Only competition can unlock Britain’s fibre future

01 Rhagfyr 2017

This speech was delivered by Sharon White, Chief Executive at Ofcom, at a visit to Virgin Media’s centre of excellence in Birmingham, attended by Virgin Media representatives, apprentices and local stakeholders.

Introduction

Good morning. I’m delighted to be with you all at Virgin Media’s centre of excellence, here in Birmingham; a city I lived in in the late 1980s.

I’m particularly pleased to see so many apprentices in the room.

We have our own apprenticeship scheme at Ofcom, which is proving successful in attracting brilliant young people from a wide variety of backgrounds who might otherwise not have found a career with us.

We also strongly support the Institute of Engineering and Technology’s campaign to increase the number of women in engineering roles. Today, with just 9 per cent of jobs in engineering and technology held by women, we welcome every effort to attract higher numbers. I’m delighted that some of our own female engineers are here today.

With around 1,000 apprentices set to work on Project Lightning, Virgin Media – and Tom - are clearly focused on future talent. It’s fantastic that Virgin Media is investing in your futures, and I wish you all the best of luck in your careers.


Today I want to talk about the importance of investing to create a broadband network fit for the 21st century. That also means investing in people – ensuring we have the expertise and the experience to carry out skilled engineering work.

For the UK, this has never mattered more. In the last 15 years we have moved from dial-up internet, to a world of superfast broadband, with modern fibre optic cable replacing parts of our Victorian era copper network.

Fast broadband has become essential for business, banking, shopping, entertainment and socialising.

At home and in the office, the amount of data flowing over broadband grew by a third last year, while the volume of mobile data expanded by 44 per cent over the same period. Some estimates suggest it may be fifty times higher in ten years’ time – which will sound all too plausible to anyone who has a child permanently glued to YouTube.

The priority must be for homes and offices to get the basic broadband speeds and mobile reception they need. There has been progress: nine in ten homes and offices are reached by superfast broadband, and nearly 60 per cent can get a 4G signal indoors. But there is much more to do.

We’re working with the Government to close those gaps. We have advised on the basic broadband to be universally available by 2020. Our rules mean more homes and offices should receive a 4G signal by the end of this month. And we are freeing up more airwaves to help meet growing demand.

We cannot afford to stand still. History tells us that, soon, superfast broadband will not be enough. Technological developments – from robotics and automation, to cybersecurity and connected devices, to those we cannot even conceive of today - will all demand faster, more secure, more reliable networks.

The UK is already playing catch-up and without more investment, we risk falling even further behind.

Today I want to explain why Ofcom believes that it is only through effective competition that we will see the necessary investment in our digital infrastructure.

Virgin Media playing its part in offering competition

Virgin Media is a brilliant example of that competition.

Project Lightning is one of the most exciting and important investments in the UK’s modern telecoms history.

Liberty Global is planning £3 billion of investment, taking cable at speeds of up to 300 megabits per second – and even faster for business lines - to six in ten homes and businesses across the UK.

We have waited a long time in the UK for such a significant commitment to cable, which much of continental Europe takes for granted.

And we are very conscious that Liberty Global, as a global business, has a choice about where it invests.

Project Lightning is serious competition to BT, offering the first real prospect of an   alternative network to Openreach in the majority of the UK. I saw at first hand construction in Barnet and the real choice now available to residents.

Full-fibre future

Taking Virgin Media’s lead, we want all our telecoms companies to be investing in ultrafast networks.

Virgin Media uses a mixture of technologies – full fibre and coaxial cable – both of which bring significantly faster broadband to people and businesses.

We want to see other operators rolling out more fully fibre networks – that take fibre right to the doorstep.

First, they’re fast – offering speeds of a gigabit per second or more.

Second, they’re reliable – with five times fewer faults than copper-based connections.

Third, they give more even performance, with actual speeds much closer to those you see advertised.

But the UK lags well behind other countries for full fibre.

While most of us rely on decades-old copper connections, seven in ten people in Spain and Portugal can access full-fibre broadband.

I saw this for myself during a visit last year.

People and businesses in the countryside, as well as towns and cities, can get speeds of 1 Gigabits per second.

In the UK, just 3 per cent of premises can benefit from these types of connections. That’s why significant investment is needed for the UK to climb its way up to a seat at the top table of the world’s digital economies.

The Government also recognises this, with further funding for fibre and 5G announced in the Budget. And Matt Hancock, the digital minister, has consistently argued the case for action.

To bring that about, we need competitive pressure on BT to upgrade their network or watch rivals sail ahead.

Competition – the surest route to investment

And it is competition alone that can achieve this.

With effective competition, providers have clear incentives to innovate.

The pressure of a rival homing into view forces companies to invest in new services to keep ahead.

We can see today how Project Lightning has galvanised BT to develop its so-called ‘G fast’ technology, designed to squeeze out more speed from its Victorian copper network.

And a decade ago, requiring Openreach to rent its broadband network to a range of operators led to the likes of Sky and TalkTalk offering new services and lower prices. Today we have proposed further regulation on BT to help promote competition in delivering ultrafast networks.

And without competition? Put simply, we will not see the level of investment the country needs.

So, at Ofcom, we make no apologies for the fact that promoting competition is central to our efforts to stimulate investment in the UK’s telecoms market.

A central plank of our new plans are rules to make BT open up its underground tunnels and its telegraph poles to rival operators wishing to install their own fibre networks.

BT owns a vast network of these ducts, spread right across the country. Around 90 per cent of them have space to lay new fibre optic cable.

We estimate that using these existing ducts and poles can halve the up-front cost of laying fibre networks. That would take the average cost of providing a home or business with full fibre from around £500 to £250.

Crucially for investors, this could also halve the time it takes to see a return, compared to digging your own networks from scratch.

For network investments that can run into billions of pounds, that is hugely significant. It has the potential to transform the economics of a full fibre build.

Duct and pole access can be used to build a whole network; or to deliver fibre connections in small areas that may be harder to reach – as Virgin Media has been trialling.

Spain and Portugal have used this approach to fantastic effect. For example, in Spain, companies were able to take advantage of an extensive network of high quality ducts, allowing them to lay their own fibre. This helped boost Spain’s full-fibre availability from 23% to over 60% in just three years.

Momentum is building

In recent months, there are encouraging signs that investment momentum in the UK is starting to build. As well as Project Lightning I have seen new construction by Hyperoptic and Openreach. Speaking as a non-engineer, I have learned more than I ever knew possible about fibre jointing, mole ploughing and the crucial differences between narrow and microtrenching.

KCOM expects to build full fibre connections to 150,000 homes in Hull by the end of this year, and announced this week, a further 50,000 homes by March 2019.

TalkTalk are leading work to connect 40,000 new premises in York and are exploring moving into other cities.

Independent providers – the likes of GigaClear and Hyperoptic – are playing an increasing role.

GigaClear expects to have reached 75,000 rural premises by the end of this year, while Hyperoptic has raised £100 million from investors to connect 500,000 homes and businesses by the end of 2019.

Most recently, CityFibre and Vodafone announced a partnership that will see them roll out full-fibre broadband to a million homes by 2020, with the potential to reach five million homes by 2025. That commitment highlights the potential of companies working together to enhance the business case.

If all the major broadband providers come good on their public commitments, full fibre broadband will reach up to six million premises, or 20% of the country, by 2020. That would be a step forward from today’s 3%, but still leave the UK trailing other countries.

The challenge for BT

To catch up, we need still bolder commitments.

And the biggest player remains BT. We welcome Openreach’s commitment to reach two million homes with full fibre by 2020.

The company has also outlined plans to reach 10 million by the mid-2020s, but dependent on up to £7 a month being added to broadband bills.

We expect BT to go further, and make a reality of the ambition it has set itself to be - and I quote – “a national champion with the scale and expertise to meet Britain's future communications needs”.

We recognise, of course, the competing priorities that any major operator faces – be it investing in sports or other content rights, dividends, pensions or its broadband infrastructure.

But the national priority is clear.

Competition for fibre is growing, as will consumer demand for it.

As the owner of Openreach - the national telecoms network which is becoming more independent from BT -  it should act in the interest of all of its customers who rely on it, as well as its shareholders.

We have seen how Spain’s Telefónica responded to competitive pressures from cable, and rivals on its own network, by investing a large slice of its profits into full fibre at the height of the financial crisis. The company allowed others to use its infrastructure, at attractive rates, which demonstrated that competition could also thrive in the absence of regulation.

Orange, Vodafone, Jazztel and others responded by striking investment deals. Telefonica did not charge its customers a premium for bundles including fibre, a premium which some in the UK have claimed is necessary. In Spain bundles including full fibre broadband were offered at the same price as older technologies.

BT has the financial and technical wherewithal to transform its digital infrastructure for the modern era. The question for BT is – does it lead the transformation today as the self-proclaimed national champion? Or does it follow, playing catch-up on its nimbler rivals?

Conclusion

Let me finish, then, by welcoming again the commitments we have seen from Virgin Media and others.

The debate on fibre has changed from why, to when. Independent operators are already placing full fibre broadband at the heart of plans to grow their businesses. Major competitors are increasingly focusing on ultrafast broadband as investors see the opportunities to make a financial return.

At Ofcom, our efforts will unashamedly continue to focus on competition - the surest route to the investment our networks need.

I am cautiously optimistic that companies will build for the future, so the UK can secure its place as one of the world’s leading digital economies.

Thank you.

END