Procurement

Government intervention to help areas with poor broadband services and to support the development of next generation broadband, has put the onus on local authorities to develop local broadband plans, apply for funding and procure services.

These processes are not fixed in stone, consequently this section of the knowledge base (like other sections) is liable to change. However, we hope that it goes some way towards addressing the challenges of developing local broadband plans and procurement processes.

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Nature and Scale of the Problem

County Councils, local enterprise partnerships (LEPs) and consortia of local authorities are being encouraged to develop local broadband plans and bid into BDUK’s pot of £530m in this parliament (and £300m expected in the following two years) to provide next-generation access coverage in areas outside of those that are attractive to commercial players.

The two key problems with rolling out future-proofed next-generation broadband infrastructure are well understood: it’s an expensive process (though arguably far less expensive than other major infrastructure projects), and large scale providers like BT are only likely to deliver to around 60% of the population with no public subsidy. The divide between the ‘commercially viable’ and the unviable ‘Final Third’ has largely been determined by the investment policies of BT and to some extent Virgin Media.

Many of the key economic issues were discussed in the Analysys Mason report on ‘The Costs of Deploying Fibre-Based Next Generation Broadband Infrastructure' (BSG / Analysys-Mason, 2008). Based on a set of core assumptions relating to deployment costs, demand and other issues, it put the costs of FTTC to 90% at £5.5bn (later revised to £6bn), FTTH at £25-28bn (though a later revision that included significant cost reductions, particularly in civil engineering, suggested this could be reduced to approx £15bn). This approximates to £240 per premise for FTTC, and somewhere between £600 at the lower end and £1450 per premise for FTTH.

As with all research projects of this nature there are necessarily some big assumptions in the Analysys Mason report, particularly on issues of consumer and business demand, access to existing physical infrastructure and the costs of new civil infrastructure. As a rule of thumb it is assumed that around 70-80% of the costs of telecoms infrastructure lie in civil engineering.

Changing these assumptions – e.g. the demand profile, or costs associated with digging, will have a big impact on the viability of rural broadband schemes.

Local broadband plans have to take account of existing local provision and to map areas that are not likely to be covered by BT’s current plans. Further information on mapping services and demand is given in the Mapping section of the Knowledge Base (see 'The importance of good maps')..

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Identifying Market Failure

Notspots, Slowspots & Community Initiatives

Local broadband plans need to include notspots and ‘slowspots’ – areas that currently receive services delivering less than 2Mbps downstream. These amount to around 10% of homes and businesses in the UK as a whole. In 2010 BIS commissioned a theoretical exercise to address these areas which can be downloaded here. This provides a very useful summary of the different technical approaches that can be taken to tackle notspot problems. Clearly it is desirable to bring these areas up to the same level of service enjoyed by better served areas and, whilst it is difficult, there are some innovative and pioneering organisations working to achieve this.

One of the main contenders is fixed wireless access. Ever since the problems experienced with first generation roll out local wireless broadband services have proved cost-effective at reaching more isolated areas. These are often run by small, private or community-owned enterprises. Having worked hard, over many years, for little reward, they will not thank local authorities that set up procurement processes that simply steam-roller over their efforts. Other providers are working on fixed line solutions including FTTP for remote, rural areas. This is clearly the most desirable option and should be encouraged.

The fall-back position for the most isolated premises is satellite broadband. In recent times the costs of satellite provision have reduced, making it more attractive; but issues such as signal latency remain.

The Technology section of this Knowledge Base covers the pros and cons of different technological approaches.

The national policy objective during ‘first generation’ broadband roll out was for Britain to have "the most extensive and competitive broadband market in the G7 by 2005." In the early stages of roll out BT stated that it was commercially viable to reach only about 60% of the population (familiar number?). This led to a range of different initiatives involving the public sector, local communities and smaller private operators setting up services or funding ADSL exchange enablement. Late in 2004 BT changed tack and announced the enablement of all but a handful of local exchanges, which gave rise to the ‘job done’ declaration by government, RDAs and BT.

At the time many people knew (and now it is widely acknowledged) that simply because 99% of the population are connected to an ADSL-enabled exchange, it does not mean 99% of the population being able to receive a good broadband service.

Many local schemes ceased when exchanges were enabled or funding dried up. Surviving projects and new entrants are moving on to include next-generation broadband in their plans and often offer local expertise, innovative solutions, invaluable industry knowledge and ways of bringing in other sources of funding. There is no central information resource about local schemes, although organisations like the Community Broadband Network and the Rural Broadband Partnership have much valuable knowledge.

Some projects and businesses are listed below and elsewhere in this knowledge base.

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Next Generation Broadband Players

There are now three large scale players that have announced significant investment in next-generation broadband – BT, Virgin Media and Fujitsu.

BT

In the private sector BT announced £2.5bn in their roll-out plans mainly for FTTC with some FTTH and other technologies in not-spots (e.g. BET  and satellite). They have also announced that if they win all £830m they will match it with further investment, though some commentators argue that this is what BT are likely to anyway.

Virgin Media

Virgin Media isengaged in an extensive programme to upgrade their network to the DOCSIS 3.0 standard, capable of delivering up to 100mbps downstream. Currently there no plans for significant extensions to the existing cable footprint covering around 50% of the population, mainly in urban areas.

Fujitsu

In April 2011 Fujitsu Telecom (Ftel) announced an investment of £1.5-£2bn in next-generation broadband focused on the rural 'Final Third'. This took many commentators by surprise. Fujitsu is not a company well known to the general public, but it is a big player in the telecoms industry as a supplier of broadband and mobile infrastructure. The partners in Ftel’s plans include Cisco, TalkTalk and Virgin Media. The plan is to create an ‘open access platform’ and starts with two substantial players in Internet services. The inclusion of Virgin potentially offers the prospect of Virgin extending its cable footprint beyond the existing franchise areas.

Local schemes

A variety of smaller, more local schemes using various mixes of public, private and community finance are in existence or under development. They include:

  • Rutland Telecom, [link to case study]
  • Independent Fibre Networks Ltd,
  • The flagship Alston Cybermoor co-op in Cumbria, [link to case study]
  • Other initiatives in Cumbria like Great Asby Broadband, Wennington and Wray in Lancashire,
  • Next Genus CIC delivering village-level FTTH in different areas, [link to case study]
  • Vtesse
  • The Welsh Assembly Government- supported Fibrestream Project in North Wales, delivered by Geo, [link to case study]
  • County Broadband in Essex, 
  • South West Internet and others.

Broadband procurement offers an opportunity to support local initiatives and projects and can thus be seen as part of the broader localism agenda

Procurement Processes

Previous Public Sector Broadband Projects

During the roll out of first-generation broadband, local authorities were asked to get involved in broadband procurement by central Government. Many public sector schemes were set up, often encouraged by central Government.

A number of specific projects were set up to meet different objectives, e.g. Project Atlas in Scotland, NYNet in North Yorkshire. More generally two of the principle mechanisms for public sector organisations to procure broadband services were the creation of Regional Broadband Consortia, operating on behalf of education services and more broadly-based Regional Aggregation Boards, known as Adits. The experience of the nine Regional Aggregation Boards was patchy at best. Set up in 2004 under a DTI initiative, just two remain: Adit North, based in Newcastle, and Adit South in London.

The Regional Broadband Consortia have proved more durable. Ten are in operation around the country (plus the devolved administrations) connected via the SuperJANET backbone. They offer a number of useful lessons for local authorities aiming to procure next-generation broadband services for their communities.

Framework Agreements

In 2010 JANET set up a telecommunications framework agreement involving 19 suppliers of services, from the very large – BT – to smaller, more specialist providers like Vtesse. The framework can be used by JANET(UK), JANET connected organisations, Regional Network Operators, members of the Purchasing Consortia, and the Regional Broadband Consortia.

The advantage of the framework is that it conforms to EU criteria and thus makes the procurement exercise simpler and easier to undertake. The disadvantage is that whilst frameworks are good for the procurement of standard commodity items, they may be too rigid when innovative products and services are needed. It can also be the case that with smaller projects economies of scale don’t come into play with the concomitant financial benefits.Frameworks are also fixed in terms of the supplier group for the lifetime of the framework agreement, though new entrants can be encouraged to engage as sub-contactors of existing framework members.

State Aid Compliance

State aid is a bugbear for many public sector projects. RBCs have experience in structuring projects so that they conform to state aid rules. This experience can be made available to local authorities developing next-generation broadband projects. More detailed guidance on state aid issues is given in the Policy & Regulation section of the Knowledge Base (see State Aid and Next Generation Broadband).

Encouraging Bidding Consortia

From a local authority perspective, putting together a procurement exercise that seeks one major supplier looks superficially attractive. It limits the number of bidders to a manageable group, simplifies the bidding process and simplifies the contractual arrangements. However the corollary is that smaller, innovative players may be excluded by the bidding criteria and thus opportunities to get better, more local solutions can be lost. It is also likely that the role of local communities will be more limited, perhaps just to demand stimulation and aggregation exercises. The appetite for local community investment is unlikely to be tested, except perhaps for an investment of labour to help reduce trenching and other costs. The real point is that one size does not fit all circumstances.

Two approaches that can be taken are to divide up the whole area into lots – smaller areas where particular local needs can be addressed, or to encourage consortia involving a number of suppliers to bid into the process. These two approaches are not mutually exclusive.

There is a legal and management overhead for local authorities running such processes which also needs funding as many LAs will struggle to find the resources internally. RBCs could be tasked to do this but again there is likely to be some funding requirement from government.

Special Purpose Vehicles

Projects like NYNet (see Creating a Broadband Backbone for North Yorkshire) are essentially special purpose vehicles (SPV), usually wholly or partly owned by the public sector, designed to exploit those assets for wider social and economic benefit. NYNet and similar projects are successfully making this provision available and in the process getting a bigger bang for the public expenditure buck. Other public sector networks are developing similar approaches. In Gateshead significant progress has been made in connecting up businesses to a high-speed network created by Gateshead Council and technology supplier Alcatel-Lucent organised through the SPV G-Ti (see Gateshead's Baltic Business Quarter Goes for Economic Growth).

Supporting Local Schemes

Some local authorities are thinking ahead and taking a more innovative approach than others. Both industry and government recognise that the combined investment on the table from the (currently stated intentions of) private sector players and government combined is not enough to fully future-proof the UK in terms of next-generation access. However, this need not be the case if local authorities are able to set the procurement criteria to encourage investment from other parts of the public sector, the private sector and local communities themselves.

One such approach might adopt a LEP-like process, with communities or parishes that naturally associate with each other joining forces as combined elements in a county-wide framework.

  • Some of these areas will have money to invest;
  • Some may be happy to sign pre-orders as collateral;
  • Some will dig the trenches;
  • While others will organise local demand registration schemes e.g. BT’s Race to Infinity.

Arguably such a framework will attract a wider range of bidders, greater scope for investment, and a more creative solution able to optimise every inch of every county.

Kent County Council has taken an imaginative approach to solving some of its local broadband problems. Rather than adopting a one-size-fits-all approach, it has supported projects designed to meet local needs and continues to offer grants to local projects. More on Kent's approach can be found on their Community Broadband page. 

Sewing Together the Patchwork

The growth of local schemes implies a “patchwork quilt” approach to next-generation broadband development. This is already the case with the many different projects and players around the country. An often expressed danger is that these will not enable competition at the service provider level – i.e. customers connected to a regional or local next-generation network won’t be able to choose the service provider they want. This is a problem of the commoditisation of broadband where scale matters. For major ISPs, the costs involved in interconnecting to dozens, or hundreds of local schemes, are prohibitive.

However, frameworks are either in existence or being developed to overcome this problem. One of INCA’s key projects is the development of a Quality Standard for local schemes to enable service providers to deliver services over them with confidence. This is linked to a framework involving over thirty ISPs. The first stage of the work is scheduled for completion by the end of July 2011. More information can be found at www.inca.coop or by contacting info@inca.coop.