Digital Economy Bill (Second sitting)

Rishi Sunak Excerpts

Committee Debate: 2nd sitting: House of Commons
Tuesday 11th October 2016 Public Bill Committees

[Rishi Sunak (Richmond (Yorks)) (Con)]

Q Mr Coates, will you expand a little on your experience, internationally, of licence requirements in broadening coverage to rural areas? What is the specific benefit of independently owned infrastructure for rural communities, in bringing access to places which struggle with mobile signal today?

Scott Coates: I am going to pick on two countries that we have looked at making investments into. Germany, which I mentioned earlier, has an outside-in policy, so you have to cover their rural areas with your new batch of spectrum before you are allowed to deploy it into urban areas. France has got a very interesting model, in which they have compartmentalised the whole country. At the moment the Ofcom licences ensure that Scotland, England and Wales have their own targets, but if you break it down even further, the demands become higher on those targets. We have seen some targets in France where, by compartment, we are looking at 99.6% coverage by 2027. They have given the industry a long time to reach that target, but it is very bold. If people knew it was going to get better, maybe it would become a bit more understandable. This is not like changing a lightbulb; this is infrastructure that needs to be built.

I think there are three benefits of independent infrastructure. First, there is clear evidence that it enables better connectivity. Because our infrastructure is operated independently of a network, we do not have any of the conflicts of interest that normally exist in the vertically integrated model, in which the infrastructure owner is forced to provide access to their competitor. Because we focus only on infrastructure—it is our core business model—we tend to build better infrastructure, and we share it with more networks. There is evidence out there. Ernst and Young looked at this last year and studied independent communication tower ownership across north America and Europe. They compared it with communication towers that are owned as part of mobile networks. They found that there are twice as many networks using the independent infrastructure, compared with the vertically integrated owned infrastructure. That is twice the productivity coming off a piece of infrastructure, which is transformational, when it comes to enabling connectivity, particularly in rural areas.

The second benefit is around investment. At the end of the day, solving these problems comes down to investment. Independent infrastructure opens up a whole new channel of investor and brings a different type of investor into our industry: long-term, low-cost-to-capital infrastructure investors who are targeting infrastructure only. They do not want to invest in the retail operations or in buying premiership football rights; they want to invest purely in infrastructure. We can be a conduit to bring in that capital to invest in infrastructure. Earlier this year, after 10 years of various rounds of financing, our business announced a major fundraising transaction with a UK blue chip infrastructure investor—3i Infrastructure plc—and a north American investor that invests on behalf of state pension plans. That is exactly the kind of capital you want—long-term, patient capital—fuelling the growth of infrastructure.

The final benefit is in and around competition. We create competition at the infrastructure level. On the fixed-line side of the market, you can see some of the challenges from a lack of competition. But we also enable competition at a retail level, because our infrastructure is open for everyone to use. Mobile operators are the biggest users of our infrastructure, but well over 100 different network use our infrastructure in rural areas. Sometimes that can mean a local wireless broadband company that simply cannot afford to build its own infrastructure and would find it very difficult to get access to a mobile operator on a piece of infrastructure. On average, every one of our towers in the UK supports a non-mobile operator network running over it. Those are the three benefits of independent infrastructure.

[The Chair]

That is known in the trade as a comprehensive reply. Thank you.