Electronic Communications (Universal Service) (Broadband) Order 2018

Lord Ashton of Hyde Excerpts

Tuesday 5th June 2018 Lords Chamber

[Lord Mendelsohn (Lab)]

My Lords, I thank my noble friend Lord Stevenson for moving this Regret Motion and giving us an opportunity to debate the order. I also thank him for an outstanding speech setting the right context for this, and I thank the noble Lord, Lord Foster, for an excellent speech that placed in context the consequences for small businesses. I share the frustrations of previous speakers—the noble Lord, Lord Aberdare, and the noble Earls, Lord Cathcart and Lord Lytton—about these speeds. I share it although I do not suffer from any of the difficult consequences, as they do.

I live in north London. We have three suppliers into the house. We have all sorts of cabling across the house, with boosters and all sorts of signals, but I have never achieved the stated packages from any of the services. We have problems of latency, contention and all those matters. In fact, my business has a dedicated phone line, which has boosters and other cabling to try to make sure that the signal is not lost, and we are fairly close to BT Tower itself—but our service is barely better than the much cheaper super broadband. It is frequently a problem that the claimed capacities are never fully achieved. That is something that we have to be very wary of, even when we establish a universal service obligation.

I turn my attention to the universal service obligation in this particular order. I want to make the simple point that the order does not achieve its objectives, and I would like the Minister to address that problem. When the Act was passed and the level at which the USO would be introduced was set, it was based on a series of assumptions none of which I believe to be true. I do not believe any more that it achieves the purposes of equity by trying to sort out the digital divide and deal with the problems of rural communities, and nor do I believe that it achieves any of the stated benefits of economic growth.

Some rather good documents on economic growth were produced by DCMS, and I thank it for the work that it did on that. In parenthesis, I acknowledge that the digital team at DCMS has steadily improved, and I suspect that if the same team had been around during the passage of the Bill last time we would not have been stuck with this level of USO. The economic growth benefits are said to be £257 million a year, which relates to:

“Local enterprise growth … Enterprise productivity growth … Increased teleworker productivity … Increased participation of carers and the disabled”.

[The Parliamentary Under-Secretary of State, Department for Digital, Culture, Media and Sport (Lord Ashton of Hyde) (Con)]

I apologise for interrupting. Were the figures that the noble Lord quoted from the USO? Is that what he was referring to?

[Lord Mendelsohn]

I will specify that the figures themselves are on page 3 of the impact assessment and are for the USO. The stated growth figures themselves came from figures previously reported by Ofcom and from other reports. I can cite the reports for the Minister, but they are all in the documents that I mentioned. The assumptions on which they were made were an extrapolation from higher numbers, so even now to suggest that these numbers are consistent with the service is suspect, largely because the key factor in what is happening in the market and in the use of these things is the software and other services that are laid on top of them, which are the applications that people use. There is an idea that this level of service can be delivered on figures a year later when software has increased in order to deal with a market of higher usage, but that does not mean we can achieve these growth figures.

The other options that were rejected, 20 and 30 megabits, still fulfil both objectives, whereas this order fails on both objectives. That has had counterproductive effects. It is certainly true for those of us who spend a lot of time in industry that by setting the USO at 10 megabits we have ended up in a situation where there has been a chill on potential investment from other players. Other people have not been able to enter the market, and even the main providers that are looking to bid have found it hard to justify business cases when the USO is at 10 megabits. That is a huge problem. I agree with all the speakers who have raised the issue that there will be a dramatic impact on our relative position with this low, unambitious target.

The Government’s argument is that the reason why the level has been set is that it is all Europe’s fault, or it is in the directive. I beg to differ. The directive is all about how you interpret it and we have chosen to interpret it in a more restrictive way than others have done, as well as offering interpretations of some of the aspects in the most limited possible fashion. The most significant one is about what the minimum specification is. The documents that were provided state that the connection should be available to,

“permit functional Internet access, taking into account prevailing technologies used by the majority of subscribers and technological feasibility”.

That interpretation has been highly restrictive in how we have looked at the issue. We assume that the sorts of things that people are using in these different areas are based on easy-to-apply averages, but that is not the case. When you start talking about 10 megabits as being the sort of level that people can use, you come to the wrong conclusion. If you are in the rural community and using many of the technological features that are now used to enhance your business, you will tend to use them on a mobile. When you look for a broadband wi-fi connection, you will find that it does not meet the requirements that you can gain if you can get access to 4G.

--- Later in debate ---

I do not think that this order meets the objectives. I do not think that it is in date—it is out of date. I should be very grateful if the Minister would seriously consider when would be the appropriate time to set a proper review date and have data that do not come from 2015 or 2016 on customer usage and other things to try to calculate this, when we have something properly up to date and properly future-proofed to establish what should be the proper USO.

[Lord Ashton of Hyde]

My Lords, I am grateful to all noble Lords for their contributions. We are faced with a dilemma here. On the one hand, people such as my noble friend Lord Cathcart are begging for anything to be done to allow them to have some decent connection. By decent, I mean something that would enable him to receive his emails and documents. On the other hand, many noble Lords have said that we have lacked ambition. The last, very compelling speech from the noble Lord, Lord Mendelsohn, castigated the Government for their lack of ambition and for setting incoherent USOs, to sum up his speech very briefly.

I have to remind noble Lords that the purpose of the universal service obligation, as outlined in the universal service directive, is to ensure the provision of services to all users. Noble Lords have mentioned Europe, which at the moment has coverage of about 76%. The universal service directive applies only to fixed broadband; it does not apply to mobile. Indeed, the European Commission itself has twice reviewed mobile and concluded that social exclusion does not exist.

The universal service obligation does not exist to promote investment; it exists to make sure universal services are indeed universal and a legal right. It is intended as a safety net. The noble Lord, Lord Foster, said that that safety net lacks ambition; we will deal with the Government’s ambition elsewhere in my speech. Interestingly, the noble Lord also admitted that he would benefit from the USO and cannot wait to have it.

Premises in the USO footprint will be the hardest and most costly to reach in the country. The Government’s position is that the current specification of the USO is sufficient at present and strikes the right balance between meeting consumers’ needs and ensuring that it is proportionate and deliverable. That was not a random decision. The Government carefully considered and consulted on a range of options and three different scenarios that Ofcom modelled: a basic 10 Mbps service; the preferred 10 Mbps service with additional specifications, such as upload speeds, latency and data caps; and the 30 Mbps or superfast service. The 10 Mbps was selected because data usage drops considerably below this, indicating broadband activity is more restricted with speeds under 10 Mbps. Further evidence from Ofcom shows that a speed of 10 Mbps meets the needs of typical households.

I would also point out that 10 Mbps is a higher speed than virtually every USO across Europe. Sweden may be higher. However, we fully recognise the USO will need to be revised over time as consumer needs evolve, so that it continues to meet people’s needs in the years to come. The Government will be closely monitoring this.

Ten Mbps will make a considerable difference. The noble Lord, Lord Foster, gave a list of things that he is currently unable to do, including combating loneliness—and my noble friend, Lord Cathcart mentioned downloading documents. Setting it at 10 Mbps will allow all those things that he mentioned to take place.

As has been mentioned, that is why the Digital Economy Act 2017 provides for the Government to direct Ofcom to undertake a review at any time, and it includes a specific requirement for a review to be undertaken when 75% of premises subscribe to broadband services of 30 Mbps or higher. By the way, despite what the noble Lord, Lord Foster, said, there is virtually no difference between the two definitions of “superfast” that Ofcom, Europe and the Government have been using. At the moment, it is 95% for the Government and 94.9% for 30 Mbps, so it really is not a significant difference.

As I said earlier, the 10 Mbps USO is a safety net, but the Government have much greater ambitions for connectivity across all parts of the UK, so on that I agree with most noble Lords. In his Motion, the noble Lord, Lord Stevenson, referred to the third superfast scenario. Thanks to BDUK and £1.7 billion of public money, over 95% of UK premises already have access to superfast speeds, with savings and clawback due to deliver at least another 2% of coverage. The majority of this access has been delivered by providing fibre to the cabinet. However, we are not content with that, and I agree with the noble Lord, Lord Stevenson, and others. In his speech to the CBI last month, the Chancellor set a national target for full fibre—not just to the cabinet, but all the way to the premises. Our aim is for full fibre to 15 million premises by 2025, and all premises by 2033. So the Government are not short on ambition.

Likewise, at the Fibre Investment Conference, organised by the DDCMS and Ofcom in April this year, the Secretary of State spoke about creating a world-leading environment for investment in full fibre, and reaffirmed how vital full fibre is to building the capacity this country needs. That is why the Government are delivering a series of measures to realise these ambitions. The local full fibre networks programme and gigabit broadband voucher scheme are delivering fibre connections now and incentivising further commercial investment. The £400 million Digital Infrastructure Investment Fund is helping to finance alternative network providers, and the Treasury is further supporting investment through business rates relief for operators who install new fibre. The DDCMS future telecoms infrastructure review will soon publish a report looking at how we can create the best possible market structure to drive investment, and hit the Government’s targets to provide full fibre to all consumers.

The USO is part of these plans, but a higher speed USO would increase the direct costs of delivery as well as increasing the number of eligible premises. This may result in greater costs on consumers’ bills, and would increase competitive distortions. It would increase the risk of negatively affecting commercial incentives to invest. It is therefore crucial that, as a safety net, the USO works to support, and not unduly distort, the current and future market. The potential for market distortion limits what the USO can achieve.

I will try to respond to some of the points which noble Lords made. The noble Lord, Lord Aberdare, asked how the USO is going to be enforced. The order has been passed by both Houses and is now with Ofcom to implement. It will designate the provider and the industry cost-sharing fund. Ofcom expects this to take two years and it will consult on the provider this summer, so it is already working on that. That point was also made by the noble Earl, Lord Lytton. Once it is in place, the USO will enable the noble Earl to do exactly the things which he is complaining he cannot do now, so he should be glad about it.

The noble Lord, Lord Mendelsohn, talked about the needs of businesses, and of course he is right that in some cases a 10 Mbps speed is not sufficient. If you have a high-data business, that would not be ideal: for example, actuaries, whom I used to deal with, have huge data files. However, it will support many small businesses, and it provides access to every government service available.