My Lords, I shall speak also to Amendments 13, 20 and 21. These are probing amendments: three are “why nots?” and one is a rather extended “why?”. Amendment 12 follows on nicely from the final contribution of the noble, Lord Fox, to the previous debate. It attempts to address the competitive dynamic of the market—what it is there to achieve—and whether competition works in the broadest interest. We contend that the structure of the market has impeded private investment.
In 2005, responsibility for the broadband network was given to BT, which already owned the copper landline network—that seemed like a good idea to
achieve a certain series of goals. Those goals were achieved but, unfortunately, time has moved on and there are other requirements.
In those terms, BT has done a good job—there are limits to what it can do—and we have much to thank it for. I should declare an interest here: I am a very small shareholder in BT—since last week, an even smaller one—and I do not believe in BT bashing. We create frameworks and incentives, and it is not a company’s fault for following them. Markets have changed. BT receives a lot of criticism for its move into content, but that is adjustment to the market. Frankly, they can find people who are prepared to buy a service to watch the Bundesliga, and I have used it to watch Borussia Mönchengladbach, but the Government are finding it difficult to balance the needs of a national broadband infrastructure with BT’s corporate requirements. The market just does not work well and there are few incentives for new entrants and little scope for small players. Bluntly, the Government’s reliance on BT’s free cash flow moves it from having a real policy to being reliant on prayer.
The communications market revenue growth has accelerated from about 5% to about 5.5%, and this is driven by two particular factors. The main one is price rises which have been unsurprisingly in that 5% to 5.5% range, and there has been a movement to try to compete on the basis of ever-faster connections, or the marketing of ever-faster connections, even if they are not met.
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In that price competition it is not sufficient to say that there is a fully competitive market that allows for new entrants, forms of investment and competitive pressures to come in. It is competitive pricing but it is not a competitive market. The greatest illustration of where we can see market failure is that Ofcom has devoted so much effort—indeed a whole section of its digital communications review—to empowering and protecting consumers. There is so little dynamic in the market that it is the regulator’s task to deal with a whole range of issues to protect and provide opportunities to consumers to be able to get data, recompense, standards, and other things.
What we need is a different sense of how we are creating a competitive market, and I would be very grateful if the Minister will address that question. Every time we read a document, it describes the notion of having some degree of competition, so can he describe the mechanics of this competitive market and how it drives the benefits that we are looking at, beyond just price competition?
In Amendment 13 we are looking at a new requirement to try to ensure a rollout to,
“areas with no or very low broadband coverage before deploying their networks in urban areas”.
The reason we are doing this is because we believe it would be a wonderful opportunity if, when tendering for 5G, we were able to use that to advantage by ensuring not just the effectiveness of the rollout of 5G but in plugging the gaps where broadband is deficient. Companies bidding for it can develop reasonable economic models at that point of investment to do it. This is not pie in the sky. The reason why I think this is such a
good suggestion, and I would be very grateful to hear the Minister’s view, is because this is exactly what Germany did in a previous auction that took place between 2009 and 2011 when the licensing conditions and the whole process included specific coverage obligations aimed at getting fixed broadband to homes, which was the primary focus of the obligation rather than just mobile coverage in rural areas. They were required to ensure that they hit the smallest areas before they could move on to the others, so small towns and districts with 5,000 or fewer inhabitants were priority stage 1. It then went up through other stages to priority stage 4 where there were more than 50,000 inhabitants. Deployments in each stage could begin only when 90% of the population in 1,000 districts specified in the previous stage had been provided with access by one or more of the licences. This was extremely successful. In fact, a number of companies bid for this and have delivered it, including—maybe these are familiar to some noble Lords—Vodafone, O2, T-Mobile, Telefónica and Deutsche Telekom. Do these seem like unremarkable companies that we will not have bidding for our particular arrangements?
Here we have a practical measure—a practical way of tendering—that would bridge that gap, would fill it and allow for effective competition and an effective economic model to be developed. I would be very grateful if the Minister will say why that is not a good idea.
Amendment 20 addresses the question of Openreach. There have been many debates on Openreach so everyone agrees with the conclusion of Ofcom, to ensure that there is a proper legal separation where the upstream business is established as a separate legal entity within the wider group and that it remains under the same overall ownership but there is a divisional board that can act independently from the group board. That is an interesting proposal. I think that there is a case for structural separation but it is reasonable to look at legal separation at this stage and measure where that is.
However, there are two elements to this amendment which address some of the major concerns. The highly respected Enders commented on this proposal from Ofcom saying:
“Ofcom’s latest proposal for the structure of BT’s Openreach sits neatly between BT’s offer and its competitors’ demands, and is broadly sensible if the Pension Fund and cost issues can be resolved”.
It could have added debts, and the like, and there is a range of issues to sort out. It is hard to have a USO and so much running on a company encumbered by such issues.
Openreach is fundamentally immensely profitable. When you can finally get to understanding the accounts —it tries to suggest that there is a lot more capital there—you can identify the profit. In fact, I cheated because one of the other group companies revealed the level of profit. This is a business with some of the highest margins in the FTSE. It is a highly profitable business, so it should be able to address these issues. It is wrong to encumber the decisions of Government by someone being able to hold a gun to their head saying that it has all these other particular problems.
The other element is that this proposal should be acted on. We have proposed the amendment because we think it will be timely to ensure that this is delivered. This should and can take place now. It can be enforced now, either through the EU arrangements, or even through domestic UK arrangements. There is no reason for any delay or for the Government not to encourage the separation to happen as soon as possible. I will be grateful if the Minister will give us some indication of whether the Government will be looking to ensure that this separation takes place now.
We like Amendment 21 very much indeed, apart from coming after the report which I hope the Minister will reconsider. It address a big issue. The Government’s Autumn Statement provided funding for the rollout of fibre to the last 5%, some would say, and it has not met with great interest from the private sector. This is largely a result of two factors. The first is that the competition is in superfast, and to try to deliver a low spec on this one is not a massive incentive for companies and, secondly, there is not much chance to roll out further. It is important to create a more competitive, performance-driven and dynamic market to make changes for the benefit of areas.
If we were to look at some of the top 10 cities of the world for delivering broadband speed, the number one is Seoul, Hong Kong is number two, number three is Chattanooga, number four is Kansas City, number five is Lafayette and number six is Bristol—in the United States. Number seven is Riga, and then we have Amsterdam, New York, and others. London is better but we have a patchy service. That is because the local delivery of new forms and new arrangements to ensure fast broadband have been pioneered in a variety of other countries and we should have that method.
I will tell two stories. Hudson, Ohio, had two internet providers where connectivity was slow, unreliable and expensive. The city decided to become its own provider. This was a real problem because it could not attract businesses. It became a one gigabit economy. Since that time, 900 companies have moved into the area and transformed it.
In 2010, Chattanooga—yes, Chattanooga— modernised the power grid and laid a fibre network. From 2011 it had a one gigabit economy. Last year it rolled out 10 gigabits, and users could get this at home. In my private business I have been to Chattanooga and it is absolutely extraordinary. It has attracted a whole host of companies, including a lot of tech companies, start-ups, 3D-printing companies and some of the most innovative companies and entrepreneurs. It is the number-one-ranked service provider for customer satisfaction, eclipsing Google Fiber. That was fought quite heavily by the existing providers but it has been able to transform an area’s economic prospects and the life and livelihood of the populations there. There are areas in our country that are not being served well and an authority could start to deliver a better outcome to the population by creating a better infrastructure, and we should certainly give it the means to do so. This amendment fulfils that. I beg to move.