 23:34

      • What’s the problem with ‘accessing’ them? Or do you mean the cost is not acceptable, B4RN, Gigaclear and others manage.

        Where are these unused cables and please explain how they would help a community project that needs a connection. This sounds like another ‘it’s not being used so we can have it for free’ theory. Circuits from a base will go into a telco network, the redundant bit may be only a few km. long.


        2012/10/03 at 07:45

  2. I suggest you cost up the price of transit in buildings where there is no BT involvement at all.

    Can easily pay £5 to £15 per Mbps per month for transit between two major parts of the Internet, even when inside the same building.

    Also need to look at the costs for support and SLA levels for the various services.

    Andrew Ferguson

    2012/09/23 at 14:12

    • Given that Ofcom estimates that BT has 59% of >1Gbps traffic that’s hardly surprising. The question is how BT managed to get that market share in the first place. Let’s have government drop the fibre tax and see by how much prices change relatively speaking.

      Ian Grant

      2012/09/23 at 20:41

      • BT is not known for low prices so how does it compare with other suppliers and how significant is the fibre tax for them in their pricing?


        2012/09/23 at 20:54

      • I think you get the point.

        Ian Grant

        2012/09/23 at 21:02

      • You suggest prices for circuits would change if the fibre tax was dropped, I’m just asking by how much.

        The Ofcom report answers your question about BT market share.


        2012/09/23 at 21:20

      • That link refers to FTTC/P, typically £5/year/property connected. The 59% refers to leased lines. What’s your point?


        2012/09/24 at 08:12

      • The nominal VA for each property is 20/pa reduced to 18 because BT supplies the physical connection. Besides which, in all Europe only the UK and Ireland levy this tax. Why?

        Ian Grant

        2012/09/24 at 13:43

      • RV x multiplier could be £8/year or 66p/month. Is this significant in pricing?

        But I thought we were discussing leased lines, as in 59% share.


        2012/09/24 at 18:07

      • With all respect I believe you did not understand…

        Data centres are such that BT is just another customer, and even inside these bandwidth costs money, in the region of the price I have highlighted. Some like Level 3 are may be cheaper.

        Andrew Ferguson

        2012/09/27 at 11:46

  3. […] cities that are destined to share the loot may never see it if the decision comes after the 2015 UK election,  so Edinburgh is at least […]

  4. […] original £150m SuperConnected Cities project aimed to set up fibre to the premises (FTTP) networks in 22 cities. Following legal objections from […]

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