In a move that has attracted general support from the communications industry, UK comms regulator Ofcom has introduced rules that it says should provide a fairer way to distribute the costs of delivering broadband to hard-to-reach areas.
Specifically, Ofcom has changed the Universal Service Conditions under which incumbent UK telco BT can provide universal broadband services, making particular reference to how BT should approach high excess costs under the broadband Universal Service Obligation (USO).
Bringing gigabit broadband across the UK has been a stated ambition of the current UK government since its election in 2019, aiming to see gigabit connectivity to 85% of the UK by 2025. Over the past 18 months or so, the government has employed a number of schemes specifically to speed up the roll-out of ultra-fast broadband and mobile coverage in rural areas.
The flagship scheme is Project Gigabit, which was announced in March 2021 and described as the biggest broadband roll-out in UK history. Through the programme, the UK government aims to deliver next-generation gigabit broadband to more than a million homes and businesses in what are regarded as hard-to-reach places, spreading wealth and creating jobs across Britain.
The scheme will add financial heft in prioritising areas that currently have slow connections and would otherwise have been left behind in broadband companies’ roll-out plans. Most of the gigabit-capable connections will be delivered through full-fibre broadband cables.
One of the key issues has been the high cost to operators in taking gigabit networks to the non-urban areas. In 2018, the UK government introduced legislation for a broadband USO, to give people the right to request a decent and affordable broadband connection to their homes and businesses, with a stipulation that if the cost of providing a given connection is no more than £3,400, excluding VAT, then the customer does not have to pay for the connection to be built. If the costs exceed this, the customer can elect to pay the difference.
Universal service provider
In 2019, Ofcom designated BT as a universal service provider and set the conditions that apply to it. To calculate the costs of a connection, these conditions required that BT must share the costs of the network that can serve multiple premises.
Costs are apportioned based on an assumption that 70% of eligible premises in an area will ultimately take a connection. If, on this basis, the cost per premises is no more than £3,400 (excluding VAT), BT must provide the connection at no charge (other than standard connection and rental charges).
However, if on this basis, the cost per premises exceeds £3,400 (excluding VAT), BT must, on request, provide customers with a quote for the excess costs for their premises (which is the calculated cost per premises minus £3,400) in a timely manner. BT must then provide a connection if the customer is willing to pay this excess cost.
However, in October 2020, Ofcom opened an investigation because of concerns that BT may not be complying with the rules regarding its approach to calculating excess costs. Ofcom noted that BT’s approach meant it was not apportioning the costs of shared network in the way it expected, which resulted in some customers being asked to pay materially higher excess costs.
During the investigation, BT provided evidence that where the cost of building a connection is very high, and costs are significantly above £3,400, there was a risk of there being a disproportionate impact on the costs of funding the USO.
Having considered BT’s concern, Ofcom has now decided to change the Universal Service Conditions. This change means that where the excess cost per premises is more than £5,000 (excluding VAT), BT can wait until it has agreement to cover the total excess cost including all the shared network costs before commencing build, rather than commencing build where one customer is willing to pay the excess cost for their specific premises. This, said Ofcom, will mitigate the risk of a disproportionate impact on the costs of funding the USO. Where the excess cost per premises is less than £5,000 (excluding VAT), there is no change to Ofcom’s conditions.
In making its assessment, Ofcom accepted that while there will be customers who will benefit from the USO going forward, there would still be premises where the costs of provision remained very high. These customers, it said, were unlikely to benefit from the USO irrespective of the approach taken to shared costs.
Going forward, Ofcom assured that it would continue to work with industry and the government to explore alternative technology and funding solutions for premises facing very high excess costs to receive a decent broadband connection.
While it was not making any other change to the existing rules on how BT must assess USO connection costs, it was also not proposing to make this same change for Hull-based operator KCOM, given the availability of what it regarded as “decent” broadband services in the Hull Area. It added that to date, KCOM had not received any requests from USO-eligible customers.
Looking at what the changes could mean from a customer perspective, Justina Miltienyte, broadband policy expert at broadband price comparison service Uswitch.com, said it was positive to hear that Ofcom was still working with the broadband industry and the government to drive costs down.
“Many people who are stuck on painfully slow broadband speeds live in rural areas, but they can club together with neighbours to pay the difference in the cost of improving the infrastructure, if the amount exceeds £3,400,” she said.
“It could be difficult for some customers to pay the full amount, if their neighbours don’t agree to pay their fair share. At a time when household bills are increasing for millions of consumers, and with many entirely reliant on their broadband for work, socialising and entertainment, people shouldn’t have to pay the earth to have a better service.”
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