Sky plead for Openreach separation - FTTPR

[Work in progress, citations and links will follow]

Sky UK CEO Jeremy Darroch has written an apparently impassioned plea to Ofcom to separate Openreach from BT Group.

A superior digital infrastructure would indeed be great for the UK. Mr Darroch's passion for ultrafast broadband is good, although it doesn't quite seem to marry with his company's own broadband products - no reselling of Openreach's current FTTP footprint, and no 80Mb product that can be purchased online, if a customer wishes to purchase it from Sky they must call.

Their enthusiasm for superfast broadband seemed somewhat lacking, too. They were late to offering services higher rated than basic ADSL for a few reasons. Wanting more control over the service than the bitstream option could realistically provide, essentially wanting all the benefits of LLU, especially cost being the major ones.

Perhaps Mr Darroch would consider, if separation is such a simple, quick fix, putting some of his company's money where their PR is. Sky have given us plenty of Fibre to the Press Release, to the point of a trial in York that looks, more and more, like an extremely expensive lobbying tactic, but have thusfar committed in no way to investment in FTTP post-separation or indicated where all the post-separation investment will come from.

Sky purchased a national network from Easynet, which was used to collect data from BT exchanges. Sky rent links from the exchanges and rent the copper going into them. Their primary TV business does not use their own satellite network, they rent capacity from SES Astra.

Sky's record in the UK is not build networks; they seem more inclined to acquire them if the price is right, and rent them if that's impractical.

Mr Darroch notes the situation in countries elsewhere. He does not note that, for the most part, these conditions are as they are because either the state is heavily involved, New Zealand and Sweden being obvious examples, or in Spain and France where competitors to the incumbent put their money where their mouth is, dropped the FTTPR and set about building the FTTP.

Mr Darroch makes some statements that simply make no sense.

Sadly it is often not economically viable for other providers to roll out separate ultrafast networks. We are working with TalkTalk to trial fibre to the premises in York. While demand is encouraging, it is difficult to achieve a reasonable return on investment while BT Retail remains tied to Openreach. Freeing up Openreach would allow the right level of investment to be made.

BT Retail aren't the ones giving away free broadband, Mr Darroch. The low return on investment environment is one you and TalkTalk made. Your companies are the ones that historically treated broadband as a value added product, bundled in with line rental or TV. BT Retail are regulated to ensure they cannot undercut you.

Not to mention that yourselves and TalkTalk are able to keep this network to yourselves. How do you propose Openreach may deploy a network viably when they are required to wholesale it and may not keep all the revenue from the end customer?

Companies that actually spend their own money building the networks would dearly love to be able to charge more for access, it would allow them to invest more and deliver a higher return on investments. For those companies, such as Mr Darroch's, that do not pay the capital costs of the access networks but instead rent them at regulated prices, there are no such considerations.

Welcome, Mr Darroch, to the market yourselves and TalkTalk have created. The irony of the company that treats broadband as a freebie to be given away with their TV service complaining that people aren't willing to pay for it is tremendous.

He also said things I agree with.

A wise man once defined insanity as ‘doing the same thing over and over again and expecting different results'. With so many agreeing change is needed, Ofcom this week has the opportunity to lead the way. 

I agree. The current approach of regulating Openreach so heavily has allowed your company and TalkTalk to create the environment of low returns on investment, and hence made the UK unattractive to those who wish, unlike yourselves, to deploy more than FTTPR here.

Then sadly ruined it with the rest of the paragraph.

The industry, with much of the nation, will be ready and eager to support it.

Virgin Media who, unlike Sky, do not rely on Openreach and are instead spending money building out their network in competition with Openreach, disagree. I take the words of a company committed to spending £3 bilion on their network over those of a company that is more likely to spend £3 billion buying up sports rights as far as this matter is concerned.

What the UK needs is an environment that encourages risk taking, encourages investment and encourages strong competition. One that presents positive business cases to new entrants, lowers their barriers to entry, and, by producing more competition for Openreach at all levels, encourages them to invest more and to improve their quality of service.

An environment that allows Openreach to make the services and equipment that Sky and TalkTalk rely on to deliver free broadband redundant, and to replace the copper with fibre, improving the business case. It does seem strange given the apparent enthusiasm for FTTP that neither Sky or TalkTalk have reached out to Ofcom to indicate that they wouldn't mind having the equipment they have placed in BT's exchanges made redundant if it meant copper would be replaced with fibre.

I guess the willingness to sweat assets isn't exclusively a BT trait.

The environment that you would seem to want, Mr Darroch, is one where Sky reap all the rewards without taking on any of the risk, and reap all the profit without any concern over how viable the investment actually is.

Which is absolutely what you should be wanting - you represent shareholders and have a duty to deliver the largest return possible to them, regardless of the impact it may have on other companies, the UK as a whole, or your and other businesses' customers.

Wanting it both ways, socialism for yourselves, capitalism for others, rarely ends well.

How to encourage FTTP deployment

Okay it's fair to say I'm not a fan of the #Broadbad campaign and don't agree with its conclusions. So the question is what would I do to encourage FTTP deployment?

There is one obvious step that comes to mind. It would incentivise Openreach for sure. It would, however, be problematic for Sky, TalkTalk, Vodafone and a few others.

It's a simple change - allow Openreach to remove copper completely when they build fibre to premises.

At the moment Openreach cannot remove copper lines from homes that already have them when they build fibre to them. This means customers can purchase the cheap LLU-based deals from Sky, TalkTalk, etc where the ISP has full control of copper back to the exchange but also means that Openreach do not benefit from reduced maintenance costs of all-fibre networks. Verizon cited these savings as a major driver for their build of their FiOS FTTP service. Telefonica in Spain are taking advantage of it, too.

Could even allow Openreach to retire copper from homes not currently taking a fibre service as long as sufficient notice is given to their providers and appropriate transitional arrangements put in place.

All copper LLU services are obsolete. As long as reasonable replacement services are made available such as all-fibre basic voice services it would probably be a worthwhile enterprise.

Sky and TalkTalk have been on a high copper diet for too long. They, for obvious reasons, want to defend their investments in exchange-based equipment and maximise their control over their end users' services. I'm not a fan of BT but there I entirely agree with them. I strongly suspect it still remains the case - Sky and TalkTalk have a vested interest in sweating their own assets and for that they need Openreach copper. That said there's little choice from one of them - TalkTalk don't have the cash to invest in building their own networks to any scale. I should also note that they are very much onboard with Openreach's G.fast and FTTPoD 2 projects.

If they want full control over the service end to end there's a really simple solution. Costs £500-£750 per home in urban areas, though, and means taking the risk of the investment on themselves.

If the business case is so obvious and BT have no reason not to deploy beyond protecting their own assets there shouldn't be any real hesitation, should there?

I'd hope Ofcom would consider this the way forward. Their regulation, entirely preoccupied as it was with competition at the retail level, has improved choice at the lower end of the market at the expense of disincentives that deter companies from investing. Ofcom have brought the market down to a 'lowest common denominator' state where dozens of operators resell cheap copper services.

It's time Ofcom began to reverse this trend and pull the market away from pile high, sell cheap, and deliver the revenues providers need in order to make the investments in infrastructure we will all need to see in the future.

Broadbad or just bad?

So let's dive into this work of research that is Broadbad. Quotes from the paper in italics.

Page 8:

Key Findings

• Openreach has so far received £1.7 billion in taxpayer subsidies to connect harder to reach areas of the UK to superfast services, but has repeatedly failed to deliver

Openreach have not received £1.7 billion in taxpayer subsidies and have not repeatedly failed to deliver. They have received approximately £700 million according to BT's accounts and projects are ongoing. Openreach have delivered the coverage agreed almost universally in the timescales agreed with local authorities, and will continue to increase coverage under the Superfast Extension Programme.

• Around 5.7 million people in the UK have internet connections that do not reach Ofcom’s ‘acceptable’ minimum speed of 10Mbit/s. 3.5 million of these people live in rural areas. 

Not the case. The source material data was collected during May and June of 2015 so is out of date, and that same Ofcom Connected Nations Report states:

'Government programmes, such as those administered by Broadband Delivery UK (BDUK), are helping to address the problem of poor broadband coverage, particularly in rural areas. We would expect to see further improvements in rural broadband availability over the coming 2 to 3 years.'

This is more accurate and up to date.

• Poor internet connections are costing the UK economy up to £11 billion per year

Based on research from March 2015. I have no idea how valid that figure is, however it's not the job of private companies to spend money to increase UK GDP. The Conservatives privatised BT. Private companies have a responsibility to operate in the best interests of their shareholders. I'm sure we can find other industries that have cost the UK economy more and don't have MPs having papers written demanding their reorganisation. A number centred around the Canary Wharf and City of London area come to mind immediately.

• 42% of SMEs report experiencing problems with their internet connectivity and 29% also report poor service reliability.

Yep. The exact quote from the source material is the following:

'Our research has found that 42% of SME internet users had experienced issues with their internet connectivity in the preceding 12 months. Poor service reliability was the biggest problem, with 29% citing it as an issue, followed by slow download (16%) and upload (13%) speeds.'

Of course what is ignored is that reliability problems can be caused by wholesale providers and service providers, not just Openreach, as can performance issues, and that these are subjective measures. At what point will an SME complain about reliability? An outage every day? Month? Year? How do we know these problems are all the fault of Openreach?

• Following the announcement that BT will be merging with EE it has been calculated that BT will have a 40% share of the retail telecoms market and a 70% share of the wholesale market.

Separating Openreach from the rest of BT Group, as the paper demands, will have no direct impact at all on BT's retail market share and will potentially have quite the opposite indirect impact from reducing it. Free of the regulatory burdens involved with having Openreach as part of the group BT's retail arm may be free to more aggressively pursue market share. It is unclear what is defined as their share of the wholesale market as the source for these numbers isn't an Ofcom research paper, it's a Guardian article discussing Sky's and especially TalkTalk's advocacy of separating Openreach from BT Group.

• The time has come for BT to be forced to sell off Openreach to encourage more competition and a better service for every internet user and for the benefit of the UK economy. 

Strangely given this is apparently so self-evident there are zero specifics given as to how this would encourage competition and improve services; in fact the expected impacts of separation are given 2 vague paragraphs in a 22 page report.

The introduction of the paper mentions Mr Shapps being alarmed by complaints about broadband in his constituency despite its close proximity to London, because London is the centre of everything and so proximity to it should be used as some kind of measure in these things. Alongside this comes confusion over what a natural monopoly is.

The following merits quotation. Page 9 paragraph 2:

This report contends that Britain, the birth place of the man who invented the World Wide Web, Tim Berners-Lee, should be leading the world in digital investment. The Government and local authorities have now generously granted a total of £1.7 billion in subsidies to BT to deliver broadband to the harder to reach areas of the UK.

A noble aim and with that in mind government and local authorities have provided a 'generous' subsidy. Except that subsidy, actually £332 million from central government matched by local authorities at the time of the numbers in the 'Key Findings' section, though higher now hence my mention of £700 million earlier, looks somewhat less than generous noting France's £17 billion public-private partnership, Germany's E2.7 billion for 50Mb+, or Australia's £14.9 billion to cover a population less than 40% of ours for the NBN project.

Singapore spent £639 per premises on broadband subsidy to deliver fibre to premises in a city-state. Our spending relative to that is hardly generous.

It's extremely disingenuous to quote total subsidies available and criticise based on results when a fraction of that subsidy has been used to date while also ignoring that all the subsidy isn't going to be used as Openreach have already returned some of it.

Page 9, paragraph 3:

Britain should have the most developed digital economy in the world but is instead lagging behind countries such as Japan, South Korea and others. 

I could discuss at length why this is a ridiculous statement but we'll stop with a few simple facts. A far greater proportion of the populations of Japan and South Korea live in apartment blocks. In addition utilities in Japan and South Korea tend to be on poles. Those things that are considered to make places look 'third world' or become 'nineteenth century landscapes with overhead cables and wires.' but are really handy to string fibre optic cabling onto rapidly and relatively cheaply. Lastly there are more people in heavily densely populated urban areas in Japan and South Korea and their population densities overall are higher than ours.

We could, of course, focus on urban areas and delivering ultrafast services to those at the expense of leaving rural areas underserved for sure, delivering 1000Mb to many urban areas costs less per home than delivering 10Mb to some rural ones, but that would make complaints about the digital divide all the louder.

The idea that we should be at parity with these nations given the different factors at play and the level of public subsidy supplied thusfar is delusional.

Page 10 I will not comment on beyond to note that premises, not people, are the usual metric with regards to broadband coverage. Other parts are already covered elsewhere.

Page 11, paragraph 7:

As fig 1 on page 5 shows, vast swathes of the nation suffer from slow or even non-existent broadband speeds. A look at the South West of England, huge areas in Scotland and Wales and also the North of England show a nation plagued by poor broadband service.

These are sparsely or even virtually unpopulated areas. As a general rule operators don't tend to deliver copper and optical lines to places where there are no people. These aren't wireless solutions where people roam into the coverage, they are called fixed line for a reason. There's no fixed line broadband because there are no fixed lines to carry the broadband.

Page 13, paragraph 9:

It famously claimed in 2009 that 2.5 million homes would be connected to ultra-fast Fibre to the Premises (FTTP) services by 2012, which is 25% of the country. Yet by September 2015 they had only managed to reach around 0.7% of homes. 

http://www.ispreview.co.uk/index.php/2013/04/bt-abandons-native-uk-fttp-broadband-rollout-for-fttpod-and-fttc.html

Frustrating as it was that the FTTP was scaled back, and that same ISPR review notes that BT actually spent more than they planned to on greater coverage than originally mooted in 2009 alongside upgrading the FTTC from 40Mb to 80Mb, 2.5 million homes isn't 25% of the country. Believing this would explain much about Mr Shapps' rather unfortunate tenure as housing minister given that there aren't 10 million homes in the UK, but as of 2014 26.7 million.

Page 13, paragraph 10:

BT has also frequently been accused of abusing the natural monopoly it has over the nation’s network and not giving equal access to other internet providers

I can't comment on this as the link cited, http://www.reuters.com/article/us-britain-telecommunicationsidUSKCN0J70W420141123, doesn't work.

I've had what looks like the correct link sent to me. Those making the accusations are Sky and TalkTalk, so obviously zero chance of a vested interest there. The link also makes clear where the 40% consumer and 70% wholesale market claim mentioned in the earlier Guardian article was sourced. In this article it's a direct quote from Dido Harding, TalkTalk Chief Executive.

Page 14, paragraph 11:

Competitors, like Sky and TalkTalk, argue that the relationship between BT and Openreach further exacerbate the problems brought about by the current situation already being a natural monopoly. These other providers have to pay a wholesale price to BT to make use of the network and they then charge their own customers for services.

It should be noted those guys pay Openreach for the most part. This comment muddies the water somewhat by being unclear. I'm unsure what alternative arrangements there could be. Separating Openreach doesn't alter the 'natural monopoly' point, it removes vertical integration which is a completely different concept.

They have consistently argued that Openreach has little incentive to invest in upgrading the network and in fixing faults quickly.

They have little incentive because no-one else is investing. This is a failure of the UK's broadband market and the the business case for building ultrafast broadband networks here. Separating Openreach isn't going to change this, they will still have no incentive to upgrade or fix faults more rapidly as it won't introduce competition to Openreach; they remain a natural monopoly until someone steps up with an open wallet and willingness to wholesale the network they build.

Page 14, paragraph 12:

Logically this means Openreach has little to gain from improving the network. At the moment the infrastructure is largely a copper network, meaning it is outdated. BT has made much about a new technology it is introducing, G.fast, that it claims will enhance the performance of the existing copper network, using better signalling kit to push more data into the wires. The obvious criticism to make of this approach is that BT are merely trying to eke out what life there is left in an outdated network system instead of planning for the future and upgrading to a fully fibre network

It's believed approximately 50% of BT's spend on G.fast will be re-usable for a 'fully fibre network', just as a proportion of their spend on FTTC is reusable on G.fast or a full fibre network. This is just-in-time capital expenditure. Virgin Media in common with other cable companies are doing the same.

Page 15, paragraph 13:

BT has so far received £1.7billion in taxpayer subsidies to roll out superfast broadband to harder to reach rural areas. Ministers have done the right thing by wanting to connect up these areas but were
badly let down by the regulator and BT. The push should be for stronger, more competitive networks. 

As mentioned above BT have not received £1.7 billion from the taxpayer. This was not specified to cover harder to reach rural areas, that was down to local authorities in co-operation with BT to decide. This programme was nothing to do with Ofcom. I have no idea what is meant by 'more competitive networks' that seems like a bit of 'buzzword bingo'.

Page 15, paragraph 14:

Openreach generates 50p in earnings before interest, tax, depreciation and amortisation for every £1 of revenue. No other telecoms companies, such as Virgin or sky, are in receipt of such generous subsidies. Yet 48% of rural homes still don’t have internet that Ofcom would describe as merely acceptable. To make matters worse, there are still large numbers of homes who cannot even reach speeds of 2Mbit/s. This means they are unable to make use of online services like music streaming or catch up TV sites. 

Use of EBITDA is a gross simplicity at best, it also ignores pension deficits and indeed that some of Openreach's pricing is intentionally held high by the regulator in order to try and encourage others to build competing networks. The performance figures are out of date as noted. To be quite frank it looks as though someone ran through the Digital Comms Review and picked out bits that were 'on message'.

Page 15, paragraph 15:

BT benefits hugely from these subsidies. They get to spend the money given to them and will own the newly created infrastructure afterward. This effectively means the UK taxpayer is subsidising BT owned infrastructure through Openreach that they will then profit from. BT have also recently been caught in a scandal where it was found that £1.7 million of Openreach revenues had been used to fund the recently approved merger deal with EE, leading to a censure from Ofcom. This raises renewed questions about the takeover and has caused further worries for competition, compounding the problems that already existed over Broadband. It means that BT now has a 40% share of the retail telecoms market and a 70% share of the wholesale market.

The funding is gap funding. It specifically provides the amount of money in between BT's normal 'commercial' spend and the actual amount required to service the subsidised properties. The above comment ignores that there are clawback clauses in the subsidy contracts, worth £129 million as of July 30th, where sales of the subsidised superfast broadband have meant a smaller subsidy than originally provided was actually needed.

Other than the governent going back into the telecomms industry what was the alternative?

As previously noted I have no idea what the retail numbers have to do with divestiture of Openreach, and no idea what the share of the wholesale market refers to given its source is a Guardian article.

Page 17, paragraph 16:

The UK broadband network is largely made up of incredibly outdated copper wires. This technology may have been cutting edge when it was first installed, but today it sees us lagging behind other leading economies, such as Germany, Japan and France. It is frankly alarming that London’s Tech City has some of the worst broadband speeds in the country.

The UK has higher availability of Superfast broadband than Germany or France.

BT are apparently addressing Tech City, however I would ask why BT are expected to service Tech City and no-one else? If the demand is there and it's a viable investment why hasn't anyone else stepped in to deliver the products? BT aren't the only company capable of delivering broadband. There is nothing beyond the UK's regulations, costs of deployment and the willingness of companies to pay stopping others.

http://www.itpro.co.uk/broadband/25271/bt-answers-tech-city-demand-for-more-fibre-in-london
http://www.v3.co.uk/v3-uk/news/2425505/bt-plans-tech-city-fibre-broadband-rollout-expansion

Page 17, paragraph 17:

BT’s approach to the need for faster broadband is to resort to G.fast. This technology makes use of more intelligent signalling kit to push more data through the existing copper wires allowing for the upgrade to ultrafast internet. This should allow for speeds of between 150Mbit/s and 1Gbit/s. However, it can only achieve speeds at the higher end of this scale in limited circumstances and that pure FTTP cables would be needed to guarantee these top speeds. Rather than acknowledging the need to comprehensively rethink their broadband investment strategy, they are instead effectively postponing the decision and trying to strain every last bit of profit they can from the outdated and struggling copper network. Whilst G.fast will increase speed for some it is a reactive measure, a short term fix that won’t address the long term need. 

Just-in-time CapEx is a legitimate strategy. G.fast as noted earlier will push fibre deeper into the Openreach network with approximately half of the spend being re-usable on deploying fibre to homes.

It is not considered a long term fix any more than FTTC was considered a long term fix. The G.fast range of speeds is considered ample for the foreseeable future. If BT offer the option of 1Gb via FTTP on Demand at more competitive prices as would be expected given G.fast pushes fibre much closer to customers that will serve 'power users'.

Page 18, paragraph 18

What is needed is the acknowledgement by BT that the network needs to be converted to all fibre throughout.

Openreach are aware of this, however they would disagree with the timescales posited.

Demand for broadband is forever increasing throughout the UK as more and more people rely on digital services for work, entertainment and day to day living.

Yes it is. This is actually showing signs of slowing down though as the major driver, video, becomes more efficient and reaches ubiquity. 

By making the jump to an all fibre network we will be following countries like Japan, South Korea and even Spain. Ofcom have shown that as consumers get better download speeds, they consume more data.

Virgin Media's experience indicates that the higher the speed before upgrade the lower this increase. Very much a case of diminishing returns as people do the same things but more quickly.

Incidentally what's the big driver of FTTP in Spain? Competition. Telefonica didn't need separation, just a third party to come in and invest rather than relying on them to deliver everything and complaining about the manner in which they do. That and of course that while Ofcom require BT to allow access to all their products on an equal footing, Telefonica didn't have to wholesale anything over 30Mb. If you wanted to sell >30Mb in Spain you had to build your own network. Perhaps a reason to blame Ofcom and the obsession with retail competition that has allowed ISPs to avoid investing in their own networks as they can compete just fine with BT's own retail operations while having BT bear the risks of investment.

Whilst in the short term most users could make do with speeds that G.fast is capable of providing, this is hardly a compelling argument for the status quo. Demand will keep increasing and it makes sense now to invest in future proofing the network, not papering over the worryingly large gaps.

Neither is it an argument for separation of BT Group, and it does not by default make sense to invest in future proofing the network as this assumes all cash is on-hand and the investment doesn't amortise, which is wrong. BT would have to borrow, have to pay interest on the borrowing, and be writing down the investment.

Paragraph 19 I'm not going into depth on. Business parks tend to be passed by because there are few premises there so harder to make the economics work to deliver broadband to them. Repair and install times are below par, no question, but hopefully improving. There's no reason to think separation will improve these factors as it doesn't address the natural monopoly scenario. I've discussed the dissatisfaction above.

Page 20 paragraph 20 has no real content to discuss.

Page 20 paragraph 21:

This report considers that there is only one real option that would satisfactorily address the Openreach question; the structural separation of BT and Openreach. This means BT would be forced sell off Openreach so it becomes entirely separate company. This would directly address the current reasons BT has to discriminate against competitors. As well as this it would also increase Openreach’s incentives to invest in the network and improve on their issues with performance and customer services. 

I do not see any explanation why such an action would increase Openreach's incentives to invest in the network or improve their issues with performance and customer service, They would remain the 'natural monopoly' discussed above, able to continue to behave in the manner of a monopoly.

BT Wholesale would remain their largest single customer, BT Retail the largest customer of BT Wholesale and hence there would remain a perfectly legitimate chain of influence between supplier and their largest customer. This report has presented no instances where Openreach are discriminating against other customers in favour of BT Wholesale. Openreach do not deal directly with BT Retail. There is no reason to believe Openreach's deficiencies are not affecting all customers equally.

Page 20 paragraph 22:

This report believes that formally separating BT and Openreach into two fully separate companies would be of immense value to the UK digital economy. The current model actually constrains BT. It makes perfect sense for BT to favour the status quo and underinvest across all the broadband services it provides through Openreach. It has a ‘natural monopoly’ and severely restricts proper competition. This hurts all internet users, as well as the wider UK economy. The current arrangement is a hangover from the days of nationalised businesses.

This reiterates paragraph 21 and is equally lacking in detail. As previously noted the report confuses natural monopoly and vertical integration.

I would suggest that, rather than freeing Openreach to invest separating them from the rest of the group leaves a for profit company directly at the behest of shareholders who will be wanting a return on their investments. For them spending as little as possible would likely present the best possibility of returns, as with the status quo. In the absence of commitments from third parties to invest, and I would point out that of the two loudest 'voices' in this discussion one doesn't have the funds to invest and the other has steadfastly avoiding committing to do so, I see no reason why separating Openreach from BT Group would have any short or medium term impact other than to ensure Openreach do not invest in their network.

Page 20 paragraph 23:

Under the proposal in this British infrastructure Group report, Openreach would operate as a totally independent company, no longer tied to BT.
Repetition.

By opening up to competition it would ensure that Openreach could turn to investing in the future and focus on digital innovation.

I am still completely unclear as to how separating Openreach would open anything up to competition. They remain a natural monopoly, they aren't going to be bidding against anyone else for use of their own copper and fibre assets. If suppliers wish to reach customers connected to Openreach's network they will have to pay Openreach to do so.

The only way to compete outside of some business areas with Openreach is to build a new network, and then allow wholesale access to that network. The only alternative network of any scale going to homes and businesses in the UK belongs to Virgin Media and is a closed network, no wholesale access.

BT's labs have a long history of innovation, and Openreach are at the forefront of G.fast, a technology that telecomms operators worldwide are planning to use in a variety of ways.

Rather than having to obey the orders of BT it could search out long term investment and partners for itself. It could seek this from all manner of sources, such as pension funds, and open up the market to greater competition. Meanwhile real competition would force the pace of investment to increase as companies would not be able to rest on their laurels and compete for custom by offering better speeds and cheaper deals.

Rather than having to obey the orders of BT it would have to obey the orders of profit-motivated shareholders.

Again what competition would force the pace of investment to increase? Openreach aren't going to compete against themselves and suppliers will only be able to offer the speeds the Openreach network delivers them at the prices that allow them to make a profit while paying fees to access the Openreach network.

The only way this could change would be for Openreach to allow access to all of their ducting so that others may place their own fibre in it and indeed for Openreach to replace the copper in there with fibre where others don't want to leaving suppliers to add the technology either side.

This would involve Openreach spending tens of billions over several years to make their current copper, FTTC and FTTP networks redundant and lose all of their current revenues in favour of becoming a dark fibre supplier to homes and businesses. Who is going to invest in that on a nationwide basis? The losses in ultra-rural areas would be immense.

The complication of deciding who has to fix what and who pays if there is, say, a fibre break affecting an Openreach owned duct with multiple suppliers' fibre inside it a genuine overhead. If in doubt are Openreach to pay for everything? Is this to be the attractive business case to institutional investors that will ensure money pours into Openreach or is it far more likely the business would end up run down, even more poorly performing, and potentially asset stripped where feasible?

To avoid all of this would require way more regulation than there is currently. A strange thing indeed for Conservative MPs to desire.

Page 21 paragraph 24

Unless BT and Openreach are formally separated to become two entirely independent companies little will change. They will continue to paper over gaping cracks. Whilst rural SMEs and consumers are left with dire speeds, or even no service at all, Openreach makes vast profits and finds little reason to invest in the network, install new lines or even fix faults in a properly timely manner. The time has come for a bold and comprehensive solution, full separation and deregulation will provide that solution. 

A lot has changed, some of it for the worse, some for the better. The only way to prevent extensive unintended consequences as a result of full separation and deregulation is to renationalise Openreach. Anything else leaves that company, and the UK's telecomms infrastructure, beholden directly to investors whose main concern will be profit and loss. Deregulation opens up another level of unintended consequences from preferential treatment for profitable urban areas while rural areas see poorer service as there is no profit in serving them equally through to predatory pricing in those areas where there are competing networks.

Does a Conservative, or any other, government have the appetite to renationalise Openreach, taking on the prodigious pension deficit, in order to spend tens of billion reducing its revenue stream?

Note: This article is copyright - if you want to use it please ask.

Changelog:

25th January 2016 - added new paragraph with apparently correct Reuters link; corrected typos, tidied up formatting issues.

Broadbad - Grant Shapps suddenly interested in broadband

Grant Shapps has led a group of 121 MPs in releasing a report called 'Broadbad' arguing for Openreach, the business unit of BT Group that manages the physical ducts in the ground, cables and exchanges, to be separated from the rest of the Group entirely.

It's discussed in this BBC article - BT should be forced to sell Openreach service, report says

The bottom of the article requests responses, and as a BT Openreach service user here's mine. This also outs me a bit but, hey, c'est la vie.

I have had other thoughts since about the impact this will have on the market, the unexpected side effects, BT's Retail arm being free to more aggressively pursue market share, and other things. The potential for unintended consequences is huge.

Follow the debate on ISPReview, ThinkBroadband and on Twitter via hashtag #Broadbad

BBC,

I have profound doubts about the BIG report and what they think the results of separation of Openreach will achieve.

I am in no way biased towards or have any reason to be a huge 'fan' of BT or Openreach. I'm the Carl Thomas mentioned here:

http://www.ispreview.co.uk/index.php/2012/11/fibre-for-middleton-broadband-campaign-criticises-bt-viability-assessments.html

http://www.ispreview.co.uk/index.php/2013/12/strong-uptake-street-cabinet-82-hunslet-finally-gets-fttc-battle.html

You guys have featured me discussing broadband locally on Look North.

My wife has featured on national television.

[Removed link to video for copyright reasons. It's from Super Scrimpers and I'm sure can be found online somewhere :)]

Competition didn't resolve the issues - Openreach did. Due to the asinine way in which our planning and adoption systems run competition couldn't resolve the issues even if it wanted to. Per the below link the estate I reside on is the only one in the area not seeing any competition.

http://www.yorkshireeveningpost.co.uk/news/latest-news/top-stories/south-leeds-superfast-web-access-at-last-1-7299786

http://www.ispreview.co.uk/index.php/2016/01/bad-news-for-bt-as-121-cross-party-uk-mps-call-for-openreach-split.html#comment-162565 illustrates some factual errors in the report. There are a number of others. This is not a serious report, it's politics to justify a pre-determined position. Using for example maps of amount of land mass covered by fixed line broadband is absurd. Obviously where there are no people there's no broadband. Using numbers of people not covered is also misleading. Broadband networks aren't provided to people they are built out to premises.

For all the talk of competition there is no clear indication of where it will come from, or why, apart from Virgin Media, no-one else has been investing.

Surely if Openreach were so poor, providing such abysmal services and failing their customers to such an extent, the door is more widely open to the competition, so where have they been? Mr Shapps is allegedly a huge fan of the open market and in his various online incarnations epitomises finding gaps in the market, regardless of whether they are providing legitimate value, and profiting from them.

TalkTalk don't have the money to invest - they are paying share dividends by borrowing.

Sky have had ample opportunity to invest but have only conducted small scale trials. They have made no commitments but deployed plenty of fibre to the press release.

Vodafone have run no trials to speak of, and again all fibre to the press release. Their work in the Republic of Ireland required co-operation with taxpayer funded electricity boards to use their infrastructure.

The one case I'm aware of where an infrastructure arm has been separated from the rest of the telecomms company there is indeed fibre to the premises being deployed, using taxpayer funding alongside a public private partnership. Such a thing cannot be done in the UK due to EU state aid regulations. Check out Chorus Ltd, New Zealand and their UFB network.

https://www.chorus.co.nz/ufb

Lastly, a separation of Openreach from BT Group results in Openreach being directly answerable to shareholders. Shareholders are going to want financial returns. Without the rest of BT Group's revenues relying on Openreach network upgrades there is less of a case for them to acquiesce to Openreach investment in infrastructure. There will be less funding for network builds and more attempts to maximise returns on the existing infrastructure.

I am not entirely sure what the political game Mr Shapps is playing is, or how he or others will or think they will benefit, but I don't foresee any way in which the inevitable years of turmoil will achieve any kind of positive result in the short term or medium term.

You can reach me at [Number removed] or [Number removed] if you wish to discuss further.

Kindest regards,

Carl

Why the lack of FTTP?

I've seen a whole bunch on forums people wondering why the UK doesn't have as much fibre right to people's homes as a number of other countries, and has less of it planned.

I've learned a few bits from watching Virgin attempting to dig in South Leeds alongside other experiences that have educated me.

The obvious major reason is, of course, that actually getting it out there is expensive. Secondary to this comes that the UK has little appetite to spend more to pay for it. Following on though why is it so expensive to deploy in the UK?

We have fewer people living in flats/apartment than many other countries. People very much like their houses with garden, ideally detached if possible. Bringing up kids in flats is something that doesn't appeal to most, and the flats are built with that in mind. It's way more expensive per property to service a hundred houses than a hundred apartments in a building.

Our infrastructure has for quite a while now been almost universally underground. Digging is expensive. Despite poles being in use in North America, Japan, and other first world nations an apparently commonly held British attitude to them is that they make streets look 'like a third world country.'. There's also the concern that they lower property values and reduce the beauty of views.

Of course digging roads and pavements produces its own issues, as do the cabinets that accompany it. I'm aware of at least two instances in the South Leeds area where residents are demanding that Virgin Media completely relay pavements at a cost of thousands of pounds per home and another instance where a resident seeks any excuse to complain about the cabinet sited near their property. The demands for full relaying aren't due to safety concerns, but aesthetic ones.

In summary as far as building the infrastructure goes if you put it on poles you're making streets look like a third world country, if you put it underground you upset people by leaving tracks in pavements and street furniture on pavements and verges.

We've stronger health and safety requirements than many with a bunch of rules that must be complied with in order to carry out works. Watching videos of fibre deployment in Southern Europe the regulations there are either far less onerous or they are ignoring them. This isn't an option in the UK.

We have a system whereby it costs a company three figures before they put a single shovel into the ground in order to notify local authorities they intend to build, then after they build a bunch of complications and headaches.

Building to new estates of mixed status such as my own is extraordinarily problematic. I'll detail this separately in a different post.

That's the cost part. The benefits of building in terms of the money that can be made back are tricky, too. Virgin Media off customers 50Mb, 150Mb and 200Mb tiers. Less than 5% of the customer base take 200Mb.

Dozens of operators offer 38Mb and 76Mb via BT Openreach's FTTC product. The majority take 38Mb. Operators have been hiding price rises of broadband in line rental for years, because people are so reluctant to pay for it and know that a couple of low-end providers have heavily skewed the market.

With that in mind it's no surprise that catering for the highest end users who want the state of the art products and are prepared to pay for them is problematic. Many don't want to pay the list prices for the lowest end products. Who'd want to spend money building a network that delivers ultrafast speeds and a quality service experience to be faced with people trying to haggle because x operator delivering services on wafer thin margins over a network they didn't pay to build will give them y for z price?