UK’s 1 billion GBP government aid package to boost fibre optic network

The UK’s Chancellor of the Exchequer Philip Hammond used his Autumn Budget Statement on Wednesday 23rd of November to announce the government’s intention  to spend 1 billion GBP in the next five years to promote the rollout of fibre to the premises (FTTP) and deployment of 5G in the country.

The telecom operators, the investment community and domestic vendors welcomed the announcement, but the question remains whether this investment would tackle the national broadband problems and who would benefit most?

It appears that the government investment aims to boost the country’s fibre network “backbone” to support businesses and the public sector. According to recent reports published by the telecom regulator Ofcom, over 90% of homes and businesses are covered by fixed broadband networks with the minimum speed of 24 Mbit/s (Graph 1) and the aim is to take this to 95% by 2018 and 98% by 2019.

Graph 1- UK residential broadband by speed band, 2011-2015

There are, however, major hurdles for the country to become a major G.speed nation:

1. The digital divide
Although the national average speed of fixed broadband at the end of 2015 was 28.9Mbps, the gap between urban, suburban and rural areas is large. (Graph 2).
By the end of 2015 the average speed in rural areas stood at 15.9 Mbit/s and was nearly 3 times slower than urban areas with an average speed of 52.8 Mbit/s.

Graph2- UK fixed broadband speed by geography, 2013-2015

Unfortunately, this gap has also been widening since 2013 and could only be addressed by a set of strategic and tactical policies by the government.

2. Heavy bureaucratic process for alternative fibre optics providers to access local civil infrastructure.
Recently, CEO of Virgin Media Tom Mockridge, called for the government to stop subsidising the rollout of broadband network in rural areas since the main beneficiary of these subsidies is the country’s telecom incumbent, BT.
“Subsidies for broadband are still paid in the UK. We don’t take them; Virgin Media is using billions in private investment to build and expand its network,” Mr Mockridge said in a speech at the Broadband World Forum.
“This is an area where letting the markets compete would be positive for the whole economy, having competing networks without the need for the government to subsidise one,” he added.
Gigaclear’s CEO Matthew Hare also raised his concerns, saying: “Given that there is insufficient funding to get superfast services to every customer who wants it, we have been surprised over the past four years how some county councils prefer to ignore our own plans and solely rely on their contract with BT.”
BT, on the other hand, has announced its failure to hit its 90% target in extending the fibre network in rural areas using public money (1.2 billion GBP) due to ROI insufficiency in rural areas but stressed its commitment to return part of the funds to roll out the network in areas where the level of demand is over 20% of the local population and that BT should go ahead to build the network.

3. Low-speed broadband
By the end of 2015, the average speed of packages of 30Mbps and above was 56.8Mbps which is far from G.speed (Graph3). This is mainly due to the low number of FTTP, FTTB, FTTH and Docsis3.0 connection.

Graph3- UK fixed broadband speed by category 2011-2015

xDSL technologies due to high loop length in the country can’t deliver over 120 Mbit/s.
To compete with the most advanced nations in terms of broadband speed, the government should divert its funds toward innovative and agile telecom companies ready to rollout fibre and cable network infrastructure and services.

4. Broadband tariffs
At the end of November 2016, Sky broadband had the most expensive broadband prices in terms of cost per Mbit/s while Talktalk offered the cheapest package indicated by monitoring broadband tariffs by the UK’s main service providers in the category of broadband stand-alone packages with speeds of up to 38 Mbit/s,. (Table1)
In the 76 Mbit/s band category, Talktalk offered the most expensive service with 44 Pence per Mbit/s (1) speed and BT the cheapest with 65 Pence per Mbit/s.

Table 1: UK broadband tariffs, Q4 2016

capture

Overall though, Virgin Media with its 200 Mbit/s stand-alone, offers the cheapest available broadband in the country at 21Pence per Mbit/s
(1) To calculate Cost per Mbit/s, the formula is (((MF*D)+CF))/D)/S
Where MF= Monthly fee
D= Duration of contract
CF= Connection fee & One-off fee
S= Advertised download speed

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