The following remarks were shared by the Commission’s Chief Executive James Heath at a WEETF eForum event on 2 November on the theme of ‘Delivering Gigabit-capable full-fibre broadband’. 

“I should start off by declaring an interest. Before I joined the National Infrastructure Commission, I worked at DCMS and was involved in designing the government’s broadband strategy and the policy framework that is in place today.

Now I’m at the Commission, our job is to hold government to account for delivering on its broadband targets and to offer advice on what the UK’s long term digital infrastructure priorities should be. And it’s with this hat on that I’ll give a perspective on what the Commission thinks is going well with the government’s broadband strategy, and why, and what we see as some of the challenges facing that strategy.

I will then finish by setting out what all this means for the Commission’s work plan and how we are going to approach digital in the second National Infrastructure Assessment that starts soon.

What’s going well?

I was speaking at a global investor conference last week about the UK being one of the hottest digital infrastructure markets in Europe today – if not the world. With a fibre land grab taking place, incumbent operators are building like fury. And about £8 billion, according to the Financial Times, is being committed by infrastructure funds to new network operators. If I’d made such a claim about the UK broadband market two or three years ago, I would have been met with incredulity or stunned silence rather than with agreement, as I was last week.

When the Commission published its first National Infrastructure Assessment in summer 2018, the overriding concern was that the UK’s digital infrastructure was not prepared for the future and that it risked becoming a constraint on economic growth. Three years ago, the coverage of gigabit-capable networks in the UK was around 5 per cent – and we lagged way behind many of our international competitors. Back then, the Commission called for an urgent national plan to be put in place to achieve nationwide full-fibre broadband.

If you fast forward to today, the situation has been transformed. Coverage of gigabit-capable networks has now reached over 50 per cent of UK premises. Full-fibre coverage is at nearly 30 per cent. Rollout rates are accelerating fast. And if the operators deliver on their published plans, the government should meet its target of gigabit coverage reaching at least 85 per cent of premises by 2025 – which is a much earlier date than the Commission or indeed the government originally envisaged.

What lies behind this change in fortunes? What’s driving this current wave of investment?

The first thing is that there is clearly market confidence in the demand for gigabit broadband. Average internet speeds and data usage are on a steep upwards trajectory.

And the mass experiment in remote working and learning that we’ve been involved in over the last eighteen months means the demand from consumers and businesses for high quality and for reliable digital connectivity has never been higher.

But history tells us that strong demand for telecoms services doesn’t automatically translate into revenue growth for telecoms companies.

I’d argue that several other pieces of the jigsaw have fallen into place to spur investment.

First, fixing broadband was made a national priority, right at the top of the government. There’s been close alignment between DCMS as policy lead and Ofcom as regulator on the goal and on the strategy to achieve it. This stability creates market confidence. And the government’s Statement of Strategic Priorities for telecoms has been important in this respect.

Second, there has been a strong focus on getting the investment incentives right – both by allowing pricing flexibility for fibre services for the long term while protecting consumers, and also by encouraging competition between networks where viable. The position reached by Ofcom in its recent wholesale market review should give companies the opportunity to make a fair return on their investments.

And third, government and Ofcom have worked hard to reduce the barriers that can hold up network deployment on the ground. These are the unglamorous but important changes to duct and pole access, to street works and to new buildings, that make it cheaper and quicker to deploy networks. Barrier removal is an area where we need to see continued, concerted action – as both Openreach and Cityfibre called for earlier.

Taking all these things together, the UK now has strong market fundamentals on demand growth, cost reduction and regulatory and policy stability. Unsurprisingly, operators and investors have responded to these conditions and we are seeing a huge wave of private investment as companies race to roll out networks and capture market share. Network competition may be disruptive, and it may force incumbents to play defence, but it is spurring investment. And it is, therefore, critical that we maintain the competitive tension in the market and guard against any anti-competitive behaviour.

So, today, the UK is in a much better position on digital connectivity than we were two or three years ago. And this is not by accident – it is by design.

But this is categorically not the time for complacency. Achieving nationwide gigabit coverage is a huge civil engineering project. We still need to connect around 15 million premises to achieve the goal – and many of these places will be harder to reach.

Challenges lie ahead

At the Commission, we see two areas in particular where faster progress is needed:

First challenge: We must avoid areas falling behind. We must avoid a new digital divide in gigabit broadband replacing the old divide in superfast broadband. There are millions of premises in the UK that will be hard to reach and where public funding will be necessary to connect them. These premises are not just in rural areas but also scattered across our towns and cities. While government has set aside £5 billion for this task and BDUK has set out several phases of its public procurement programme, we do need to see a full plan with milestones and a target end-date for completing the rollout of high quality broadband to all hard to reach premises.

Second challenge: The economic benefits of increased coverage of broadband networks will only be realised if the networks are widely and intensively used. We’d like government to widen its focus from network rollout to demand stimulation particularly among smaller businesses, where we know there is a productivity dividend from technology adoption but where barriers to this adoption persist.

And, finally, one of the questions that came up repeatedly at the global investor conference – and which was discussed earlier, is this: Is the UK’s rollout model sustainable, or will gigabit broadband burst like the cable bubble did before it?

The latter scenario is, of course, possible. There may well be an element of optimism bias in the business plans of some new entrants. And there is certainly a big difference between promising fibre rollout in presentations to investors and actually connecting premises on the ground.

But I personally think the planning assumption that the vast majority of UK premises will – by the end of this investment cycle – have a choice of networks, is a strong one, as long as we maintain the right conditions. Yes, there is likely to be future industry consolidation but there may also be new co-investment and wholesale deals that could create different market dynamics. And if we do end up with a market structure in the UK where competition in new networks replaces the monopoly in the old ones, this should both benefit today’s consumers but also mean that the UK is better placed for the next infrastructure investment cycle.

Implications for the second National Infrastructure Assessment

The final area I want to cover is what does this all mean for the work of the Commission and our second National Infrastructure Assessment that will start shortly?

The Commission carries out a National Infrastructure Assessment once every five years. These set out the Commission’s assessment of the long term needs in the transport, energy, water, flood resilience, waste and digital sectors, and we make recommendations about how to meet the needs, including the right policy, regulatory and funding mechanisms.

The Assessments take a long term view, looking ahead over the next ten to 30 years. The first Assessment, as I mentioned earlier, was published in summer 2018. We will kick-off the second Assessment later this month by publishing a report that assesses the state of the UK’s economic infrastructure today and also identifies the future priorities for the second Assessment.

In the digital space, we won’t focus this time on broadband rollout. This is because – as I’ve set out today – we think the UK has a clear plan in place – and one that is working so far. We will of course continue to monitor progress against the government’s broadband targets and may decide to do further work if the strategy were to stall.

What we will focus on in the second Assessment is the potential for digital and data to transform all the other infrastructure sectors in the Commission’s remit. The widespread use of digital technologies and data has the potential to cut costs, enhance service quality, improve resilience, and enable better demand management across a range of infrastructure services.

To give a few examples. Sensors can be deployed across water networks to monitor their condition, allowing for more timely and efficient maintenance interventions. Real time data on road use could facilitate better traffic management and alleviate congestion. And technology will play a key role in new flexibility services that can smooth out variations in electricity supply and demand, as we move to a highly renewable electricity system.

So, the benefits of digital are clear. However, today, the usage of digital technologies and data across infrastructure services is patchy. The second Assessment will look at the barriers that are getting in the way and what measures may be needed to accelerate adoption.

On digital – as on all the other challenges in the second Assessment – I want to follow an open policy-making approach. We will want to engage with a wide range of stakeholders to understand the issues and to inform our thinking. So, I very much hope we will get the chance to follow-up with a number of the people and organisations at today’s event during the Assessment.”