Rural Economy and Connectivity Committee

Meeting date: Wednesday, April 26, 2017

Official Report 535KB pdf

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Ofcom

We come to item 3 on our agenda. The Scottish Parliament has a formal consultative role in setting strategic priorities for Ofcom—members will recall that in September 2016 the committee considered a memorandum of understanding that covered that. I am pleased to welcome Glenn Preston, who is the director of Ofcom in Scotland, and Clive Carter, who is Ofcom’s director of strategy.

Glenn Preston would like to make an opening statement before we move to questions. I ask you to keep it as brief as possible, because we have lots of questions.

Thank you. I will be very brief: I will outline some of the key points from the annual plan and cover some areas that I expect the committee will want to discuss.

As the convener said, I am joined by Ofcom’s director of strategy, Clive Carter. He is quite literally the man with the plan: he was responsible for its publication at the end of March, and for the preceding consultation that we went through at the tail end of last year and the first two or three months of this year. We had an excellent event at our Edinburgh office, with well over 50 attendees from a range of sectors that are either involved with, or are impacted by, the communications sector. That was important in informing the eventual annual plan.

11:15  

I will focus on two or three points in the plan. Our overarching goals—to promote competition and ensure that markets work effectively for customers by securing standards, improving quality and protecting consumers from harm—are the context in which the annual plan is written. It is worth highlighting specific areas that might well come up in further discussion. The first is changes in the market that we regulate. The plan recognises the increasingly central nature of communications to United Kingdom consumers and businesses, the fast-moving and innovative nature of the sector, and concerns about availability and connection quality. I will come back to that point in the Scottish context. The plan highlights convergence and the increasing use of internet-delivered over-the-top services for media in particular, and it touches on changes in regulation with the passage of the UK Digital Economy Bill, which as we speak is going kind of ping-pong through the Houses of Parliament. Among other things, the bill contains provisions relating to Ofcom priorities on switching, and deals with issues such as automatic compensation.

There are in the plan a couple of specific goals that are worth drawing to the committee’s attention. One is about Ofcom implementing conclusions from our digital communications review, including monitoring the implementation and effectiveness of BT’s voluntary notification to strengthen Openreach’s independence, which I know has been of interest to the committee in the past. The plan also covers integration of our new BBC responsibilities and the awarding of more mobile spectrum in order to meet the growing demand for mobile services and capacity.

The plan also focuses on our delivery across the UK. We are committed to delivering for citizen consumers across all the nations, including Scotland. It is worth saying that we expect in the next two to three weeks to advertise for the Ofcom board member for Scotland, which is a feature of the MOU that the convener mentioned. We are giving effect to the MOU through our engagement with this committee and with the Culture, Tourism, Europe and External Relations Committee in informal and formal settings, as well as through regular engagement with the Scottish Government and public bodies including the Scottish Futures Trust.

I will quickly go back to the challenges that are faced on connectivity. The plan says explicitly that we recognise the challenge of providing fixed broadband, mobile and postal services that meet the needs of consumers in rural and remote areas in Scotland. We accept that although there have been improvements in mobile and broadband connectivity in recent years, lack of competition and absence of disruptive market forces in those places can mean that the usual regulatory levers are not always effective at delivering good outcomes. We are clear about that in the plan. Last week, I was fortunate to spend a couple of days in Orkney and Shetland discussing those issues in digital forums that were organised by Alistair Carmichael MP and which were attended by MSPs Liam McArthur and Tavish Scott. Hearing directly from local authorities, community councils, businesses and residents about their lived experience has been hugely helpful to us in drawing up the plan and implementing it. It helps us to understand how to use regulatory powers to be as responsive as we can to citizen consumers in such places.

I will close. We look forward to discussion with the committee.

Thank you. The first question is from our deputy convener, Gail Ross.

Good morning, panel, and thank you for coming. I am glad that you touched on the rural aspect of the annual plan. We have some very remote and rural areas in Scotland, and a number of members here, including me, represent regions and constituencies that include such areas. You touched on this slightly, but can you go into more detail on what aspects of the annual plan will be of most importance in improving broadband and mobile access all over Scotland—especially rural Scotland?

Just before witnesses do that, I point out that it will be easier if you try to catch my eye to see who wants to lead off, and then I will bring you in. Who would like to go on that question?

There are a number of elements. As you know, Ofcom’s strategy covers the entire UK, but there is increasing realisation that a single strategy will not deliver to consumers in all circumstances and locations.

It is somewhat trite to say it, but competition brings benefits. We have a set of activities that will bring benefits to rural consumers around competition and enabling new investments by new third parties in order to bring more broadband and better services to constituents and individuals in rural locations. Specifically, we have activities around duct and pole access, which we hope will lower the costs for community broadband services to roll out fibre to local communities, for example. Such initiatives help people to build networks.

However, commercial competitive dynamics will not work in all circumstances. As a result, we have focused on two major areas in our annual plan. The first is the role that we can play in a universal service obligation for broadband. To be clear, I note that, at present, that is a decision for the UK Government, but we have provided advice to it on the potential costs of approaches to delivering universal broadband across the UK, including in the nations. Once decisions are taken, we will have a role in implementing them—in designing a fund and, potentially, in setting the specifications for the service.

We are also focusing increasingly on what we can do in mobile areas and how far various policy options within mobile can address local concerns. That includes some far-reaching and fundamental considerations, including new coverage obligations on future spectrum awards, where we are looking to trade off, potentially, the value of the spectrum against an enhanced coverage obligation, thus extending that reach further. We are looking at how we might develop such coverage obligations—not just blunt instruments that look at geographic coverage, but targeted interventions that ask where people need, and will benefit from, mobile services, and how we take account of that. Increasingly, that will include things such as railway and road transport as well as isolated and hard-to-reach communities.

That is the macro picture, but we also have a set of micro initiatives. Using mobile repeaters, we can take services from Vodafone and so on and rebroadcast them for communities. At present, they are not allowed, but we are looking to allow those services where they will not create interference for other users, so that where communities are in a black hole—in a dip or behind a hill; places where there is a reason why mobile network operators cannot get there, at present—communities or individuals who are so minded can be empowered to take action themselves.

I would not say that any one of those individual solutions will work for everyone—there will always be hard to reach areas—so our final element is engagement with the UK Government and the devolved Administrations, including the Scottish Government, about the best way to target public procurement, intervention and money in order to extend the reach of services. For the UK Government, that has been in the broadband delivery UK programme, and for the Scottish Government, it has been in the reaching 100 per cent—R100—programme. We are supporting a set of activities. We are not the decision maker in the programmes because the matter is public policy, but we have the expertise and ability to help policy makers to make decisions for the benefit of consumers.

I am interested in the point about a universal service obligation. Obviously, that is something that we would welcome. Are you allowed to tell us how much you have estimated it will cost?

I am. We gave the Government advice at UK level and nations level. To give a sense of the quantum for the UK, we costed up three options—10 megabits per second; 10Mbps with an enhanced upstream of 1Mbps, which is a sort of better current generation broadband; and a superfast option of 30Mbps downstream and 6Mbps upstream. In terms of broad numbers—cost modelling always involves putting a finger in the air and making an educated guess, despite the amount of detail that we go into—we are talking about a figure for the whole UK of between just over £1 billion and £2 billion for the superfast option. Within Scotland, which has a subset of the homes that cannot get 10Mbps today, we are talking about cost in the order of £100 million-ish to £250 million-ish. That would address in Scotland 8 per cent of homes that cannot get 10Mbps today, rising to 17 per cent of homes that cannot get superfast broadband.

The word of caution on those estimates is that they reflect the position today. The BDUK programme continues to be rolled out, which will extend overage further, and the Scottish Government’s R100 programme has not been taken into account because we do not yet know how it will intersect with the universal service obligation. Nevertheless, we wanted to give policy makers a sense of the total at-risk number and how much the work might cost. I think it is always helpful to be conservative in such costings and to make sure that people understand what they mean.

I also think that it is important to convert the figures into a price per customer. If we take the total UK figures—I think it would be similar within each of the nations—the simplest intervention would add £11 per customer per year to the bill, and the superfast service would add £20 per customer per year, if the costs were passed on entirely. They may not be passed on entirely—the industry may absorb some of the costs through reductions in profits. However, in taking a cautious approach, it is worth understanding what that could mean for energy bills—especially when we are thinking about the most vulnerable consumers, who have the lowest incomes.

I have a supplementary point to make on that. Clive Carter mentioned the intersection between the UK universal service obligation and the Scottish Government’s R100 programme. We have had a more formal role in providing technical advice to the UK Government on its USO. We do not have the same formal role in relation to the Scottish Government’s R100 programme, but we are committed to working with it. We know that the Scottish Government is due, in quarter 2 of 2017—so, probably in the next couple of months—to produce its consultation on the intervention areas for R100 and the range of technical options that might be necessary to reach its public policy goal. We have said that we are very happy to engage to provide technical input, as we have done for the UK Government.

You touched on mobile signal. In many part of my constituency and in other remote and rural areas, mobile signal is patchy or non-existent. Are there any plans for a universal service obligation for mobile signal?

That is more challenging for a range of reasons. The simplest reason—which the strategy team in which I work does not like to be constrained by—is that the European framework, from which our powers and the Government’s powers to set a universal service obligation extend, does not cover mobile, although it covers broadband: under the current European framework, there is no ability to have a formal universal service obligation in mobile. Of course, it is possible to design something that looks like a universal service obligation and to take action and implement it nationally. It is fair to ask whether there is an equivalent measure that could be supported by a pot of money. We are not quite there yet, because there is more that could be done around other policy options.

We are actively exploring coverage obligations in the forthcoming auctions for the 2.3 GHz and 3.4 GHz spectrums and thinking about whether those obligations can be designed in a way that would extend coverage—although that would, potentially, be at the expense of auction receipts. We took that approach in the last 4G auction, in which O2 picked up a licence that includes a coverage obligation of 98 per cent indoor coverage of households, and in which it paid less for that spectrum block. It is interesting that, as a result, the other operators are now matching that coverage, because of the competitive dynamics of their not wanting to have a network that is perceived as being worse than O2’s.

We are looking at doing the same in the 2.3 GHz and 3.4 GHz spectrum auctions, but more important is that we have a 700 MHz auction coming up in 2018 or 2019, with the spectrum being available for use in 2020. That spectrum is very well placed for coverage; it reaches quite far so you can get quite a big bang for your coverage buck in terms of the number of masts built.

It would be worth exploring that, before we went any further; however, it is necessary to go further. We estimate that about 10 per cent of the UK geographic landmass has no mobile signal whatsoever. I do not believe that it will be economic for anyone to deploy a network in those areas, even with an obligation on their licence, because it will be very expensive for very little revenue. That is the point on which we need to engage with the devolved Administrations and the UK Government, and ask what intersection of public procurement and activities could help to extend coverage. That might be partly about enhancing what commercial operators can do by reducing cost and increasing mast heights. There is also a set of practical activities that could be done—for example, more network and site sharing.

At the moment, Ofcom is doing work on the electronics communications code about how easy it is for operators to access land and buildings to site masts. That goes through to much more direct public procurement that looks at building new sites and masts. My one word of caution is that there was a mobile infrastructure programme that looked to do that, which really struggled. That was not because of want of money but because of the practical difficulties of finding places to put masts to extend coverage.

Can I just clarify what you said, Glenn? Was it £100 million in Scotland for the last 5 per cent?

We had a range and the numbers both had “-ish” at the end of them. We said £100 million-ish to £250 million-ish, I think.

It slightly concerns me that Highlands and Islands Enterprise talked about £300 million to £400 million-ish for doing the Highlands. That seems to be at odds with what you say. Will you clarify that so that I can understand it?

11:30  

I do not know the basis for the HIE estimates. We published a document in December in which we considered the lowest-cost technical options of upgrading broadband infrastructure to deliver either 10Mbps downstream and 1Mbps upstream or superfast—30Mbps—and those figures are the broad range of costs that we got. The lowest cost was for upgrading the existing copper infrastructure using, for example, technologies such as long-reach VDSL—very-high-bit-rate digital subscriber line. That cost included some fibre to premises, but fibre to premises was kept as a last resort because it is the most expensive technical option to build. In the report, we include the balance and mix of technologies and how they change as we increase the requirement from 10Mbps to 30Mbps.

Stewart Stevenson and Richard Lyle want to come in. We are on question 1 and we have a lengthy set of questions, which reflects the importance of the subject, so I will take their questions together.

My question is simple. We are talking about costs. When we achieve universal service, will benefits be derived from our having no longer to support alternative ways of reaching some people to do certain things?

My heart really bleeds for poor phone operators that are making a fortune from users. They should spend the money to provide the service for the last 5 per cent. Will the witnesses tell me how much the United Kingdom Government has made from auctioning the services over the past five or 10 years?

The answer to that will not be simple, but I ask the witnesses to keep the answers to those questions as brief as possible. Perhaps you should deal first with Stewart Stevenson’s question, then Richard Lyle’s.

There most certainly will be benefits. The challenge is not only about universal availability; it is also about universal adoption. Our getting the benefits of being able to close down the local post office or to deliver television services over internet protocol—IP—we will require 100 per cent adoption. The first part of achieving that is making the service available. However, we should not underestimate the difficulty of moving older consumers in particular on to broadband.

Fixed broadband adoption is now around 80 per cent and is slowly increasing. We have done research that suggests that about 15 per cent of the UK population, typically older people, are, in effect, digital refuseniks. They have a digital television because they have to have one if they want to watch television, and they may have a mobile phone, but not necessarily. Beyond that, they have no interest in anything else digital. Getting those people on to broadband will be a fundamental part of being able to unlock some of the benefits for public services and commercial services that would not otherwise be achievable.

That is fine.

On Richard Lyle’s question, I would have to check the value of the recent auction receipts. From memory, I suspect—

It is billions of pounds.

The point has been made. A letter detailing that amount to the committee would be helpful because we are probably asking you for figures that you do not have.

I would also like to know how much profit companies have made from poor users such as people in the Highlands who are not getting a service.

It is perhaps worth saying on the auctions point that Ofcom is not obliged to maximise the return to the Exchequer. However, the practice at the moment is that the receipts—for which we will provide the figures—go directly to the Exchequer. Under the Digital Economy Bill, there are changes afoot to how that works; for example, we will retain Ofcom running costs, which are part funded by the money that comes through auctions, rather than that money also going directly to the Exchequer. If it is helpful, we can set that all out in writing to the committee.

Thank you.

My question concerns Openreach, which was mentioned in Glenn Preston’s opening statement. As I understand it, there will be what is being called a legal separation. I am interested in the generality and then I will ask a specific question.

The announcement mentions Openreach having its own board—which sounds good—

“with a majority of independent members”.

It goes on to say:

“This Board will set Openreach’s medium term and annual operating plans and determine which technologies are deployed, within a strategic and financial framework defined by BT.”

That suggests to me that the whole budget and how much Openreach has to produce by way of profit is all being dictated by BT.

At paragraph A2.10, your annual plan discusses

“how we will monitor compliance with the new arrangements and ultimately assess whether they deliver positive outcomes for consumers and businesses.”

That suggests to me that the jury is out as to whether the new arrangement with Openreach will really produce the goods. Specifically, will the changes to Openreach make it easier to reach the final 5 per cent in relation to broadband in Scotland? What about the idea of Openreach opening up its ducts, poles or whatever in Scotland to competition? What other issues specific to Scotland should we be aware of?

On your two specific points, the situation of the final 5 per cent is supported and helped by Openreach, but I do not think that the legal separation of Openreach will change the fundamental economics or the fact that it is not commercially profitable for any party—save for some local communities that are able to do things at a particularly cheap cost and at particularly high take-up levels pre-signing—to build infrastructure to reach the final 5 per cent in any part of the UK, including Scotland. That is the fundamental economic problem—that money will never be recouped.

To a degree, Openreach and other telcos are already cross-subsidising from the lower-cost, denser urban areas in the UK to the more rural areas, but they can do that only so far before they run into challenges within their own commercial operations. The change in Openreach will not change the fundamental economics, so you are left with a public policy question, which is how to pay for an extension in order to increase economic and social inclusion for areas that would otherwise be unserved.

However, the separation of Openreach creates an entity that is more open to listening to the needs of its wholesale customers—that is, BT retail, Sky and TalkTalk, which are listening in turn to their customers and asking what people want. It is about proving the case for superfast broadband and, potentially, fibre to the premises. It is about having a company that is prepared to take that on in conjunction with, and ideally in partnership with, downstream customers.

There are some spillover benefits from what happens in a commercial area, and we saw that with BT’s first superfast broadband roll-out. It initially thought that it could do superfast broadband commercially for about 40 per cent of the UK, but that anything more than that was uneconomic and practically difficult. However, as BT does these things, it learns how to do them better and cheaper. We then reach a point where BT is commercially able to deploy to about 65 or 70 per cent of the UK before BDUK funding and funding from the devolved Administrations has to be injected to extend that further.

I think that that sort of benefit will be enhanced by the separation of Openreach—that spillover of being able to test things, trial things and roll them out. Specifically, the real challenge with the final 5 per cent is whether it is ever possible to make the money back commercially from those locations in order to justify the investment.

I have a totally urban constituency, and a string of businesses that do not have broadband have been approaching me. It is not just a rural issue. Would the change to the rules with Openreach make it easier for other companies to use the ducts or the poles in Glasgow?

Yes—absolutely.

Will that lead to more broadband for businesses in Glasgow?

I do not know specifically about Glasgow, but across the UK we have observed that business parks, or particular locations where businesses are focused, have not been the beneficiaries of investment. Telcos have gone to where consumers live, and the BDUK programme was designed to target areas where consumers live.

You are absolutely right, in that duct and dark fibre, which is another intervention that we have made around BT, will help to extend the reach of broadband services to unserved areas, as long as there are companies that are prepared to deliver to them. The way in which the Openreach model will work is that companies that are thinking about targeting business services—there is a long tail of relatively small companies involved in that area—will have more of an open ear from Openreach about doing business and investing in those places.

Did I mishear you, or did you say “dark fibre”?

Yes.

Could you explain that to me? I do not understand it.

It is not quite related to the question that was put, which was about how to get connectivity to a location where there is no connectivity whatsoever and where duct and pole access might work. We also have an intervention called dark fibre, where companies will be able to lease unused fibre from BT in order to provide services. That will increase the competitive intensity in delivering services, particularly to businesses. That stuff is good for higher-end businesses, but not necessarily for small and medium-sized enterprises.

Thank you. John Mason will ask a very brief follow-up question before we move on.

I go back to my more general question. I take it that Ofcom will be keeping an eye on Openreach and the competition to see whether there is more openness to, say, a business park in my constituency.

Yes—and more competition, more investment and a more open and engaging approach by Openreach, as well as better quality and the taking of quality concerns more seriously. There is a set of behaviours that we want to see from the newly reformed Openreach and a majority independent board, and we will be monitoring that.

You asked whether that is being done. As a regulator, we are never done with an incumbent until there is enough competition that we do not have to worry. I am not sure how long that will take—if, indeed, we ever get there—so we will always be monitoring to see whether the performance is there. If it is not, separation options are not the only tool that we have. Indeed, in this year’s annual plan, we have a big focus on raising Openreach’s quality of service and its repair and fault repair times by setting targets—not by giving incentives, but by setting targets, at pain of fines if they are not met—to raise those standards. We are trying to bring to bear a mix of remedies and tools on Openreach.

You obviously understand your subject extremely well, and you are giving us very detailed answers, but I am worried about getting through all our questions. It is very helpful and I do not want to detract from what you are saying, but could you focus on answering the specific question rather than giving us all the background?

As you say, convener, the witnesses have given some very detailed answers, which have covered much of the line of questioning that I intended to pursue. However, I want to get on record how much of Scotland has already achieved the proposed USO that is set out in the Digital Economy Bill, and how quickly the UK Government will implement that bill. I know that that has been touched on already.

I will take the first part of the question and Clive Carter can pitch in on the second part.

On how much has been achieved, we do an annual assessment and publish a Scotland-specific report called “Connected Nations”, which we shared with the committee at the tail end of 2016. It highlights where we are on both broadband roll-out and mobile coverage in Scotland. I would have to double-check, but I think that we were well above 80 per cent in terms of broadband roll-out, so we are starting to look at that last 10 or 15 per cent—in some cases, the percentage is lower.

I think that there is 83 per cent superfast availability in Scotland. For 10Mbps, there is now 93 per cent availability for premises, so 7 per cent of Scottish households are not connected to a line that can do 10Mbps.

I had hoped that that we would hear from Government relatively soon, but then the election was announced, so we are still waiting. I am afraid that I cannot give you a better timeline.

Do you think that it will now be after the general election?

Yes.

I would like to make a point about that last 10 or 15 per cent, following on from what John Mason said. I also represent a mainly urban constituency, and there are areas within it where there is no connectivity, so I back up what he said about its not being a rural issue.

That is a statement rather than a question, but I am happy to leave it hanging there.

11:45  

Good morning. What are Ofcom’s views on the potential implications of Brexit for regulation, standards and the future of digital communication?

Your question deserves a long answer, but I promise that I will try to be brief.

Our chief executive has gone on record about the UK’s exit from the European Union, and I will share that information with the committee to ensure that members have a detailed summary of where we are in that respect. I will, however, just highlight a couple of points.

As the regulator, we remain politically neutral. Obviously, we are independent of the Government and the companies, and we have not taken a view on means or merits. However, we have pointed out that all the industries that we regulate have a combined yearly revenue of about £57 billion. They contribute 3 per cent of the UK’s gross domestic product and are, collectively, second only to financial services in size. They are also all inextricably European businesses. For example, BT provides services to every EU country and is 12 per cent owned by Deutsche Telekom; O2 is owned by Spain’s Telefonica; and although the Vodafone group is headquartered here, it generates half its revenue of about £20 billion from the EU. In postal services, Royal Mail operates a £2 billion European business across 41 countries. That should start to give you a sense of the European nature of the business.

We have also said quite clearly that this goes well beyond the enormous questions of scale and economic worth. In 2003, when Ofcom was established, a reliable internet or mobile phone connection was a nice to have. However, as has been said, such services are now deemed to be essential. As a result, we believe that people deserve to get strong protection from bad service, high prices, outages and so on, and many of those safeguards stem from the European legal frameworks that provide the basis for regulation in our sectors.

We see challenges and opportunities in leaving the EU. We will have to give fundamental consideration to whether those frameworks continue to serve the interests of people across the UK and decide whether those laws should be replicated or replaced.

Shall I leave it there, convener, given your point about brevity?

Yes, and I will let John Finnie come back with a very brief follow-up.

It will be very helpful to get that information from you. As you have outlined, those whom you seek to regulate are multinational corporations. How would you characterise your relationship with them? After all, connectivity issues create a very high level of animation among constituents, who get very frustrated by what are seen as obscene profits without there being any delivery. I accept that that is called capitalism, but Clive Carter said that the usual regulatory levers do not help to deliver things, and sticks were mentioned. I actually quite like sticks where multinational corporations are concerned. Can you comment on Ofcom’s relationship in that respect?

I can offer a quick reflection from a Scotland point of view. Clive Carter might wish to supplement that with some broader points.

It is important that I point out that the sector in Scotland does not consist just of large multinationals; a wide number of different types of body, public and private or commercial, are engaged in it. Shetland Islands Council, for example, has its own network, called Shetland Telecom. You are looking at different ends of the spectrum.

I would characterise our relationship as a positive one. We are absolutely an independent regulator. We have not been afraid to intervene; we tend to apply a non-intervention principle where we can, but we have intervened over the past nine to 12 months. For example, we fined Vodafone £4.6 million, I think, for service failings; we fined EE about £2.7 million; and, in the past couple of weeks, we fined BT about £42 million in relation to issues that we had seen in its business-to-business services. We are able to wield those regulatory powers if we need to, but we are absolutely engaged in a constructive dialogue with companies that operate in Scotland. We regularly talk to BT here, and we will increasingly look to talk to Openreach as it becomes a separate company to ensure that it, too, is properly reflecting the situation in Scotland.

Clive Carter might have a bit more to say about that.

I will let him respond very briefly.

I will be very brief, convener. We have a sometimes interesting relationship with those companies, because our incentives are in some ways aligned. They do not want to be seen as not meeting consumer needs; they want to invest; and they want to have a positive relationship with politicians, policy makers and everyone else. However, they also want to appease their shareholders, and that creates a tension that at times can bring us into conflict. We are happy with the situation: we are happy to have a positive working relationship with companies such as BT in exploring the USO; simultaneously, we are happy to fine it £42 million if it oversteps the mark.

The increasing globalisation of communications businesses means that we must bear in mind how attractive investing in the UK looks to companies. I do not mean that in terms of total returns; I am referring to whether, as a country, we are seen to be even handed and consistent in our policy and regulation. There is a danger if a country is seen not to be even handed and consistent and is deemed to be slightly risky. Liberty Media Corporation, an international company that is run by John Malone, is a great example. He chooses where he puts his capital. At the moment, we benefit from that, because, I think, we are deemed to be an attractive market whose consistency means that it is seen to be safe. Companies do not mind that we regulate them or that we ask things of them through public policy. What they mind is slightly capricious or random behaviour.

It is important that, where we can, we maintain that positive relationship, to keep the money flowing in.

You are obviously aware of the Scottish Government’s refreshed digital strategy. Do you have any broad comments on it? More specifically, will it deliver on the pledge to have superfast broadband in all corners of Scotland by 2021? Notwithstanding what you have said, will the strategy lead to improved mobile coverage?

We are aware of the strategy, which was published in March. It covers the Scottish Government’s plans not only for broadband but for mobile. We will engage with the Scottish Government and the Scottish Futures Trust, which has done a lot of work to inform the digital strategy on exactly those issues.

You asked whether the strategy will deliver. That is a question to which we do not yet know the answer, partly because we do not have all the details. We have mentioned that, for example, in R100, we expect to see a consultation on the intervention areas where the Scottish Government wants to focus and the range of technologies that might be necessary to deliver that public policy outcome.

At the moment, I cannot give you a definitive yes or no on that, but we are up for a conversation and for sharing Ofcom expertise across our technology or competition groups to make sure that we can support the public policy aim and desire to have superfast broadband by 2021 as well as improved mobile coverage.

Rhoda, do you want to follow up that question before I bring in Clive Carter?

Yes. Regulation is an issue. The Scottish Government is talking about working with you and the UK Government to make the regulation more fit for our geography. What can you do to help with that?

It is a bugbear of mine that there is no mapping of fibre, especially publicly funded fibre. We are laying fibre upon fibre, especially where the taxpayer has paid for it. Fibre is not being utilised properly. What can we do to bring in mapping and to force BT to use fibre laid by other companies, not just its own, which is what it tends to use all the time?

Clive, do you want to come in on that?

Yes. We are interested in tailoring the regulatory approach to suit the circumstances in economic and geographic markets, and whatever else. I am a slightly cautious person and I counsel caution because, at the moment, in provision across urban and rural areas, the market effectively averages prices. It serves lower-cost and higher-cost areas with broadly the same prices so that we mostly have national prices, with few exceptions.

The more that we target and focus an attitude, behaviour and regulatory regime on one type of area or geographic location, the more the model starts to be undermined. That is risky, because it means that, in the more urban areas where costs are lower, a company might initially take the opportunity to lower prices—in fact, competition might drive it to do that, as an entrant will come in, it will lower the costs and the other companies will respond—whereas, in the more rural areas, the response might be to raise prices. It is not about gouging money out of customers; it is about saying that that is the cost of serving them.

I do not have a view on the R100 programme. As has been said, we have not seen the detail.

In our USO cost modelling—I emphasise that it is only modelling—the highest figure that we came up with for serving a single postcode location was north of £100,000. That could be the cost for a single premises. The variation of costs that we have today is blended across the UK. Indeed, that is what the USO, as constituted, does for voice telephony.

The more you focus, the more bespoke and fit for purpose you can make things. However, that can have unintended consequences, which is what need to work on with the Scottish Government and the other devolved Administrations. We need to ask where there is the opportunity to do something a bit different in each location and circumstance and where there is a benefit in spreading and pooling costs for the benefit of all.

I have another question, on mapping fibre and making it publicly available. Communities could be finding their own solutions if they knew where the fibre was. In loads of circumstances, organisations such as electricity suppliers will have paid for fibre and there will be spare fibre there. Projects such as the Shetland wide area network and pathfinder north rolled out fibre that is probably not being used any more. There is an endless list of examples of where the public purse has paid for fibre that is lying in the ground and we are laying more fibre on top of it.

We support the publication of information and try to collect bulk information. However, there is an inherent tension in the fact that companies have a commercial advantage if they know where the fibre is and whether they can access it.

You are right in saying that we need to do more work to understand the nature of our digital infrastructure. The Scottish Futures Trust is undertaking work on a digital map for Scotland in order to understand exactly that. There is a role for such bodies in doing that. Ofcom should play a role, but it would not be quite the same as our formal regulatory role. We need to look at that in partnership with others.

Clive Carter has answered part of this question. The Scottish Government has stated that it will

“Develop, test and make decisions based on robust models of investment drawing on the very latest international data on the economic and social value of digital connectivity”.

Will Ofcom have a role in supplying the data that the Scottish Government requires for that task?

The short answer to that question is that, in our memorandum of understanding with this Parliament, the UK Government and the Scottish Government, there is an explicit section on data sharing that states that we will proactively share data with the Scottish Government.

The convener will love your short answer. How can Ofcom help with the Scottish Government’s plan to ensure that all Scotland’s cities have internationally competitive connectivity? I refer to John Mason’s comment that some areas of Glasgow do not have such connectivity.

That is a common problem that has come up a few times. We are at risk of always saying that it is a rural problem.

Within the not-spots of 10Mbps, 1 or 2 per cent of premises in urban areas cannot get even decent standard-generation broadband services. The best and most direct means that we have to deal with that is continued focus on competition and investment. Where it is taking place, Virgin’s investment is very positive and geographically focused. The move to higher-speed mobile broadband services—4G—is well placed, because it provides a competitive sweat at the lower end. It is not necessarily as good as superfast broadband, but, if someone wants just basic broadband, 4G can be a pretty good service. Having that competitive intensity and making things such as BT’s ducts and poles available for others to build on when there is no activity by BT places greater pressure on BT to invest.

The other honest answer is that, as policy makers, we, the Scottish Government and the UK Government need to place pressure on companies by asking why they are not investing, when they will invest and what they should do. Raising expectations of companies and shining a light on how much they are investing is something that Sharon White is keen to do. That is another way of trying to move things along.

In the last instance, we would be looking for public intervention. The challenge is that public intervention in most urban areas is harder when you take into account state-aid rules and all the other complexities around it. That is not to say that it should not or will not happen; it is just that, up until now, it has been more tricky.

12:00  

Good afternoon, gentlemen. It is a shame that we have such a limited time in which to ask questions. I am coming in at the end, so I have been piling up questions. Perhaps you would appreciate it if I wrote to you after the meeting to seek Ofcom’s views on a wide range of matters.

What strikes me in all this is my lack of understanding of Ofcom’s role, both nationally and in Scotland, in the various schemes that are taking place. A number of strategies and policies seem to be trying to achieve the same aims at the same time. In Scotland, there is currently a 95 per cent digital Scotland superfast broadband commitment, which will extend to 100 per cent via the second tranche of interventions in contracts. At the same time, there is a UK-wide policy to deliver a USO through BDUK in a separate tranche of public intervention contracts and financing.

Does Ofcom have a view on that or a role to play in trying to bring those two elements together? Since I became a member of this Parliament, a year ago, I have been struck by the fact that there are two entirely separate conversations happening, the majority of them with the same technical providers who will deliver the results.

Are we spending public money—it is public money regardless of where in the UK it is being spent—in the right way, appropriately and effectively, to get the result that everybody wants? I admire any policy, regardless of the Government that it comes from, that seeks to achieve the end result that we want. However, I am struck by the complexity, given the concurrent strategies that are running in parallel.

The same is true of the mobile network: there is a separate Scottish memorandum of understanding with operators while conversations are taking place UK wide. I am in the dark somewhat with regard to the role that Ofcom in Scotland and Ofcom at a UK level will play with the two Governments in trying to ensure that the two strategies converge.

Perhaps Clive Carter would like to start on that. It was quite a long question with a lot of detail in it.

I had been saving it up.

Mr Greene, if you would like to speak to the clerks about some of the questions that you have stored up, I am happy for those questions to be submitted in writing to Clive Carter and Glenn Preston on the committee’s behalf if they are relevant to the committee’s work. If the questions relate more to constituency issues, they would better come from you alone. Because of the short timescale today, I very much hope that the witnesses will be prepared to answer any questions later. I see that they are both nodding.

I ask Clive Carter to start by giving a short answer to Jamie Greene’s long question.

I will give the shortest answer that I possibly can: formally, no, but informally, yes. Formally, we do not own public policy, which is right and proper. We are a regulator, and it is right and proper that elected bodies make decisions on public policy on the use of public funds. Informally, however, it is our responsibility to work with those parties to join the dots and to provide technical expertise, advice and the benefit of our experience in all those areas. We offer those things openly and welcome that responsibility as long as people understand that ultimate responsibility for the BDUK programme and the R100 programme rests with the individual bodies.

I fully agree that there is a challenge in tying up all the different elements into a holistic public policy strategy, given that everyone—including each of the devolved Administrations—has their own aspirations, desires and timelines. We will support that work, but there is no formal role for us in co-ordinating it.

You say that, but our briefing paper says that, in the area of improving coverage, Ofcom will implement the UK Government’s broadband universal service obligation. What does that mean? You are not contracting with BT. What are you implementing?

We write the legal requirements and define who is going to be the universal service provider. In effect, we run the process of selecting and attaching a legal obligation to a company, but we do so only under the UK Government’s direction with regard to what it wants the policy to achieve. We are very much about implementation. There is no contract in the USO; there is a legal obligation. We write that obligation but we do not own the policy behind it.

We recognise the complexity that Jamie Greene describes. In early February, Fergus Ewing came to see the Ofcom team that is based in Scotland and asked us whether, bearing in mind the fact that we do not have a formal role, we would be willing to facilitate a session specifically on mobile coverage with the mobile network operators and other interested commercial or public bodies. We said that we would be happy to do that, and we suggested that there would be merit in both Governments being represented at such a session for exactly the reasons that you have articulated. Such an event is still to happen. I think that it will happen, but it will take place after the UK general election. There is a reasonable case to be made for a similar conversation on broadband taking place, if not at the same time then separately.

Would that discussion include 5G?

We would expect it to cover the range of issues.

Thank you.

The roll-out of terrestrial digital TV started in the north of Scotland, and the last area where it was implemented was the south-east of England. The reason for that was technical and to do with having a clean area, with no adjacent users of frequency. Does that lead us to conclude that there can be technical advantages in considering a similar approach to 5G, particularly the use of the 700MHz band, given that there will be interference issues in the south-east from adjacent countries and given that 700MHz, of all the available frequencies, will be the most suitable for rural areas where you are trying to achieve a big reach? I think that we all share an eagerness that, with 5G, we go not from the big bits out but from the thin bits in.

I am conscious of the time and I will try to keep my answer brief, but I want to unpack that. I think that what you have said about 700MHz is absolutely correct; my point is that there is an important distinction to be made between 4G and 5G. A lot is being made of 5G. The 5G that you are talking about, which in effect will use the 700MHz band, will be very similar to 4G today. The bandwidth will be slightly better and there will be slightly more capacity, but it will not be the fundamental change that the 5G evangelists are thinking about. They are thinking about a different strategy of small cells in a very high-frequency spectrum, which does not reach very far and therefore does not have the same interference problems.

I am always careful to say that to people. I am sure that 700MHz for mobile broadband could have a phased release and will be easier to co-ordinate in areas that do not have close geographic neighbours. What the 700Mhz band will add is some coverage—although it is similar to 800MHz, which is already being deployed—and some capacity, but it will not add anywhere near as much capacity as the very high-frequency spectrum that a lot of industry is getting very excited about.

It is important always to keep those two points separate, because the small-cells, very high-frequency stuff is, first, some time away; secondly, it is very urban focused—in other words, it is likely to go where lots of people are; and thirdly, it does not have the same propagation characteristics. The 700MHz band would have some benefit in Scotland; it would not be the same as that with, say, the 26 to 28GHz spectrum, but it has the potential that I have outlined.

As Stewart Stevenson might be aware, we are running a pilot on 700MHz in the Borders to test exactly those sorts of questions.

I have another point, which is about economics. On all the Gs up to now, call hopping can be achieved only between stations from the same operator; it is not possible to hop from one operator to another during the call. Are you minded to influence the development of standards to allow call hopping to take place during calls across networks, with all the technical issues that there are in that regard? Of course, that would mean having much less need for a multiplicity of network operators serving very sparse areas. In other words, will you take every initiative—I picked only one—to ensure that sparse areas get real first-mover advantage for the first time from 5G, even if in reality it is the 4.5G that comes from 700MHz?

I do not know who will answer that, but I ask that the answer be very short.

I will give a short answer. We are absolutely thinking about the right competitive framework for mobile going forward and about where there is a case for more network sharing, including the use of a single national operator or a single localised operator with roaming obligations. Such things are part of a live piece of policy work that we are doing to try to understand how they could fit and how they could help people in areas that are, as you said, uneconomic for anything more than one mobile network.

Our final question will come from Richard Lyle—as long as it is a quick one.

It will be, convener. Does the panel know how much the auction of 5G will raise for the UK Government?

We do not know.

I thank both our witnesses for giving us very detailed answers to our questions. The very fact that we have spent a considerable time talking about the issue—and that we have not had enough time for the discussion—shows its importance to people across Scotland.

I have refrained from asking a question, but I will make a statement on behalf of those in Scotland who have very poor or restricted broadband and who do not know what 4G or even 3G is like. Urgency here is absolutely critical. The committee—and indeed all of Parliament—urges the panel to make sure that we achieve what has been promised to Scotland, because we will all be held to account in 2021 if we do not provide what every party has stood on delivering across Scotland.

I thank Glenn Preston and Clive Carter very much. There are some questions that we will submit to you. I suspend the meeting briefly to allow our witnesses to leave.

12:10 Meeting suspended.  

12:12 On resuming—