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What advice is available to UK public authorities considering intervention to upgrade the communications / network infrastructure in their local area?

The Department of Trade and Industry (DTI) and Ofcom have published advice for public bodies who may be considering the use of public funds to support the provision of higher speed broadband networks in particular areas of the UK. This advice is published here.

As the importance of broadband continues to grow, Regional Development Agencies (RDAs), devolved authorities and local authorities may seek to support some communities' access to broadband services. Any such schemes must be compatible with European state-aid rules and approved by the European Commission.

The DTI / Ofcom publication aims to enable public bodies to target and structure these schemes to deliver significant benefits to consumers without damaging competition between broadband suppliers. Ofcom wants to ensure that public interventions on broadband access benefit consumers without reducing incentives for the commercial sector to invest in new services and technologies.

Do public authorities need to follow what the DTI and Ofcom are saying?

Ofcom has no formal involvement in how public bodies choose to spend their money, including in the deployment of new communications networks. Assessment on the use of public funds for such projects, the potential for competitive distortions versus the benefits, and their compliance with European law is conducted by the European Commission through the application of state-aid rules.

However, the DTI and Ofcom are in a good position to help local authorities, to share best practice, and to offer advice on how broadband schemes can be set up so as to have the least negative impact on competition.

What is meant by 'public intervention'?

Public intervention includes any action by public authorities to affect the outcome that would otherwise be delivered by the market, for example extending broadband coverage beyond only those areas that are commercially feasible. The DTI / Ofcom publication focuses on the use of public funds to invest in communications infrastructure. This infrastructure may be used to provide retail services direct to end customers or wholesale services to other communications providers. The specific design of any public intervention may vary, but may include public private partnerships or competitive tenders for the delivery of communications network infrastructure .

Why does it matter to consumers if higher speed broadband services are delivered by market led deployments or public sector interventions?

Public sector interventions have the potential to deliver substantial benefits to consumers where they make services available that otherwise would be unavailable. This can help create jobs and contribute to disadvantaged areas, for example rural areas.

However, some types of public intervention can mean that potential benefits from competition are lost. In many places there is the prospect of competition between different operators who own some or all of the infrastructure needed to offer high speed services. This is likely to deliver consumer benefits in terms of greater choice, lower prices and faster innovation.

Such competition between commercial operators can lead to a ‘virtuous circle’ of investment, with operators continually investing in new applications, services and technologies. If public interventions reduce the incentives for commercial companies to invest efficiently, these benefits may be lost.

Why may public intervention in broadband affect competition?

Not all public interventions will result in inefficient distortions to competition. Well-targeted and well-structured schemes can address specific market failures or deliver socially beneficial outcomes such as network deployment in areas that would otherwise not be economic for commercial deployment.

However, any public sector financed network risks distorting the incentives for commercial deployments as companies may not be able to compete effectively with such a publicly funded network. For example, a publicly funded next generation access network could end up being the only next generation access infrastructure available in any region.

Why is Ofcom interested in public sector interventions in broadband?

Ofcom’s principal duties are to further the interests of citizens and consumers in relevant markets, where appropriate by promoting competition. In meeting these duties, Ofcom must have regard in particular, to securing the availability and use of a wide range of communications services and of encouraging efficient investment.

As a result, we have a clear interest in ensuring distortions to the competitive environment are minimised. This is to ensure that the benefits of competition feed through to customers and citizens. This is the reason for the DTI and Ofcom publishing advice in relation to specific public intervention schemes.

Ofcom has a duty to promote high speed data networks throughout the UK . So why does the DTI / Ofcom publication suggest there are problems with some public schemes that would help deliver that objective?

The DTI and Ofcom are not seeking to advise public authorities on whether or not to intervene in communications markets, or what the benefits of such intervention may be. Instead, the publication seeks to provide information on best practice for public intervention schemes, including the key considerations for public sector organisations in assessing the need, benefit and costs associated with specific schemes.

Ofcom thinks that many public broadband schemes have the potential to deliver the benefits of broadband to regions which would otherwise be disadvantaged, increasing business competitiveness and improving consumers’ access to new online services. However, we believe that consumers would benefit most from market led deployments where these are likely to be economic.

The advice provided in our publication with the DTI seeks to outline best practice considerations for public sector organisations in assessing if a particular intervention may be necessary and desirable. We hope to aid public sector organisations in designing well-targeted and well-structured schemes that do not risk distorting competition between commercial operators or resulting in a bad use of public funds.

If it has a negative impact on competition, why are other countries investing in new broadband infrastructures through public intervention?

Some countries are seeking to use public funds to ensure the deployment of new broadband access infrastructures in the short term. These are being undertaken for a number of reasons, including industrial policy and as a result of political pressure. It is not yet clear whether this will prove to be a good use of public funds in these countries, because it is not yet evident precisely how these new networks will be used, or how they may contribute to overall consumer and citizen welfare.

• DTI - Public Broadband Schemes : A Best Practice Guide February 2007 [pdf]
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