Rural Economy and Connectivity Committee

Meeting date: Wednesday, January 29, 2020

Official Report 769KB pdf

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Digital Connectivity

Item 2 is evidence on digital connectivity, including the reaching 100 per cent—R100—programme. I welcome the Scottish Government’s Minister for Energy, Connectivity and the Islands, Paul Wheelhouse, and his officials Claire Blake, R100 commercial director, and Robbie McGhee, head of digital connectivity. Minister, I invite you to make a brief opening statement of up to two minutes.

Thank you, convener. I welcome the chance to address the committee this morning.

The Government is committed to closing the digital divide. Over the past five years, we have seen significant improvement in the availability of superfast broadband, with coverage increasing by 35 percentage points, from 59 per cent in 2014 to 94 per cent in 2019. The increase is in part due to the success of our £400 million digital Scotland superfast broadband programme. As a direct result of DSSB, more than 943,000 premises across the length and breadth of Scotland can now access fibre broadband—around 103,000 more than was originally anticipated.

Before DSSB began, only 21 per cent of premises in the Highlands were expected to have access to fibre broadband, with no planned coverage at all in Orkney, Shetland and the Western Isles. Today, more than 93 per cent of premises in the Highlands and more than 80 per cent of premises in Orkney, Shetland and the Western Isles can access fibre broadband.

As a result of higher-than-expected take-up of services on DSSB-funded infrastructure, a total of £38.7 million has been reinvested in the programme through a contractual mechanism known as gainshare. The additional funding will ensure that DSSB goes further still, with deployment set to continue during 2020.

However, the provision of broadband infrastructure is primarily a commercial matter. On that front, infrastructure providers continue to roll out services, aided by our 10 years of rates relief on newly laid and lit fibre. Commercial providers will continue to play an important role in meeting our digital connectivity ambitions.

We recognise, of course, that more needs to be done, which is why the Government has chosen to invest to extend superfast broadband access to 100 per cent of premises across Scotland by the end of 2021 through the reaching 100 per cent programme, which includes aligned interventions, as we have discussed before in this committee. At the end of last year, I announced that we had signed contracts with BT for the central and south lots of the R100 procurement. I also announced that the contract award for the north lot was subject to a legal challenge and that we would be unable to award the contract as planned until the challenge was heard and resolved.

Upon completion of the R100 programme, Scotland will be the only part of the UK with universal superfast broadband access, ensuring that Scotland is ahead of the curve. Many areas are getting extensive full-fibre coverage through our R100 contracts.

I am happy to take members’ questions.

Thank you, minister. We have a lot of questions and, as ever, the committee’s time is short, especially as there is an earlier sitting in the chamber today. Jamie Greene will ask the first question.

Good morning, panel, and thank you for coming. Let us start by taking a step back and looking at the overall picture of what the R100 programme delivers. The Government announced a budget of £600 million for the project, which I understand has three elements: procurement, commercial build and aligned interventions. We will talk about the aligned interventions later, so I will park that for now. Will you talk us through what the £600 million buys us? Which elements of those contracts does it pay for?

That is a helpful question. The £600 million is for the main procurement under R100. It recognises that there are white space areas, as they are known, where the open market review could not identify that any commercial build was planned at the time. Those are the eligible premises that will go forward through the main procurement that we have put out to tender. As I outlined in my opening remarks, we are at various stages in the process of signing those contracts.

The £600 million is spread across three different lots, with £384 million allocated to the north lot area, which is the subject of a legal challenge, £133 million for the south of Scotland area and £83 million for the central lot area. That will pay for the installation of infrastructure. In the south of Scotland, it will provide full fibre for all but just over 200 of the 26,000 premises that were identified. In the central area, we have a target list of 55,000 premises, of which the vast majority will get full fibre while others will get fibre to the cabinet—FTTC—solutions.

To clarify, the £600 million, which I presume the Government will put into the relevant budget years—we will see when the budget is presented to us—is for spending in areas where there is no commercially viable option. In other words, we would not expect the £600 million to reach 100 per cent by itself; there will be £600 million of Government intervention plus the commercial build of which you have had advance notice from commercial suppliers and the aligned interventions.

Will you give us a picture of the overall spend that you believe will be required to reach 100 per cent? It is not simply the case that R100 equals £600 million; it sounds to me as though R100 equals £600 million plus commercial build plus aligned interventions. What are the other numbers?

It is difficult to give a financial figure for that, but Mr Greene is correct that there are three different groups. He mentioned the two principal ones—the R100 programme and the commercial build. Through the open market review process, the Scottish Government gathered information about the commercial superfast plans to which Mr Greene alluded, and that informs our intervention in the area. However, the operators do not tell us how much they are spending to deliver the coverage, so that bit is difficult for us. There is no mechanism for us to obtain that information, which is deemed to be commercially confidential for each of the developers.

Extensive work has been undertaken to evaluate the likely cost of delivering broadband vouchers. I have access to a figure, which I can supply to the committee, for the anticipated commercial roll-out, although that is being adjusted.

As I mentioned in the statement that I gave to Parliament following the announcement of the contracts, we have to take account of the latest available information about commercial build in each of the two areas for which we have already contracted. BT has adjusted its design to make sure that it is not using our money to cover areas where broadband will be delivered by commercial developers. We can provide the committee with some figures if that would be helpful.

I have some figures with me now. They might be out of date, but they give some indication. In the central lot, which covers much of central Scotland—broadly, south of Dundee, Doune and Stirling—there were originally 1.938 million premises that needed to be targeted and 1.737 million that had already been connected. We were aware of 102,000 premises that were being connected by commercial developers. That left about 55,000 premises for us to tackle through the R100 procurement process.

I will repeat the figures that I have given in the chamber if that would be helpful. We will deliver to 87 per cent of those 55,000 properties through the central R100 contract. The relatively small number that remain—just over 7,000 premises—will have to be delivered to through our aligned interventions. I hope that that gives a sense of the scale and where we have got to. We knew of over 100,000 premises that were going to be connected commercially at the point when the OMR was done for the central area. We are topping that up with the R100 programme where properties require subsidy in order to be addressed.

The equivalent figures for the south area, which is a much smaller area in terms of population, are that there were 198,979 premises, of which 156,165 properties had already been connected, and we knew of just over 10,600 commercially planned investments across the south of Scotland. That left just over 26,000 premises, as I mentioned in the chamber, of which 99 per cent will get a full-fibre solution.

I hope that that gives the context, but we can provide figures to the committee following this meeting, and we will be able to provide figures as the design is finalised later in the year.

I fear that we may be venturing into other questions as we get into the minutiae, but thank you for the information.

I want to look at the overall picture, putting aside the north lot, given the sensitivities around that. The south and central lot contracts have already been signed, but there is still a lack of clarity about their nature. What is the Government actually contracting the suppliers to deliver? Did you say to them, “This is how much we’re putting in to deliver to the households that you’re not going to deliver to—what are you putting into the deal?” Is that commercially sensitive information that you either do not know or know but cannot share?

I will check with my officials. I can give a figure for the amount that BT is putting in collectively to the central and south lots, if that is helpful. BT’s investment, which is on top of the investment from us and the 3.5 per cent from the UK Government, brings the total to £600 million across the three lots. For the central and south lots, I have given the figures of £133 million and £83 million from the R100 procurement package that the Government is putting in, and BT is putting in approximately £34 million—we do not want to be too precise about it. That takes the total investment in those two areas to £250 million, with £34 million of that coming from BT.

Okay. I will park my other questions for now. We will talk about aligned interventions later.

Good morning, panel. It would be helpful if you could provide the committee with a table that gives a breakdown of the figures on what was covered by BT Openreach and the amounts from the Scottish and UK Governments. You have given us a breakdown of the central lot, but can you do so for the other areas?

May I interject? Given the on-going finalisation of designs, we may not be able to give you final figures until later in the year, but we can give you an approximation.

You have an idea of the number of premises and how many have been covered already. For example, the central area is highly populated and that lot is more commercially viable compared with the north and south lots. Those figures would be helpful.

When you refer to providing fibre to premises, does that cover all commercial and domestic properties?

In the south of Scotland, where we have specified that 99 per cent of the target list of proper premises will get full fibre, that includes both domestic and non-domestic premises. It should cover 99 per cent of those premises that we were aware of that were not being covered by commercial operators. In the south, just over 200 premises will require another solution. The figure is larger in the central area, where about 7,000 properties in the R100 target list will require an alternative solution. However, the answer is yes. The solutions that we have set out cover both domestic and non-domestic premises.

Minister, will you clarify the figures that you are going to provide to the committee? Are they for the south, central and north lots or just for the south and central lots?

At the moment, convener, they will just be for the south and central lots. Because of the challenge, we are unable to give figures for the north lot.

I thought that that was the case; I just wanted to clarify that.

11:30  

Minister, you said in response to Maureen Watt’s question that there will be almost 100 per cent fibre to the premises in the south area. Will folk who are already connected with a reasonable service get an upgrade and also get FTTP, or are we just looking at what the R100 programme can deliver?

We are just looking at the R100 programme, Mr Chapman. It is a good point to raise. We can intervene only in those areas that have been pre-cleared for state aid purposes—the areas where no market solution has been provided through commercial operators. Of the just over 26,000 premises that we put into the R100 bid for the south, 99 per cent will get full fibre. However, you are quite right to identify that a lot of premises already have a connection of one type or another.

Operators such as BT have made their own views known about what they would like to do with respect to premises that are on fibre to the cabinet—FTTC—or other solutions: they intend to remove copper, for example. However, it is not yet in legislation or regulations that that has to be done. They are suggesting a target date of 2027 to remove copper from those premises and replace it with fibre, but that is a matter for commercial operators as it is not regulated.

I do not know whether Mr McGhee can say something on that.

The only point to add is that the UK Government has indicated that it has a further investment programme—it has talked about £5 billion. Again, it would be for those premises that can currently access superfast speeds but are not on a full fibre connection. Presumably, those premises would be part of that roll-out if they are not in line for a commercial upgrade.

Does that mean that existing premises with FTTC, for instance, are all receiving at least 30 megabits per second?

People may be on FTTC connections and not be receiving 30Mbps, but all those premises are in the R100 intervention area.

On that point, minister, you talked about state aid rules, but in many ways you are changing the goalposts, because you are now saying that the R100 programme is, in effect, FTTP. In the south, for example, the commercial side will deliver FTTP in some homes, such as new builds, and R100 will deliver FTTP, but there will be a huge gap in the middle that is made up of people who will not get FTTP because it is not commercially viable. Surely that group of people falls under the market failure side of things? In effect, you have created a group of people who will never be part of commercial FTTP provision—they may have reasonable speeds, but futureproofing is another issue—and are not part of R100. They are being missed out because you have moved the goalposts.

I think that there might be a bit of confusion about that issue, so I will try to clarify it now. Robbie McGhee outlined the situation for those who are already on a FTTC connection. They might have less than superfast standard speeds because they are a long distance from a cabinet. They might be a mile and a half or two miles away from a cabinet, and there is a digression in speed the further away you get from a cabinet. Those people would be eligible for assistance from us to get a superfast service.

We identified those areas that we knew were not going to receive a commercial superfast solution and we have got clearance to help the premises there. We got clearance under the open market review process and then state aid clearance for the R100 programme, which takes time—that is one of the contributing factors to how long such procurements take.

In the south of Scotland, in total, 99 per cent of the target list of premises will get full fibre. In the central area, some will get FTTC. The vast majority of premises there will get FTTP, but some premises are close enough to a cabinet to get a superfast speed from a FTTC connection. Does that make sense?

It does, but do you accept that we still have a big group of properties that do not have FTTP? In relation to futureproofing, they might have what we would define as superfast broadband now or soon, but it is not FTTP. In effect, there will be two tiers. The R100 programme will deliver that for people, and the commercial side will deliver it in the centre of Edinburgh, but it will never deliver it in Galashiels, Hawick or places like that. In effect, a big group of people will not have FTTP.

We must look back at what we are trying to achieve. I remind committee members, although I am sure that they already know this, that broadband is, like all telecoms, a reserved area. The Scottish Government has made a targeted intervention on economic development grounds to try to ensure that everyone gets a superfast connection. In many cases, as I outlined in my statement, we are now able to go further than just providing a superfast connection, so we are using the money in a way that will deliver a very high percentage of FTTP for those customers, but the Government’s commitment was to address superfast.

As Robbie McGhee outlined, the UK Government has made a commitment to spend £5 billion on trying to providing gigabit-ready services across the UK. That is the Government that is responsible for telecoms. We would argue that we need to see a fair share of that £5 billion allocated to Scotland. If additional funding comes in from that source, we will of course try to work with UK ministers and support them to make sure that that money is used effectively to try to provide full fibre for customers across Scotland. However, that is not part of the original R100 procurement—it has come subsequently. I hope that it will have the maximum benefit for Scotland. We stand ready to work with UK ministers to try to make sure that it is used as effectively as possible to deliver the best outcomes for those customers who are on, perhaps, FTTC and do not have an immediate prospect of getting FTTP.

I am sure that we will have a future debate about how we get to the point of full FTTP, but that can wait for another day.

The original Scottish Government commitment to R100 was for 100 per cent of premises in Scotland to be able to receive superfast broadband by 2020-21. Can you clarify for the record what the timescale is for the south and central lots to get 100 per cent coverage?

We are setting out that anyone who cannot access superfast broadband by the end of 2021 either commercially, which we have talked about, or via the R100 contracts—I can touch on the timescales for that, too—will be eligible for the aligned intervention.

If a customer wants to have a minimum superfast connection by the end of 2021, they can get one by using the voucher scheme that is in the proposals we are putting forward. That is our way of trying to honour our commitment that the end of 2021 would be the deadline. It also allows for what I believe will be a better outcome, in that a very high share of premises will now get FTTP, rather than only a superfast service, as a result of the money that we put in. In effect, the vast majority of premises in the central and south lots that we can talk about will get a service that is more than 30 times as fast as the European standard for superfast broadband, as a result of that money.

On timing, anyone who requires access to superfast broadband by the end of 2021 will be able to get it. With regard to contract build, we expect delivery in central Scotland to be completed by the end of 2023—that is, quarter 3 of 2023-24. In the south of Scotland, we expect contract build to be completed in the summer of 2024. In the course of the final year, 2024-25, about 1,400 premises will get picked up; the vast majority of that work will have been done by the end of 2023, so only the tail end of that programme will stretch into 2024—about 5 per cent of the build-out in the south of Scotland.

Realistically, people will go with that option, rather than a voucher scheme. Obviously, those communities will be disappointed that they will have to wait, in some cases, an extra two or three years. What steps is the Government taking to ensure that there will be absolutely no further delays beyond those revised timescales?

With regard to the contracts, they are not the kind of traditional contracts that would be used to build a bridge or roads, where penalties could be applied. They are state-funded interventions. They enable the contractor to deploy its own infrastructure in areas that are not commercially viable. There are no breach of contract provisions that we can use to ensure that the contractor meets the deadline.

However, it is relevant to point to the performance in DSSB. The supplier has a big incentive to deliver early, because they do not start receiving income from premises through customers signing up to services until they are fully deployed. The quicker they do it, the quicker they get paid.

That is what happened with DSSB, in which a similar mechanism brought in the contract on time and on budget. We can be pretty confident in the case of south and central Scotland that we have an experienced contractor—BT—that is used to delivering in those areas. BT has a track record of delivery under DSSB. We can be confident that it will want to do it to get the money, and that it will do it effectively and on time.

I hope that that is of some comfort to colleagues. Although it is not the same as a construction contract for a bridge or a motorway or something of that ilk, in which the contract includes breach of contract clauses, there is a big incentive, both reputationally and in terms of being paid, for the operator to deliver on time.

Is the lack of breach of contract penalties due to a legal stipulation that you cannot do that as a Government, or is it a choice you have made?

It relates to the nature of the contract, which is that we are not procuring an asset for ourselves. In effect, we are stepping in where the market has failed in order to fill the gap and make the business case viable.

It is not that we have no breach of contract provisions at all; clearly, there are material breach of contract provisions and there are long-stop dates that would allow the contract to be terminated if the contractor sat and did nothing. However, the key incentive in a subsidised contract is that the contractor does not get paid for what they have done until they have done it. They cannot get an income flow until the connection is there, so the biggest incentive in the world—for the contractor to get on and deliver it—is there.

Including provisions with liquidated damages and the kind of things that the committee is getting at would not have added anything, and we would have paid for that privilege. If things like that are included in a contract, we have to pay for them. A tried and tested gap-funded model has worked across the whole country in numerous procurements and contracts of this sort, in which the private sector is incentivised to do what it is asked to do on the timetable that it has.

Do you mean that contractors do not get paid a penny until they have finished?

They get paid in milestones. They do not get paid for any milestone until they come to us with a receipt proving to us that they have done it. They are out of pocket for that period and their business case stacks up only once they have customers paying money. A customer will not pay money until there is a connection.

In terms of future analysis of the budget and performance against the budget, payment is in arrears, as Ms Blake has said. You will see a mismatch between deployment on the ground and payment. That was true for DSSB too, where we were paying the contractor in arrears for having delivered. That is the standard approach.

When you came to the committee previously, you said:

“To pick up on Mr Rumbles’s point about the political aim, we are absolutely committed to delivering 100 per cent superfast coverage. I can say that because it is not a contractual issue; it is a political issue. The R100 procurement is the main means by which we are doing that, but we also have aligned interventions.”—[Official Report, Rural Economy and Connectivity Committee, 30 October 2019; c 17.]

You have just said again to Colin Smyth that, if people are not getting connected commercially, they can get a connection by 2021 with aligned interventions, but actually they cannot. Use of language is very important. You are offering people a voucher from the end of 2021—they are not going to get a connection by the end of 2021.

I am a bit alarmed by the date of 2024-25, which that you have just mentioned in response to Colin Smyth. We have not even mentioned the obvious delays in the north. There are people who have been expecting to get connected by the end of next year; I have told them that, based on the words you have used to us. That is what you said.

It appears that there is still confusion on that point. Any customer who wants a connection within 2021 will get one. The aligned interventions might be an interim solution while they are waiting for full fibre to be rolled out, but they will get a superfast connection. That is what the Government commitment is, which is what I reiterated at the previous meeting.

Maybe that is why I have misunderstood you. I want to clarify this, because, when people in the north-east have contacted me, I have assured them that you have said that they will not just get a voucher but that they will get connected by the end of 2021. Is that correct?

11:45  

Yes. They will be entitled to—

Wait a minute—I am not talking about their being entitled to be connected; I am talking about their getting connected.

It is a demand-led voucher scheme. I would welcome the assistance of colleagues around this table and in the wider Parliament on this matter. When constituents contact you looking for assurances around superfast broadband connectivity by the end of 2021, it would be helpful if—once we have the information that we wish to communicate via yourselves and other routes—you could ensure that they are aware of their ability to draw down a voucher that will grant fund them getting at least an interim solution. For example, if at some point they are going to get an R100 deployment of full fibre or an FTTC connection but they cannot wait for that to happen and they want a connection by the end of 2021, they will be able to get that through the aligned intervention scheme.

I know that you are genuinely trying to help.

I am.

So that there is no misunderstanding in the future, can you confirm that a constituent of mine in the north-east who needs to use the aligned intervention scheme does not have to wait until the end of next year to get a voucher and can access the scheme before that?

They will be able to do that. We hope to launch the voucher scheme by this summer.

Excellent. I acknowledge my misunderstanding.

There is also an issue of communication, and I apologise if we have not communicated the position properly.

Jamie Greene alluded to the fact that other matters might be raised around this, so I will not labour the point. However, I reassure you that we hope to have the voucher scheme operating from this summer, and you can communicate that to your constituents.

That segues nicely into the issue of aligned interventions. As far as I understand it, there is a group of people who, even with the Government procurement and commercial intervention, will fall between the gaps because they are too far from the cabinet that BT Openreach is contracted to provide or are in an extremely rural area that is too far away to be easily connected to.

I understand that the contract involves BT Openreach simply being given a pot of money to fill in the gaps in order to provide 100 per cent coverage at a minimum speed, which, by default, therefore, is technologically agnostic. Is my understanding correct? Have you contracted BT simply to deliver a minimum speed by whichever means is available to it?

That is getting into contractual terminology, so I will rely on Claire Blake to answer the question.

The bidders were tasked with taking a pot of money and delivering speeds of 30Mbps to as many premises as they could. To that extent, yes, BT Openreach was asked to provide coverage at a minimum speed. However, with regard to the structure of the contracts and the outcome that we have got, BT Openreach is a commercial operation that wants to put out fibre as far as possible. What we have actually seen is not FTTC connections across the piece; instead, we are predominantly seeing fibre to the premises. That was BT Openreach’s solution, and it is what it is being contracted to deliver to us. If it said that it is going to deliver FTTP to a premises, it cannot then change its mind and say that it is downgrading the provision to FTTC.

So, in other words, we are talking about 100 per cent coverage of all residential and commercial premises, which BT Openreach has signed a contract to deliver and will be able to deliver thanks to what we are spending, as well as additional funding. However, are we saying that there are households or commercial premises that will fall outwith that provision and in relation to which additional Government funds and intervention will be required? How much have you allocated for the aligned interventions scheme? What technologies will be used to deliver provision to those households?

That is a fair point. The answer is that the £600 million covers the main procurement, so we will need additional resources to deliver the aligned interventions voucher scheme that we will give further details on by the summer. We stand ready to provide that additional funding. Obviously, we continue to have dialogue with UK Government colleagues around their plans for their £5 billion. That might create an opportunity to provide additional revenue or capital funding for the work that needs to be done.

The UK Government has already committed £21 million towards the total—that is the 3.5 per cent that I referred to earlier. Obviously, any additional funding might enhance the quality of the offer that we can make in relation to the aligned interventions for those remaining properties that have fallen through the R100 procurement and have not been covered by commercial developers.

Take-up in Scotland of the UK Government’s rural gigabit voucher scheme is a bit lower than it, or we, would like. In large part, that is because the level of subsidy that is available under the scheme—about £1,500 for residential premises and £3,500 for small and medium-sized enterprises—does not go far enough in some of the more challenging locations.

We have argued that we could use our voucher scheme to add to the UK Government’s voucher scheme. I think that that has been received positively so far; further discussion would be needed to enable the money to go further for both of us and deliver a better outcome for the people concerned. We are urging the UK Government to review the levels of subsidy that are available and we stand ready to supplement that funding through our voucher scheme, so that it delivers a future-proofed outcome for all those who are affected. We believe—I hope that you agree—that it needs to be funded appropriately by both Governments.

I totally understand, and that is a helpful answer.

I return to your Government’s commitment to reach 100 per cent of premises and our understanding of the funding. I presume that you have to ask the finance directorate for lots of money to fill in the gaps. Have you allocated any estimated numbers to how much you think the voucher scheme, or any form of aligned intervention, will cost the Government?

Specifically on the voucher scheme, what would happen if the quotation to deliver to a house was an excessive sum of money? We have heard of it costing tens of thousands of pounds to connect the most difficult-to-reach premises. Will they still be covered under the voucher scheme? Will funding be guaranteed to be available to them?

We are certainly going into this with the intention to try to help every premises, as we reiterated to Mr Rumbles earlier. It is our intention and political ambition to achieve 100 per cent coverage. We—like BT, which is doing detailed survey work on the ground for the central and south areas—do not know exactly what the solution will be in each location.

I have said before that we might need a cocktail of solutions in some parts of the country. For example, in one valley there could be fixed wireless to a number of premises that will not work for those outwith the reach; perhaps relay stations could be put in to carry a signal up a valley, but we would not know until we got on the ground. However, our intention is to try to ensure that everyone gets a solution. That would be greatly helped if we could add our funding to the UK funding to make sure that it goes as far as possible.

We will try to avoid any sense of an arbitrary cap. I do not want to be overly critical, but the cap for the existing voucher schemes is probably artificially low for the kind of premises that we are talking about. We have made that point gently to UK colleagues. There is an opportunity here to be a bit more realistic and try to make sure that we are going into it with our eyes open.

With regard to the budget, you are quite right. I would not want to call Mr Mackay the finance director—he might take umbrage at that—but he is certainly the finance secretary. He will be aware that, through the budget process, we have put in indicative figures for what we believe is a new funding pressure that will come from the installation of the voucher scheme. The scheme is demand led, so it will depend how many people come forward. We might have to adjust the figures as we go along, but we have started the process. The commitments that we gave in the chamber were cleared with finance colleagues beforehand, so they were aware of, and were comfortable with, the numbers that we put forward.

I did not hear a number in that answer.

I do not want to prejudge the budget. We do not have long to wait for it. There will then be numbers for what we are expecting and the reprofiled spend for R100 that takes account of the timescale. I ask members to bear in mind that invoicing is in arrears, so they should not automatically believe that nothing is happening when funding is some way down the line, for the reasons that Claire Blake set out.

Stewart Stevenson wanted to come in.

I have quite a narrow question about vouchers. One of my colleagues will ask more about the online checker later. Am I correct in understanding that the online checker, when it is available, will enable each individual household and premise to see the predicted date of delivery? Some of the R100 programme dates will be before 2021 and some will be after. Therefore, we would expect that people would be able to see that they need to apply for a voucher to draw it forward in advance of 2021, because their predicted installation date was beyond that.

Related to that—this is not as short a question as I thought that it would be—can only people who have a predicted date post-2021 claim the voucher?

On the information that will be on the online checker, it is our intention that, for business and domestic premises, everyone will be able to see whether they will be covered by the R100 programme by the end of 2021. It will not give a precise date for commercial roll-out or say whether that will happen, and it will not, in the case of the south and central lots, give a precise date for when BT will deliver the solutions under the R100 programme. However, the online checker will show whether people are eligible for the voucher scheme, and we will try to keep that bit as simple as possible. Someone who is eligible for the voucher scheme will, I hope, have a single point of contact and be directed to the right support. We do not want to make it too confusing by having different options.

In practice, some individuals will get an interim solution, because they will get a full-fibre or FTTC connection further down the line—as I said, perhaps beyond the end of 2021. If we know that a premises is not covered by the R100 programme, a more substantive solution will be provided through the aligned interventions voucher scheme, which will be flagged to those involved.

Robbie McGhee might want to add to what I have said.

Our aim is to integrate the premises-level checker with the voucher information. There is a horrible phrase in my head, and I apologise for using it, but I am thinking about the customer journey. A lot of planning is being done, using website experience, on how people will be signposted, so that the process is as straightforward and seamless as possible.

I think that Stewart Stevenson is happy for us to move on.

Yes.

I am interested in alternatives to digital or fibre. What technical alternatives can be used to cover the gaps in fibre coverage? Are we talking about wireless delivery from radio masts, satellites or leased lines?

As a said in response to Jamie Greene, the voucher scheme will be capable of delivering a range of technologies. Fixed wireless access and satellite broadband will have a part to play in the scheme. We aim to maximise the quality of the technological solutions that will be on offer through the voucher scheme. Individual solutions will depend on a range of complex factors, including—as I alluded to in my response to Jamie Greene—geography, topography and proximity to alternatives.

In the past, satellite broadband has had a bad reputation, but the upload and download speeds are improving dramatically. Contracts are now available without data caps, because a big issue has been people running out of data on their satellite service. Access speeds are also increasing. We are proactively engaging with suppliers of different technologies, including fixed wireless and satellite broadband, to gauge their interest in the voucher scheme, and there has been a lot of proactive contact with us from suppliers who are interested in participating in it.

A range of technologies will be used. In some cases, a fibre-to-the-premises solution might be provided. That would not be outwith the scope of the voucher scheme. It is about finding a cost-effective solution and one that, I hope, is as good as possible within the realms of the rational spending of money in each case.

A lot of preparatory scoping work has been done, including lots of spatial analysis of where the premises that will be part of aligned interventions are. We are looking at clustering with a view to determining what might be suitable technology. If premises are within a certain distance of each other, that lends itself to a full-fibre solution. In other cases, fixed wireless might be used. The plan is to do far more proactive supplier engagement, so that we warm up the existing suppliers in Scotland. They might be quite small scale, but voucher funding provides them with an opportunity to extend their networks. The R100 programme resourcing plan includes reference to account managers who will carry out that engagement. The proactive management of the supply chain is important.

12:00  

You are saying that the voucher scheme will not exclude alternative technologies.

Yes. The only test is that those technologies must provide a service of 30Mbps.

My next question was to get that reassurance.

That speed is an absolute must. The European standard for superfast broadband is a minimum of 30Mbps. The superfast connection through a fibre to the cabinet connection in my local village is, in practice, much better than that—60 to 80Mbps—but we want to ensure that people have at least 30Mbps, which is the qualifying standard for anything that we pay for.

The voucher scheme is a joined-up process with the UK Government. You said that it will start in the summer; are you confident that discussions with the UK Government about the scheme will be on track for that time?

I should clarify that we intend to go ahead with the voucher scheme whether or not we get the support of the UK Government, as we need to provide a solution for those premises in order to honour our commitment. We believe that the best outcome would be to work in collaboration with the UK Government and to have both its funding and our own, in order to provide a more comprehensive solution for those premises that will be more expensive to deliver to. Prior to and since the general election, I have had positive discussions and correspondence with Matt Warman, who is a parliamentary undersecretary at the Department for Digital, Culture, Media and Sport, and with Nicky Morgan, about our desire to collaborate with the UK Government. Both appeared to be positive about that approach and could see the sense in it.

Some discussions on other points are still to go ahead. Using the same voucher scheme platform as that of the UK Government would be advantageous in order to simplify the process and make it administratively as easy as possible. As Robbie McGhee mentioned, the reason for that is not only to make the customer journey as simple as possible but to ensure that the banker arrangements make things as easy as possible for contractors. Both Matt Warman and Nicky Morgan seemed amenable to that and I welcome that positive approach.

We still have mileage to cover. The UK Government is not yet in a position to tell us about its £5 billion programme and we do not know much detail about that. We have sought reassurance that a rival major public procurement will not go on at the same time, which would cause massive confusion. I do not think that that will happen, but we will obviously be unsure about that until we get certainty about the UK Government plans. We want to see the scope of the budget that is being allocated to Scotland, which might influence the ultimate outcome of the quality of service that we can provide for those customers who are outwith the main commercial R100 procurement.

In the interest of time, I will lump all my questions together. The scheme will open in the summer and be open ended. Are there any eligibility criteria? Can voucher applicants club together to get community broadband, as the Broadband for the Rural North community partnership scheme in north-west England has done? Will that sort of thing be available to people in Scotland?

In relation to the eligibility criteria, I will repeat my previous point more formally: anyone who cannot access superfast broadband by the end of 2021—they will know that well in advance, to pick up on a point that Mr Rumbles raised—will be eligible for a voucher, regardless of whether a build through an R100 contract eventually reaches them. That is the formal part of the eligibility criteria.

In answer to the second question, we would absolutely be interested in potential customers clustering for a collaborative solution. Robbie McGhee alluded to looking at those premises that would be covered by aligned interventions and seeing whether we can do anything proactively to encourage that. It would be sensible for a community to think, “Hang on here, we could get a better outcome if we all go for one option, perhaps with one supplier.”

The nature of planning and delivering broadband networks does not lend itself to individual solutions. If an individual has a voucher and decides that they want a broadband connection, satellite will be all that they will be able to get. The delivery of something that is future proofed relies on demand aggregation, as we have seen—although maybe less so in Scotland than in other parts of the UK. For example, BT’s community fibre partnerships programme has been used effectively to pull in community funding as well as BT funding and vouchers. Such an approach would be absolutely valid, in the same way as we see what is happening as a continuation of an existing voucher platform in many respects. The opportunity would be there for demand aggregation to take place, as it has done elsewhere.

May I clarify something? I should make clear that I benefit from a wireless line-of-sight system, which seems to work well in my community, but some communities cannot do that and have to rely on satellite, which is probably the only other option. Satellite is vastly more expensive than a land-line connection. If a land-line connection costs X, satellite might cost 2X. I welcome the voucher scheme as good news, but will it take into account what the end user needs to get the R100 commitment that the Government has given them?

Do you mean in terms of the person’s means and the affordability of the service thereafter informing what solution is used—

Well, if a satellite connection is going to cost a person who cannot get R100 £70 per calendar month—it could cost that—will the voucher cover the £70 per calendar month?

I think that recurrent costs will not be covered, as the system is currently constituted. We were discussing this matter in advance of the meeting, because we are aware that there is strong interest in satellite solutions. I might ask Robbie McGhee to give the financial figures, which I cannot recall in great detail from our verbal discussion. The monthly cost of satellite is coming down dramatically, as competition increases and the technology improves. The value of what people get per month is improving a lot.

I understand that, but I recall you saying to the committee that people in remote areas would not be forced to pay more than the person in the central belt pays. It appears that that is no longer the case.

It is the case in terms of the capital cost. What we cannot do—indeed, what we are not allowed to do—is intervene in the monthly payment that the person makes. We do not have a route whereby we can influence that, other than perhaps, as I think I mentioned when I made my statement to the Parliament, by considering parallels in areas such as energy, where there is a social tariff. There might be an option for regulators and the UK Government to consider applying such a tariff across the whole UK.

If I may, because I know that Robbie McGhee has looked at—

I just seek to clarify that the answer to my question is simply that the voucher scheme that you are offering may not cover the additional costs that will probably be accrued by people who cannot get R100. The voucher will not cover all the costs, although it will go a way towards doing that.

I might ask Robbie McGhee to back this up: I think that the scope of R100 is such that it funds the infrastructure; we cannot fund the service. If affordability is a serious issue when the solution for a premises is being considered, I hope that the customer will raise the issue and that there will be scope for considering cheaper options. However, R100 covers the infrastructure costs. We are, sadly, not allowed to subsidise—that is a general point about state aid. There is a parallel in the shared rural network for mobile connectivity, which the UK Government supports. The UK Government provides a state-aid approved scheme to subsidise the cost of mobile phone connectivity. However, that is something that the UK Government can do; we cannot do that.

We have had extensive consultation with the satellite market to get a handle on price trends. Bigblu Broadband, which is the big wholesale commercial satellite provider at the moment, currently offers an unlimited superfast service with speeds well in excess of 30Mbps for around £49.99 a month. There is downward pressure on cost, as more satellites go up and there is more capacity, so we expect the monthly cost to go down over time. We are having further discussions with wholesale providers to consider whether, if there is greater demand in Scotland as a result of the R100 voucher scheme, that might flow through to the monthly cost that people pay.

I hear that. I know that wifi through a land line might cost £28 to £30 per month, and another £20 on top of that will seem like a lot of money to some people who live in rural areas.

Perhaps we can leave that issue, because members have a lot of questions.

I want to speak about the north bundle. We know that the contract award was held up because of a legal challenge. I realise that there may be little the minister can say, but how is that progressing and when are we likely to see an outcome with a contract signed?

I am in doubly difficult territory here. I would love to be able to give Mr Chapman the answer that he and his colleagues deserve. The sad truth is that I cannot comment on the north lot while it is subject to legal proceedings. As soon as I can give the committee an update, I will. We want that heard as quickly as possible, as any litigant or respondent to a litigation would, but we cannot influence the Court of Session. That is a matter for the court to decide, based on its workload. The court knows best when it can accommodate that and we have to trust that it will happen soon.

I stress, as most members of the committee cover the north lot area and it is therefore relevant to them, that all the customers who are affected by the legal case will be eligible for the aligned intervention voucher scheme. If there is a consequential delay, which we will know about once we get the online checker for that contract area, they will be eligible for aligned intervention. I reiterate that they can get a superfast connection. Every person, regardless of the lot area they are in, who does not get a connection through R100 by the end of 2021 will get a superfast service through the aligned intervention voucher scheme. I want to reassure people of that.

Although it is disappointing that we face that legal challenge, it should not prevent someone who needs a connection by the end of 2021 from getting one. It may be an interim connection if they are going to get an R100 solution in the long term—and that applies to the north too—but they will get a service nonetheless and, we hope, the longer-term R100 solution thereafter.

That is very positive, but it seems that you will be inundated with huge numbers, particularly in the north area, given that the whole thing is obviously delayed and we do not know how long for. Do you really think that the aligned intervention scheme can cope with what might happen in the next 18 months or so?

Robbie McGhee outlined our engagement with different suppliers of alternative solutions such as satellite or fixed wireless broadband. That can really help. We are proactive and we have account managers for those businesses. We have had strong interest already in the voucher scheme even before we have published the detail of it. I am confident that suppliers will be willing to step in.

We cannot say that it will be easy in every case to provide a solution, but we are committed to making that happen. We are reasonably well placed with interest in providing services through the voucher scheme. I am encouraged by that. I will bring Robbie McGhee in to comment on the engagement and interest that we have had from particular suppliers in the north of Scotland.

We have a good sense of big and small operators in Scotland through the open-market review process and we have an on-going, structured engagement with them to determine how the planned commercial build is going. We are using that engagement to introduce the concept of vouchers and to see whether there are opportunities for operators to grow their networks organically by utilising that funding. That will increase once further details of the voucher scheme are released. That will help us plan a more managed transition for some of those networks to get bigger.

The other concern that I have is that people will apply for the voucher scheme and get a system in place that allows them to have at least 30Mbps, but then in a year or two they will have fibre to their premises, which is the best outcome we can get, so you will almost deliver twice. You will deliver something meantime and then you will deliver a better system later. There is a double cost there. I am not complaining about that, but—

It is good news.

I am not complaining about it. However, I realise that we need value for money here—we all need that. I have run a business all my life, and I know that. I recognise that issue. Are you prepared to take that on board?

12:15  

Yes. As I alluded to earlier when responding to Mr Greene, I think, we had to go through the normal processes before making a parliamentary statement, as you would expect, to check the veracity of what we were pledging to do on the voucher scheme. We have been in touch with colleagues in finance, and it has been cleared, with an appropriate route through the process. We have had to make some working assumptions about demand and take-up.

Some people might be quite happy to wait for full fibre, but there will be many customers for whom it is an urgent matter to get it—businesses, people working from home and those who need a broadband connection for other purposes. There may be high demand from those individuals. We made a commitment, and we are trying to honour it—we have had to take that on the chin.

You are quite right, in that having an interim solution through a voucher scheme will not rule someone out of getting the R100 roll-out. In that situation, there could be additional costs for the customers concerned, but that is why it is going beyond the original £600 million budget that Mr Greene mentioned earlier. We are providing top-up funding to ensure that the process happens.

This question might be of interest to other members, but I will illustrate it with a local example from my area. I am referring to the arbitrary lines that have carved the country up into north, central and south. My understanding is that the Cunninghame North constituency is in both the north and central lots.

South and central.

Well—south or north and central. Anyway, it has been carved up. Could the minister explain how that decision came about? If someone lives on Arran, they are in one lot, but if they are in Ardrossan, they will be in another, and that might prove a disappointment to islanders, for instance. What can be done to improve outcomes within constituency boundaries?

That is a fair question. The areas have been decided on the basis of trying to get the combination right, with sufficiently attractive areas so as to attract bidders for the lots. As we have discussed previously, both in the chamber and in the committee, we had strong interest in all three lots right the way through, almost to the end. Ultimately, we ended up with just single bidders for central and south. However, we can have some confidence in how we packaged up the areas, in that we got a bid in each area. Thinking about some of the terrain involved and the challenges with islands such as Arran and Cumbrae in North Ayrshire, I would say that it was not necessarily a given that people would bid to do the work there. We had to get the balance right between the amounts of subsidy for each lot, with a mix of attractive areas to do commercially and areas that would clearly need subsidy to make them viable, in order to get the right package in each area.

All the inhabited islands are in the north lot, and that is why the division has happened as it has in North Ayrshire, with the mainland in one lot and the islands in another. That is to provide a balanced package between the three areas. The north has much more subsidy than central, which is more suitable for commercial roll-out. Although central therefore has less subsidy, it has attractive areas that commercial operators would like to be in anyway.

As I say, there is a balance between the amounts of subsidy provided for each lot. More money is provided for the south, for similar reasons to those that apply to the north, with some challenging terrain and topography. I hope that we have got the balance right—we have had bids for all three areas. I cannot comment on the north, but we have had a good outcome for the south and central areas. From that point of view, the areas have worked.

Was the decision to put all the islands in the north lot, which will be the last area to reach 100 per cent, island proofed or impact assessed?

That decision predates the island community impact assessment tool, which is still in development. I will ask Claire Blake to comment on the structure of the areas. I know that a lot of thought went into getting that right in order to attract commercial interest. Sorry—it might be Robbie McGhee who will answer that point.

I would be happy to wait.

That could not have been done at the time with the island community impact assessment tool, but I hope that you will ultimately see that we have a good outcome for islands.

I am sure that the witnesses could explain that in greater detail, but I would be happy for the committee to receive a letter explaining the point in further detail.

Absolutely—if that would be helpful.

The problem is that we are quite short of time, and we have lots of questions.

I have one final question before we move on. Given the delay in awarding the contract for the north lot, can the minister give us any idea of when R100 will be completed in the north?

I think that the minister would say that there are all sorts of issues around that question. It is a good try, Mr Chapman, but, in fairness, I will not let you put that question to the minister, because I do not think that he is in a position to answer it, from a legal standpoint.

I cannot comment, unfortunately. My apologies—I wish that I could, but I cannot.

R100 contracts differ from the digital Scotland superfast broadband programme contracts in that they are premises based. When will members be able to view that premises-level data? How future proofed are the contracts in relation to housing that is currently under construction?

On the first point, for central and south premises, where we have certainty—where we have a contract signed and we are working with BT on its survey work—we should be in a position to have the online checker populated with the data for the R100 contracts and our knowledge about commercial and voucher schemes by the summer of this year. We are aiming to have that done as soon as possible for the north lot. The outcome of the court case will determine which of the two bidders has won the work and will, therefore, have an implication for the pattern of delivery.

For the south and central lots, we certainly hope to make that data available in the summer, and we will do the same for the north lot as soon thereafter as is humanly possible. I hope that that is helpful to members. The data will go down to premises level, as Mr Lyle has suggested, which will allow the precision of knowing about specific premises. That is unlike the DSSB programme, for which the information was published at a postcode-area level and perhaps did not provide the clarity that people needed about whether their own premises would benefit from a roll-out. This online checker will tell people precisely what will happen for their premises.

Will the contracts be future proofed for future house building?

The contracts that we have in place are state-aid compliant and can target only the areas of market failure that we know about. Future houses, as they come on stream, will not be picked up by R100. New builds cannot be considered as an area of market failure, because we have to allow time to see whether the market delivers for the newly built premises, so they are not within the scope of the contracts.

We are working proactively with the telecoms industry and the UK Government to address the issue at source, which I hope will ensure that all new homes are built with future-proofed broadband connections included from the start. Taxpayers should not be asked to foot the bill for that by default. BT, Virgin Media and others have already made great strides with developers around ensuring that any and all new builds have full fibre installed wherever possible. Typically, for any development with more than 20 premises, it has almost been a no-brainer, but operators are also prepared to work with smaller developments to look at solutions.

For our part, we have already made provision with regard to digital infrastructure in Scottish planning policy, within the national planning framework, and further legislation relating to new builds is being considered at a UK level. We are supportive of that legislation in principle. We have engaged with the DCMS at official and ministerial levels to understand the implications for devolved policy, if there are any. We would, of course, support the implementation of such legislation during the course of the current UK Parliament.

I will roll my other questions into one to save time. The committee has previously heard that about 180,000 premises across Scotland are eligible for R100. Is that figure still accurate or can the minister provide an updated figure? Also, can the minister confirm—I think that he mentioned this—the expected timeline for the launch of the online checker?

On the first point, we believe that there are now approximately 150,000 eligible premises rather than 180,000. That number can be explained by an increase in commercial activity across Scotland, which has been prompted partly by the 10-year rates relief that we have provided in the past year, which is granted on any newly lit fibre. That is double the level across the rest of the UK—it is five years’ cover in the rest of the UK and 10 years’ cover in Scotland.

That should perhaps be in members’ minds next week, when we have the discussion about non-domestic rates and about having a nationally set rates release scheme. I put that point out there for colleagues around the table, to flag up that there is a risk that that relief may be lost, depending on what happens next week. Convener, those comments are made in a light-hearted way, but it is a serious point. We know that the rates relief scheme has been very influential in securing further investment from commercial operators. It is securing inward investment in infrastructure, and that has resulted in a drop in the number of premises from about 180,000 to about 150,000.

I reiterate that the online checker that Mr Lyle referred to will, hopefully, be ready by the summer, with the proviso that the north data may take longer to populate.

I am just trying to do some time management—I am trying to get as many questions in as I can within the timeframe. I was going to adjust things, but we will go straight to Angus MacDonald’s questions. We will keep going for as long as we can, to allow us to complete our other business, but we will have to be flexible about where we get to.

I am acutely aware of the time pressure, so I will be as brief as possible.

It is fair to say that gainshare has proven to be a godsend for a number of communities that have been connected earlier than expected through the two tranches of gainshare funding for the DSSB programme: there were 29,000 premises in the first tranche and 7,000 in the second. Is it likely that further funding will be made available for DSSB through the gainshare mechanism?

As things stand, there is no further prospect of additional accelerated gainshare funding through DSSB contracts. Because the R100 programme is now ramping up, deployment of the DSSB programme will effectively be completed in the first half of this year. We have tried to use gainshare funding to minimise any gaps between the original DSSB programme and the R100 programme kicking in. The DSSB programme will be completed in the first half of this year, and there will be a managed closure of the programme thereafter. That will tackle a number of areas in Scotland.

We can perhaps provide more detail to the committee on that, as I appreciate that there are time constraints today. We can identify some areas where that funding is being targeted in the first half of the year—some of which are relevant to your constituencies.

Perhaps you could write to the committee. It would be good to get an explanation of how gainshare is currently being deployed and what criteria are used to decide where the funding is going.

I will provide that, if I can. It is probably helpful for me to say that the current round of gainshare money is focused primarily on uplifting speeds in areas where premises are already connected to enabling infrastructure—for example, by taking areas with lower speeds up to at least 24 Mbps, which is the UK’s superfast standard; by completing builds in postcodes that are currently only partially served by fibre; and by extending existing and planned builds to complete the build in those areas. We have heard about people being frustrated because they see investment in their area and wonder why they have not benefited. The most recent round of gainshare funding will, hopefully, help those communities and will complement R100 delivery. DSSB and R100 teams are working very closely together as we manage the closure of the DSSB programme and ramp up R100 investment.

Richard Lyle has the next questions.

Again, I will roll my questions together. Will the monitoring and evaluation plan for the 5G strategy be publicly accessible?

We are developing that, and we hope to make it publicly available.

That is all that I need. Will the committee see outputs from the Scottish 5G centre—yes or no?

The 5G centre is a bit more complex. It is currently advertising for a chief executive. There is a lot more that I could say on 5G if that would be helpful to the committee.

Minister, it would be helpful if you could write to Mr Lyle with your answers, if that is acceptable to him. Are there any other questions that you would particularly like to pose now, Richard, or would you be happy for the minister to write to you?

I would be happy with that. I do not have any other questions—I was just trying to be brief.

Does Jamie Greene have any questions to ask?

12:30  

Given that the issues are quite technical and may require longer answers from the minister, I will wrap them into one question for the benefit of the time that is available. We might then write to the minister if we have additional things to ask, or about any specifics.

My question is about the minister’s initial response to the report by the Infrastructure Commission for Scotland, which is very interesting and welcome. The report calls for full fibre to be rolled out across Scotland by 2027. Given the revised timetable for R100, rolling out full fibre across the whole of Scotland sounds something of a challenge. Are you cognisant of that? Is there a positive working relationship with the UK Government—with the civil service, at the very least, if not ministerially—on developments in that area? Will you write to us with more details of how or when that might be achieved?

We will write in more detail to help on that issue. We certainly welcome the ICS report, which is very positive about the value and the benefit of investing in digital infrastructure.

On your point about the extension of full fibre, the report recognises the Scottish Government’s leadership role in digital connectivity, despite its being a reserved matter. The report is clear in its recognition that our investment in R100 will make

“Scotland one of the best connected places anywhere in Europe.”

It is critical that R100’s acceleration of full-fibre delivery in Scotland, in areas that we have discussed already with Mr Smyth and yourself, will have contributed substantially to UK ministers’ ambition of extending full fibre to all. Now, they must deliver the funding that is needed for Scotland to achieve ubiquitous full-fibre coverage by 2027. As I said earlier to Mr Chapman, the 2027 date is not set in regulatory terms or in statute; it is currently voluntary on the part of companies, including BT. We recognise that the UK Government is committing £5 billion to tackling the issue.

We have a good relationship not just at the official level, and we are trying to build a relationship at the ministerial level. We generally have positive discussions, and I see huge potential for collaboration with UK ministers if we get this right. I am encouraged by the discussions with Matt Warman and Nicky Morgan, and it would be helpful now to have clarity about the funding that is to come and then to have discussions about how to allocate it.

Minister, other members wanted to ask different questions, but they have agreed that we will write to you for a response. More detail may be required in response to the later questions that were asked, which the clerks will write to your office about.

I thank you and your team for coming along today. I apologise that the discussion has been slightly rushed, but this morning’s timings seem to have concertina-ed and I do not seem to have managed the time as effectively as I should have—for which I apologise. Rather than suspend the meeting, I ask you to depart quietly while we continue with other matters.

Thank you, convener and colleagues.