It was interesting to hear quite contrasting speeches at the NextGen09 conference in Leeds this week from Ed Vaizey, Shadow Culture Minister, and Stephen Timms, the Treasury and Digital Britain Minister. Both are men who demonstrated an understanding of the issues and the urgency of finding a solution to the UK’s lack of investment in the future of broadband.

Perhaps the clearest difference between the two was surrounding funding and the role of the public bodies:

  • The current government approach, as laid out in the Digital Britain report, is to provide £200m of the Digital TV switch-over fund to ensuring a universal service commitment of 2Mbps, and then to apply a 50p levy on all fixed-line telephone contracts to raise up to £175m per year to fund next generation developments in what have become known as the “final third” – the areas of the country which the government and the mainstream industry deem commercially non-viable for broadband investments. These funds will be allocated by a new body – the Network Design and Procurement Group” which it was announced will now be formed in the new year rather than this Autumn as recommended in the Digital Britain report. So although we know how much money will be allocated to broadband, it will not be known until at least the new year how the money will be spent.
  • Ed Vaizey described a rather different approach should the Conservatives be elected next year. It is clear they don’t support the 50p tax but as we get ever closer to the election simply opposing government policy needs to be contrasted with the alternatives. Instead of a more top-down solution, Conservative plans centre on reforming local authority powers. In terms of broadband, central to this are plans to give councils more freedom to spend their income on local priorities, and to give them access to the bond markets so they can raise finance to invest locally. Where councils feel strongly enough that poor broadband is affecting their local economy, for example, a council could issue bonds and invest funds in a local fibre-optic broadband infrastructure.

It was interesting to consider what might have happened had Digital Britain taken this approach when the Bank of England announced the process of Quantitative Easing. Estimates for providing universal fibre-optic broadband vary but even the highest is in the order to £25-30bn – a small fraction of the total made available to the bond market by the Bank of England. Perhaps the UK would now be facing a new universal next generation broadband roll-out with massive new employment for everyone from civil engineers digging the road to photonics researchers. Sadly we will never find out; while the Conservatives support the idea of using bonds to raise finance for local infrastructure, they are less likely to support further QE should they be elected.

Without the new Network Design and Procurement Group in place, its impossible to contrast the two approaches sensibly, apart from saying that a Labour Government is taking a top-down centralist approach while a future Conservative Government would take a more market-led, local approach – hardly very surprising. If this new quango simply takes the money and hands it back to BT then it might have been more efficient to have simply told Ofcom to force BT to raise the cost of line rental by 50p and not introduce two public bodies to launder the proceeds. If, however, the funds are channelled to local projects then the differences between the two parties are more nuanced.

Its frustrating that despite the massive work that went into Digital Britain, we appear to have at least as clear a view of what a Conservative Government might do than of what the current Government has said it is doing.

  1. Joel Smith says:

    One problem with the Conservative approach is that how is this going to affect the final third? Or maybe the final sixth? If councils are going to be putting investment where they feel that lack of broadband is affecting their local economy, is this not going to be a similar approach to where telecoms providers invest where they think there is a market case?

    What is going to happen to the rural economy where the farmers are required to do more and more online? Or the tourist economy in rural areas?

    One of the benefits of universal service obligations is that there is cross-subsidisation from the obvious places to invest to the areas where there isn’t such a clear case. Sheffield decides they need to improve broadband and so raises bonds for it. What happens if you live in Castleton? (Hint, it is further up the valley, beyond Hope)

  2. adrian says:

    The Conservative approach of allowing councils to issue bonds, as far as I know, means any local authority can do it – urban or rural. If a rural council feels it can build the investment case through tourism, the rural economy, etc. then they are equally free to raise the funds.

    My understanding is, and I might be wrong, there will be new powers to hold local referendums so local people can have a bigger say in major decisions like this. That alone may prove to be a powerful demand aggregator as well.

    The issue comes when the bond market isn’t interested in small issues which is likely to be the case for any local authority scale programme. So perhaps the path is to offer them locally as well for constituents to invest in their own infrastructure.

    This does create a difference in the bond offerings from traditional telcos, who are still viewed with some suspicion by the markets. A council that can’t really go bust and a community that’s engaged may make a more palatable investment.

    On the otherhand, the potential problem with the 50p tax approach is that a central quango will be determining what is the right approach without referring to local communities. We have seen this kind of thing happen before, where the Scottish Executive has said unless its satellite we won’t help. So much depends on the now delayed Network Design and Procurement Group – one bad egg in there and the programme could be rendered useless.

    In principal I naturally prefer local projects over central government programmes but I’m going to sit on the fence on this one until a bit more detail is available from both sides.

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