Disclaimer: I am Chief Engineer for Gigaclear Ltd, a rural-focused fibre-to-the-home operator with a footprint in excess of 100,000 homes in the south of the UK. So I have a slight interest in this, but also know a bit about the UK market. What I’m writing here is my own thoughts, though, and doesn’t in the least bit represent company policy or direction.
Labour has recently proposed, as an election pledge, to nationalise Openreach and make them the national monopoly operator for broadband, and to give everyone in the UK free internet by 2030.
The UK telecoms market today is quite fragmented and complex, and so this is not the obvious win that it might otherwise appear to be.
In lots of European markets there’s a franchising model, and we do this in other utility markets – power being an excellent example. National Grid is a private company that runs transmission networks, and Distribution Network Operators (DNOs) like SSE, Western Power, etc run the distribution networks in regions. All are private companies with no shares held by government – but the market is heavily regulated and things like 100% coverage at reasonable cost is built in.
The ideal outcome for the UK telecoms market would clearly have been for BT (as it was then) never to have been privatised, and for the government to simply decide on a 100% fibre-to-the-home coverage model. This nearly happened, and that it didn’t is one of the great tragedies in the story of modern Britain; if it had, we’d be up at the top of the leaderboard on European FTTH coverage. As it is, we only just made it onto the leaderboard this year.
But that didn’t happen – Thatcher privatised it, and regulation was quite light-touch. The government didn’t retain majority control, and BT’s shareholders decided to sweat the asset they had and invest strategically in R&D to sweat that asset, along with some national network build-out. FTTC/VDSL2 was the last sticking plaster that made economic sense for copper after ADSL2+; LR-VDSL and friends might have given them some more time if the end of copper was still tied to performance.
As it is, enough people have been demonstrating the value of FTTH for long enough now that the focus has successfully shifted from “fast enough” to “long-term enough”. New copper technologies won’t last the next decade, and have huge reliability issues. Fibre to the home is the only long-term option to meaningfully improve performance, coverage, etc, especially in rural areas.
So how do we go about fixing the last 5%?
First, just so we’re clear, there are layers to the UK telecoms market – you have infrastructure owners who build and operate the fibre or copper. You have wholesale operators who provide managed services like Ethernet across infrastructure – people like BT Wholesale. Then you have retail operators who provide an internet connection – these are companies like BT Retail, Plusnet, TalkTalk, Zen, Andrews & Arnold, Sky, and so on. To take one example, Zen buy wholesale services from BT Wholesale to get bits from an Openreach-provided line back to their internet edge site. Sometimes Zen might go build their own network to an Openreach exchange so they effectively do the wholesale bit themselves, too, but it’s the same basic layers. We’re largely talking about the infrastructure owners below.
The issue is always that commercially the last 5-10% of the network in terms of hardest-to-reach places will never make sense to go and do, because it’s really expensive to do. Gigaclear’s model and approach is entirely designed around that last 5%, so we can make it work, but it takes a long-term view to do it. The hard-to-reach is, after all, hard-to-reach.
But let’s say we just nationalise Openreach. Now Openreach, in order to reach the hardest-to-reach, will need to overbuild everyone else. That includes live state-aid funded projects. While it’s nonsense to suggest that state aid is a reason why you couldn’t buy Openreach, it is a reason why you couldn’t get Openreach to go overbuild altnets in receipt of state aid. It’d also be a huge waste of money – billions already spent would simply be spent again to achieve the same outcome. Not good for anyone.
So let’s also say you nationalise everyone else, too – buy Virgin Media, Gigaclear, KCOM, Jersey Telecom, CityFibre, B4RN, TalkTalk’s fibre bits, Hyperoptic, and every startup telecom operator that’s built fibre to the home in new build housing estates, done their own wireless ISP, or in any other way provides an access technology to end users.
Now you get to try and make a network out of that mess. That is, frankly, a recipe for catastrophe. BT and Virgin alone have incredibly different networks in topology, design, and overall approach. Throw in a dozen altnets, each of whom is innovating by doing things differently to how BT do it, and you’ve got a dozen different networks that are diametrically opposed in approach, both at a physical and logical level. You’re going to have no network, just a bunch of islands that will likely fall into internal process black holes and be expensive to operate because they won’t look like 90% of the new operator’s infrastructure (i.e. Openreach’s network) and so require special consideration or major work to make it look consistent.
A more sensible approach is that done in some European countries – introduce a heavily regulated franchising market. Carve the market up to enable effective competition in services. Don’t encourage competition on territory so much – take that out of the equation by protecting altnets from the national operator where they’re best placed to provide services, and making it clear where the national operator will go. Mandate 100% coverage within those franchise areas, and provide government support to achieve that goal (the current Universal Service Obligation model goes some way towards this). Heavier regulation of franchise operators would be required but this is already largely accounted for under Significant Market Power regulations.
Nationalising Openreach within that framework would make some sense. It’d enable some competition in the markets, which would be a good thing, and it’d ensure that there is a national operator who would go and build the networks nobody could do on even a subsidised commercial basis. That framework would also make state aid easier to provide to all operators, which would further help. Arguably, though, you don’t need to nationalise Openreach – just tighten up regulation and consider more subsidies.
This sort of approach was costed in the same report that Labour appear to be using, which Frontier Economics did for Ofcom as part of the Future Telecoms Infrastructure Review. It came out broadly equivalent in cost and outcomes.
But I do want free broadband…
So that brings us to the actual pledge which was free broadband for everyone. The for everyone bit is what we’ve just talked about.
If you’ve got that franchise model then that’s quite a nice approach to enable this sort of thing, because the government can run its own ISP – with its own internet edge, peering, etc – and simply hook up to all the franchise operators and altnets. Those operators would still charge for the service, with government footing the bill (in the case of the state operator, the government just pays itself – no money actually changes hands). The government just doesn’t pass the bill on to end-users. You’d probably put that service in as a “basic superfast access” service around 30Mbps (symmetrical if the infrastructure supports it).
This is a really good model for retail ISPs because it means that infrastructure owners can compete on price and quality (of service and delivery) but are otherwise equivalent to use and would use a unified technical layer to deliver services. The connection between ISPs and operators would still have to be managed and maintained – that backhaul link wouldn’t come from nowhere – but this can be solved. Most large ISPs already do this or buy services from Openreach et al, and this could continue.
There’d still be a place for altnets amidst franchise operators, but they’d be specialised and narrow, not targeting 100% coverage; a model where there is equal competition for network operators would be beneficial to this and help to encourage further innovation in services and delivery. You’d still get people like Hyperoptic doing tower blocks, business-focused unbundlers going after business parks with ultrafast services, and so on. By having a central clearing house for ISPs, those infrastructure projects would suddenly be able to provide services to BT Retail, Zen, TalkTalk, and so on – widening the customer base and driving all the marketing that BT Retail and others do into commercial use of the best infrastructure for the end-user and retailer. This would be a drastic shake-up of the wholesale market.
Whether or not ISPs could effectively compete with a 30Mbps free service is I think a valid concern. It might be better to drop that free service down to 10Mbps – still enough for everyone to access digital services and to enable digital inclusion, but slow enough to give heavier users a reason to pay for a service and so support the infrastructure. That, or the government would have to pay the equivalent of a higher service tier (or more subsidy) to ensure viability in the market for ISPs.
I think that – or some variant thereof – is the only practical way to have a good outcome from nationalising or part-nationalising the current telecoms market. Buying Openreach and every other network and smashing them together in the hopes of making a coherent network that would deliver good services would be mad.
What about free WiFi?
Sure, because that’s a sensible large-scale infrastructure solution. WiFi is just another bearer at some level, and you can make the argument that free internet while you’re out and about should be no different to free internet at home.
The way most “WiFi as a service” is delivered is through a “guest WiFi” type arrangement on home routers, with priority given to the customer’s traffic so you can’t sit outside on a BTWiFi-with-FON access point and stream Netflix to the detriment of the customer whose line you’re using. Unless you nationalised the ISPs too you can’t effectively see this happening.
Free WiFi in town centres, village halls, and that sort of thing is obviously a good thing, but it still works in the franchise model.
How about Singapore-on-Thames?
Well, Singapore opted to do full fibre back in 2007 and were done by about 2012 – but they are a much smaller nation with no “hard to reach” parts. Even the most difficult, remote areas of Singapore are areas any network operator would pounce on.
But they do follow a very similar model, except for the “free access” bit. The state operator (NetLink Trust) runs the physical network, but there are lots of ISPs who compete freely (Starhub, M1, Singtel, etc). They run all the active equipment in areas they want to operate in, and use NetLink’s fibre to reach the home. Competition shifts from the ability to deploy the last mile up to the service layer. This does mean you end up with much more in the way of triple/quad-play competition, though, since you need to compete on something when services are broadly equivalent.
It’s a good example of how the market can work, but it isn’t very relevant to the UK market as it stands today.
Privacy and security concerns
One other thing I’ve heard people talk about today is the concerns around having a government-run ISP, given the UK government’s record (Labour and Tory) of quite aggressively nasty interference with telecoms, indiscriminate data collection, and other things that China and others have cribbed off us and used to help justify human rights abuses.
Realistically – any ISP in the UK is subject to this already. Having the govt run an ISP does mean that – depending on how it actually gets set up – it might be easier for them to do some of this stuff without necessarily needing the legislation to compel compliance. But the message has been clear for the last 5-10 years: if you care about privacy or security, your ISP must not be a trusted party in your threat model.
So this doesn’t really change a thing – keep encrypting everything end-to-end and promote technologies that feature privacy by design.
Is it needed? Is it desirable?
Everyone should have internet access. That’s why I keep turning up to work. It’s an absolute no-brainer for productivity (which we need to fix, as a country) and some estimates from BT came up with in the order of £80bn of value from universal broadband.
Do we need to shake up the market right now? BT are doing about 350k homes a quarter right now and are speeding up, so if you left them to their own devices they’ll be done in at worst about 16-20 years. Clearly they’re aiming for 2030 or sooner anyway and are trying to scale up to that. However, that is almost all in urban areas.
Altnets and others are also making good progress and that tends to be focused on the harder-to-reach or semi-rural areas like market towns.
I think that it’s unlikely that nationalising Openreach or others and radically changing how the market works is something you’d want to do in a hurry. Moving to a better model for inter-operator competition and increasing regulation to mandate open access across all operators would clearly help the market, but it has to be done smartly.
There are other things that would help radically in deploying new networks – fixing wayleave rules is one. Major changes to help on this front have been waiting in the “when Parliament is done with Brexit” queue for over a year now.
There is still a question about how you force Openreach or enable the markets to reach the really hard to reach last mile, and that’s where that £20bn number starts looking a bit pithy. While the FTIR report from Frontier Economics isn’t mad, it does make the point that reaching the really hard to reach would probably blow their £20bn estimate. I think you’d easily add another £10-20bn on to come to a sensible number for 100% coverage in practice given the UK market as it is.
Openreach spend £2.1bn/yr on investment in their network, and have operating costs of £2.5bn/yr. At current run-rate that means you’d be looking at ~£70bn, not £20bn, to buy, operate and build that network using Openreach in its current form. Labour have said £230m/yr – that looks a bit short, too.
(Since I wrote this, various industry people have chimed in with numbers between £50bn and £100bn, so this seems a consistent number – the £230m/yr appears to include capital discounting, so £700m+/yr looks closer)
The real challenge in doing at-scale fibre rollout, though, is in people. Education (particularly adult education and skills development) is lacking, and for the civil engineering side of things there has historically been a reliance on workforces drawn from across the continent as well as local workforces. Brexit isn’t going to make that easier, however soft it is.
We also don’t make fibre in the UK any more. I’ve stood at the base of dusty, long-abandoned fibre draw towers in England, now replaced by more modern systems in Europe to meet the growing demand there as it dwindled here. Almost every single piece of network infrastructure being built in the UK has come from Europe, and for at least a decade now, every single hair-thick strand of glass at the heart of modern networks of the UK has been drawn like honey from a preform in a factory in continental Europe. We may weave it into a British-made cable and blow that through British-made plastic piping, but fibre networking is an industry that relies heavily on close ties with Europe for both labour and goods (and services, but that’s another post).
Labour’s best move for the telecoms market, in my view, would be to increase regulation, increase subsidy to enable operators to go after the hardest-to-reach, and altogether ditch Brexit. Providing a free ISP on top of a working and functional telecoms market is pretty straightforward once you enable the current telecoms market to go after everyone.