Infrastructure and Capital Investment Committee

Meeting date: Wednesday, December 7, 2011

Official Report 531KB pdf

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Broadband Infrastructure Inquiry

Good morning, everyone. I welcome you to the 11th meeting in 2011 of the Infrastructure and Capital Investment Committee. I remind everyone to turn off their mobile phones and BlackBerrys, as they impact on the broadcasting system. I have apologies for absence from Malcolm Chisholm.

Agenda item 1 is further evidence in connection with our work on broadband infrastructure in Scotland. The committee will hear from organisations with an interest in the development of broadband in Scotland. I welcome Peter Shearman, the head of infrastructure policy on the broadband stakeholder group; Fiona Ballantyne, the member for Scotland on the Communications Consumer Panel; and Professor Michael Fourman, the chairman of the digital Scotland working group of the Royal Society of Edinburgh. I invite the witnesses to comment on the economic advantages of Scotland developing its digital connectivity and the disadvantages of its not doing so.

We have considered that issue. A 10 per cent increase in take-up leading to a 1 per cent increase in gross domestic product is the figure that came from the Organisation for Economic Co-operation and Development and is driving broadband investment among lots of our competitors. Broadband provides access to markets, information and education; makes the delivery of services more efficient; and attracts tourism—nowadays, many people will not go to a place where they cannot remain connected. Over the next 20 years, the speeds that our leading competitors are delivering will increase exponentially, as they have over the past 20 years and, unless we keep pace, we will be at a disadvantage compared with many other countries.

It has been estimated that people who are online can save £560 a year, which is a 2008 figure. I suspect that because so much more is now accessible through the internet, today’s figure is higher. A saving of £600 million through online service delivery in the public sector has also been estimated. From the consumer’s point of view, there are a lot of impacts. It is about inclusion in daily life, which, in itself, has an economic impact for people.

Broadband is very important for the competitiveness and efficiency of small businesses. Small businesses that are based in areas that do not have a good broadband service or that have an unreliable broadband service tell us that it generally takes them longer to do things than it takes their competitors, which has an impact on their business. They tend to be less efficient and perhaps cannot use the latest sophisticated software. They also have problems maintaining contact with their customers when they leave the office if there is not a good mobile broadband signal.

The disadvantage of people not being connected is that it contributes to the increasing digital divide. By not being connected, people are very much separated from the rest of life as it now goes on.

I echo those sentiments. In previous years, the link between broadband and economic growth was not particularly well made but, in the past couple of years, that has definitely changed. A lot of work has been done by the OECD, and Arthur D Little recently carried out a piece of work on the increase in productivity that accrues with increasing broadband speeds and take-up. There is definitely a link. That work also shows the importance of take-up rather than speed. On the consumer side, one of the biggest wins would be to increase the level of take-up of broadband generally rather than necessarily take-up of the next technology.

We need to focus future investment, and the biggest wins will be from increasing take-up among consumers and, for economic purposes, among small and medium-sized enterprises. In Scotland, the number of SMEs that do not currently have connectivity is particularly high.

Will you briefly describe the work that you have done to assess the impact of the current broadband structure in Scotland? How did you go about the work that you described in your written evidence to us? The RSE has done a major piece of work.

The RSE per se has not done any studies but, together with some colleagues—in fact, driven by some colleagues—we did some work on, first, the demographics and the spread of the population and, secondly, distances from exchanges, which reflects work that the Office of Communications, SamKnows and others have done.

In most of Scotland, unless we can shorten the length of copper that links people to the exchange or wherever we are delivering the broadband, we will not get next-generation speeds.

The conclusion of our work was twofold. First, we found that, surprisingly, 90 per cent of Scotland’s population is more densely spread than the first 90 centiles of the population of England—we worked that out by taking the population of an output area for the census and dividing it by area. Therefore, once we get to communities, we find that they are closely knit, geographically.

Therefore, the problem that we identified is not that Scotland is more difficult to get to because everyone is in isolated little farms, but that Scotland is more difficult to get to because the communities in which most Scots live are more widely separated. That is why we recommend building an infrastructure that reaches every community, after which, we believe, the market would do the job. Our work was done by analysing published figures, using standard statistical and geographical layout maps—simple analyses.

Our research is very much about take-up and consumer issues rather than about the infrastructure. I do not know whether you want me to talk about that just now.

We will come to that later.

I invite Gordon MacDonald to take up questioning on the development of the cabling and network.

In previous evidence sessions, we have heard that Scotland’s digital infrastructure is lagging behind that of other countries in Europe. For example, Ofcom has suggested that the development of fibre-optic cable networking in Scotland is flatlining. How are other countries addressing the availability of broadband infrastructure? In particular, are they all going down the road of digital fixed broadband, or are some going down the mobile broadband route?

I am happy to take that question.

If we look at European comparators, we find that there are probably two groups of countries. The first group is the western European countries, which have fairly well-developed market structures that are largely dominated by incumbent operators and based primarily on the copper network. For a number of those countries, the roll-out and take-up of fibre-based services for residential users have not developed all that quickly. They are certainly ahead of Scotland but are not necessarily ahead of the UK as a whole.

In other parts of Europe, particularly in eastern Europe where they have much higher penetration of fibre-based infrastructure, they have benefited from more lax regulatory arrangements, particularly around things such as deployment of overhead cabling. There are pictures of Budapest with fibre just strung up across buildings, which makes it a lot cheaper to do. That has an impact on visual amenity and the security of the network is not quite what you would need it be for services in this country, but those countries tend to be ahead and to come ahead of the UK in international rankings.

On the particular challenges that Scotland faces, our modelling broadly chimes with the work that Michael Fourman’s group has done. It is a case of backhaul provision to local exchanges, so that the actual capacity goes into communities. That is a problem common to rural areas across the UK, but is a specific challenge for Scotland. The other aspect is take-up, because in areas of lower take-up there is less incentive for the market to invest further. So, although density plays a role, there is a reason why Edinburgh is seeing a much larger investment in next-generation access fibre from Openreach than Glasgow is—the level of take-up in Glasgow is significantly below the Scottish and UK average. Does that broadly answer the question?

What about mobile broadband? A report from the International Telecommunication Union suggests that in Sweden 84 per cent of people have mobile broadband subscriptions; 72 per cent in Portugal; and 67 per cent in Austria. Those three countries are broadly similar to Scotland in their rural nature. We are suggesting that we go down the fibre-optic route; why are these other countries going down the mobile route and getting speeds in excess of 10 megabits per second?

Sweden has already had its 4G auction, which is probably helping; in the UK we have not yet released the digital dividend spectrum. Also, take-up of telecoms services in Scandinavian countries is generally much higher—that is just a fact. There are a number of jokes that say that the first thing that they set up is the telephone exchange, then the hospital and then the school, so that may explain the Swedish. I am less able to explain the Portuguese and the Austrian examples, but it is an important point because, to come back to the work that Ofcom is doing, the current numbers suggest that internet use on the mobile network is increasing in Scotland and we think that that has an important role to play.

For fixed contracts, you need certainty of income and credit checks in order to be able to sign up to a 12-month deal, and that might not align with your expected income over the period. The mobile model can be pay-as-you-go, which allows for a much greater sense of control over your expenditure and therefore makes access easier. It also obviates the need for a personal computer and, given that skills are such a challenge in this area, the fact that you do not require a knowledge of PCs to make a smartphone work may have a significant role to play in increasing the take-up and use of mobile internet more generally in Scotland.

May I add to that? The use of mobile connectivity will increase—even within one’s own home, one wants to be mobile. Most people now have wi-fi within the home, so they can just move around, and they expect to be connected when they are outside the home. There is no disputing the fact that mobile will be important and that, for many people, a mobile device may well be the only way in which they connect. However, it will still not work unless the community has a connection to the internet that will carry the data signal. The mobile operators cannot provide a data service to a community that does not have access to sufficient backhaul.

The first time that the problem was identified in Scotland was in the “Connecting Scotland: our broadband future” report in 2001, which considered what backhaul would be needed to satisfy the likely demand in five towns. We have updated that and considered what backhaul a community of 2,000 would need to satisfy the expected demand. It does not matter whether those people are using mobile or fixed connections to the internet because they would still be producing the demand. That is why we have recommended that a fibre connection is needed for that size of community. Other technologies will run out of steam and the community will not keep up with the rest.

10:15

I am perhaps one of the more technologically challenged members of the committee. The Royal Society of Edinburgh submission states that the society wants the Scottish Government and Parliament

“to commit to the creation of a backhaul fibre network that brings an open access hub to every community in Scotland.”

Professor Fourman, you have mentioned the backhaul issue, but will you explain your comment to me in layman’s terms?

With water, we all have our little half-inch copper pipes and we can turn on the taps, but if there was only one half-inch copper pipe coming into a village, when all the people turned on their taps in the morning, they would all get just a little dribble. It is exactly the same with broadband. Although a relatively small pipe comes into people’s houses, when those are aggregated to get the level required to take things back from a community to the network, a fat pipe is needed. Fibre provides pipes that are about 10,000 to 100,000 times as fat as any other technology, which means that fibre is the technology of choice for that process of taking things back.

When the fibre is in place, we can create fixed connections to homes, put up a mobile mast, build a data centre or produce a local wireless network, which instead of using fixed connections to homes, uses the sort of wireless technology that people have in their homes to take the data out to those homes. An example of that is the Tegola network that is being built in the Loch Hourn, Sleat and Knoydart area, which is delivering to people on Knoydart 20 megabits a second, which at the moment I cannot get in Edinburgh.

When such provision is suddenly put in place in communities that have had nothing, take-up is around 90 per cent. In communities where something has been in place and a small incremental increase is offered, the take-up is often disappointing for the provider. The take-up in the cities is often lower because people have other ways of communicating. In rural areas, there are no alternatives for communication, so take-up is much higher.

I hope that that explains the backhaul issue. We need fat pipes to reach everywhere, otherwise people in remote areas will get only a dribble out of their tap.

The other term was “open access hub”.

Where BT has an exchange and delivers connections into homes, through local loop unbundling, other suppliers can use those connections to deliver into homes. However, the current regulations do not say that if a business wants a special connection, BT has to sell it to them and give them access at the exchange, or that if someone wants to set up a local wireless network such as the Tegola one, BT has to give them access. We want to open up the opportunities for communities, because there is lots of room for innovation in what can be done with the data connection once it is in place. To allow any one provider to have a monopoly over that reduces the opportunities for communities and therefore for Scotland as a whole.

Obviously, competition can drive down prices.

Yes—competition in service delivery can drive down prices and create innovation.

Am I correct to say that there would be no shortage of players in the marketplace or of people who would take advantage of open access hubs? We seem to have a situation in Scotland in which BT, in particular, is almost the—I hesitate to use this word—monopoly infrastructure provider.

Ofcom said, I think, that it has a significant market position. That is not unique to Scotland. Peter Shearman talked about the incumbents in other areas. Where there is a large fixed infrastructure that has been invested in during the standard copper telecoms era, people are trying to get as much return out of the infrastructure as they can. Putting in the new connectivity can only increase the competition for their customers and the services that the connectivity brings.

We think that there should be the network that I talked about. I brought with me a picture of the joint academic network—JANET—because I thought that it might help to make concrete what I am talking about. JANET links a lot of sites in the United Kingdom and in some ways is an example of what we are suggesting. It is about getting together to procure a national network, which provides high-speed connectivity between a number of nodes. The various universities and colleges then run their own networks around those nodes, but they have fast connections to the global internet.

The network enables academics to have connectivity. I have 100 megabits at my desk; some people in my building have a gigabit to their desk, because they need it. Such things become possible when we have a large network. The network is procured; the universities do not own everything but procure the connectivity and run it as a network.

The nice thing is that the network delivers connectivity and there are services on top that people can take or leave, and it is possible to build other things on top between different universities. The idea is that once we have the bottom layer—the connectivity—we can build all sorts of services and opportunities on top of that. We need the openness that enables different people to come in and do different things, because new things will happen on the internet that we have not imagined and we want to open up those possibilities.

As you said, JANET is a procured network. You are calling for the Scottish Government to fund a “fibre backbone”, as you described it.

I do not think that we said anywhere that the Scottish Government should fund it; we said that the Scottish Government should ensure that it exists—there might be other ways of doing that. I looked up the costs of the JANET network today and as far as I can see they are of the order of £50 million per annum. When the McClelland report came out there were stories about the cost of the Scottish Government’s connectivity being around £200 million. I understand that the estimated costs have gone down, perhaps even as far as £50 million, but they are still significant and comparable with the cost of JANET.

One possibility might be for the Scottish Government to procure connectivity but add the rider that there should be public benefit from making available open connections to third parties at the places where the Scottish Government’s connectivity is delivered.

What do we need to do to develop a fibre backbone? How should that happen and how would responsibility for the development be shared?

I do not think that there are easy answers to your questions. I certainly do not have an immediate answer; I am an academic, not a businessman or a developer. However, let us consider the example of JANET, which reaches—albeit with lower bandwidth than reaches some parts of the UK—many places in the Highlands and Islands, through the University of the Highlands and Islands, and many places that would otherwise be inaccessible. That is done by procurement on an open market, in accordance with normal rules, from the providers—the BTs, the Verizons and so forth.

It is not beyond the wit of man and woman to put together an organisation that would do that. Exactly how it would be done in our commercial and political framework is more for you than for me to say. I would welcome detailed discussions on the issue and would throw my piece in, but I do not have an immediate solution.

Do other witnesses want to comment on how we should develop a fibre backbone and who would be involved?

Michael’s point about using the existing Government spend is sensible. It is certainly an approach that a number of English local authorities have adopted. NYnet, in north Yorkshire, has spent a number of years aggregating the local authority spend on networks across various public services and can use that as an anchor tenancy for a wider fibre network that will serve local businesses and residents. I suggest that that is probably a good model to start with. It is unlikely that the market will come up with that itself, as the investment challenges are quite significant for market players in a lot of those areas. However, if you can get the connectivity in place—that is the main gap—perhaps the market will do something in the local community. The question is, how much of a priority is that for the Scottish Government, given other spending commitments?

We have a funding pot, as it were, of something like £143 million. That should go some considerable way towards driving connectivity forward. What would you say would be the priority use of those funds? Would it perhaps involve local consortia of people coming together to bid for money from the pot to get the ball rolling? How should we progress?

From the UK perspective, there is the broadband delivery UK—BDUK—programme, which the Department for Culture, Media and Sport oversees. It uses the gap funding model, which will work in some instances but is not appropriate for every situation. NYnet is an example of a solution in an area where people have said that such an approach is not for them, because they believe that there should be some form of public involvement and shared risk.

There are ways to make the money go further, and the Scottish Government should give consideration to which funding model would be the right one. Joint venture models can help to share the risk with the private sector. There is a significant downside if take-up is low, which is a factor in Scotland. If the Government can offset that by undertaking some demand stimulation initiatives in local communities and businesses and sharing the take-up risk, that will help the money to go further, as it will encourage matched funding from the private sector, which will help to meet the Scottish Government’s ambitions.

Professor Fourman, in your paper, you warn against patchwork coverage across Scotland. Does that drive you to conclusions about how the process should be funded and directed?

Yes, because, unless we have that core network, we will fall behind. There are many areas in Scotland where we can get speeds of up to 2 megabits a second using existing technologies. However, in a few years’ time, people will say, “2 megabits a second? That’s nothing!”, and, in 10 years’ time, it will look really bad. If we are going to keep up at all, we will have to make the investment at some point.

The pathfinder project represented an outstanding vision, but when it was implemented locally, some of the global view got lost. The idea that it would bring connectivity that is available to others got lost in the procurement process and mixed up in state-aid rules. Frankly, it brought little benefit to communities, other than the educational benefit that was achieved by bringing the network directly to schools. However, the network is largely unused outside school hours and is not available for local businesses or even to stimulate out-of-school learning. We missed a trick there 10 years ago.

Now, we have the opportunity to make a big difference with fibre technology. If the fibre is put in the ground, it will last at least 30 years and will be totally adequate for whatever we can predict will come from communities for a long time. We cannot say that about most bits of technology. This is amazing stuff.

We must draw for Scotland a map that is something like the JANET map, and we must make such connections. NYnet provides a good example, and JANET is a good example of a public sector body that is charged with doing such a job. There are more examples than that—we could go into detail.

Enough experience is around in the UK to allow us to say that we could bring something together. I sense enough will in Scotland right now to do that, so I would like it to happen.

10:30

You talk about the procurement process, whose transparency you questioned in your submission.

I was referring to the procurement process for the BDUK project in the Highlands and Islands, when exactly what was being procured was never made public, as far as I could tell. That meant that people had no opportunity to comment or suggest improvements. I have some idea of what is happening there, but I have no idea of what is happening in detail. It would be better to make such processes open, so that we could discuss whether they contribute to a pan-Scotland policy or just plug a gap. I do not know the detail of the Highlands and Islands project.

I understand that the Scottish Government will publish its strategy for rolling out next-generation broadband soon. Have you participated in or been asked to contribute to discussion of that?

Yes. I was at a productive workshop here a week ago.

I will pick up the patchwork point. A lot of our work, on which I have spent a lot of time in the past couple of years, has involved addressing how to enable competition based on the open-access model across networks that are operated by different players.

In the current market structure—cable excepted—access to the BT copper network is bought by the other big retailers, which are TalkTalk and Sky, and they offer services in that way. Those retailers have never offered services over someone else’s network. In relation to that, the big shining example is the KCOM Group in Kingston upon Hull, on the Humber. That is the only regional body that remains from the original regional licences that go back 100 years. KCOM has no competition on its network, so customers can get only the Karoo broadband service from KCOM; there is no BT, TalkTalk or Sky.

Competition is important to drive down prices, provide innovation and increase take-up—all that is connected. My comment on the patchwork issue is that we have tried to find mechanisms to make the market work, although we have not quite got there yet. It would be in Scotland’s interest to ensure that whatever happens in the Highlands and Islands is joined up with what happens in the rest of Scotland and creates a scale to the market. That is what the issue comes down to.

Kingston does not have enough homes to make it worth it for other communications providers to invest in offering a service there. Scotland as a whole has the required scale but, if provision is fragmented, the situation will become more challenging and Scotland will not have the benefits of competition that open access should develop.

I will follow up a point to make things simple for me, as I, too, am not very technologically minded. Big companies and organisations that need excellent connectivity, such as universities, go to a provider such as BT or put out to competition a contract to install better connectivity than is currently available. Is that correct?

In general, they go where better connectivity is available. That does not mean that it will be available right the way to their premises, but it will be available near enough to make it worth getting.

For example, I was down in Bristol recently for the NextGen conference and we went to Aardman Animations, the company that makes the Wallace and Gromit films. It needs lots of bandwidth because it produces its own videos, a lot of the production of which it outsources. It also does videos—advertisements and so forth—for all sorts of clients, so it wants to be able to communicate with its clients. It had two problems. There is fibre about a mile and a half away from where it is in Bristol, but it took the company eight months to get connected to it. It had all sorts of problems, involving harbour masters and wayleaves—it was a history—so even when an organisation is near the fibre, there can be a problem.

Had Aardman been located in some parts of Scotland, it would have found the process much more difficult. Such connection would not be possible in Mallaig. There are places where there just is not the stuff nearby. Up the east coast, we are pretty well served. In the Gyle, we have ScoLocate, where the various providers all come together. A company that is based in the Gyle can get very good service. People go to such areas because they want good service, but they will not go very far away, because that would make it much more difficult and expensive to get good service.

When it comes to the question of how we cover Scotland, if we wait for the market to do it, it will not happen, because people will come to the places where the connectivity is rather than put it in. What amazed me when we did our work is that the length of fibre cable that would be needed to complete the coverage of Scotland is not enormous, albeit that it sounds enormous—it is of the order of magnitude of a couple of thousand kilometres. I talked to a man from Fujitsu recently and said that that is what it would take. He said that he would average out the cost at £30 a metre. When you do the sums, you find that it is not big money to get this stuff in the ground. Once it is in the ground, finding someone to operate it and to put in the active equipment, which will need replacing regularly, will not be a problem, because the people and the communities that want to connect at the ends are there.

We have quotes from companies such as Lancaster University Network Services that say that if we could connect to a community, the charge for managing that connection, providing the end-user equipment and ensuring that it all works would come out at £30 per megabyte per year—not per month—which is nothing. With a 20 megabit connection, that would be sufficient to give a speed of 20 megabits a second to about 50 people, because of the contention ratios in the user network. Once the network is there, people will use it and services will sit on top of it, but there is no incentive for people to build out the network and make that capital investment when, instead, they can attract the business customers to where they are.

It has been suggested that, to rectify the coverage issue, more use should be made of public sector networks and infrastructure, which is what the McClelland report recommended. For example, in evidence, a representative of Aberdeen city and shire economic future said:

“the public sector’s existing property portfolio could be used as an incentive for wireless operators to deploy base stations in public buildings. That would help to reduce costs and attract operators”.—[Official Report, Infrastructure and Capital Investment Committee, 23 November 2011; c 429.]

Do you have any comment on that sort of strategy?

I think that it is extremely sensible. In fact, I am going to a meeting in London to discuss ways in which the JANET network might contribute connectivity in places where it would not otherwise exist. If that works, we will do experiments in Scotland to see what happens when we put hubs in places where there are currently none. The only example that I know of a fibre connection that is saturated or used all the time is the connection to CERN in Switzerland; the data comes out of that at such a rate that a fibre pipe is needed all the time. However, most connections between countries or cities have spare capacity because the fibres’ capacities are really large, particularly in Scotland; demand will grow, but there is currently spare capacity that we should use.

One element of maximising the investment potential is to aggregate public sector spend and another is to use public sector assets, such as base stations in public buildings, publicly owned duct networks or closed-circuit television. That can all help to reduce the cost of investment for operators.

The fact that there is unused capacity in many places makes me suspect that going out to tender for a network that connected all of Scotland would result in very good tenders in many places where people have assets that are not earning anything but which could contribute. Of course, new build would be required in some places, which is the point that we are making.

But even then could we use things such as existing utility ducts and pipeworks?

Absolutely. Every time that we do something on a road we should put in a duct; it is almost cost free to do that when a road is being resurfaced, but it is not cost free to put it in later. Once the duct is there, it is almost cost free to put the fibre down it. It is worth while to invest in ducts, just in case they are needed.

Should future planning and building regulations make it compulsory to put in digital infrastructure?

We suggest in our report that that should happen at the level of civil works, such as roads and bridges, and at the level of housing developments, which should have ducting that is suitable for putting in fibre. It would be preferable to have fibre put in, but ducting is important because one day, perhaps in 30 years’ time, people will want to change it and we need to ensure that it is easy to do that when the time comes.

Regardless of the size of the development.

Yes. Many developments will not yet have connection to fibre, but a duct going out to the roadway would still make perfect sense. The cost of doing that would be trivial compared with the cost of putting in all the rest of the utilities. Fibre might not yet come to a roadway, but there can be regulation to ensure that when it comes it will be easy to do the last bit into a house. If that is not done, the last bit into a house is the most expensive bit.

From the developers’ point of view, there is a publicly available specification for next-generation wiring of houses that the Government published about a year ago. One of the challenges is to make developers aware of that. There are some quite forward-thinking developers who include fibre infrastructure as part of their utility offerings for development sites, but by the same token some developers do not do that and some are unaware of the possibility. Local planning authorities could certainly have an impact in that area by raising awareness of what developers need to do in new-build sites.

It certainly makes sense to use utility infrastructure and spare capacity. The areas that show the most promise in that regard are the pipes in the sewer networks and the overhead infrastructure of the electricity networks. There are challenges in that regard on the revenue side for the regulated utility, but the UK Government has been exploring that with Ofwat to try to make some changes. The Scottish Government should be a part of that area of interest.

Jamie, do you want to come in?

My line of questioning has been usefully explored already.

10:45

The witnesses have spoken about the market. The market will go where the take-up is greatest, where the profit is greatest, and where the costs are lowest. That is how the market works. Is there consensus among the witnesses that any market-led solution will not deliver the infrastructure required for the whole of Scotland?

Absolutely.

Even if it delivered the complete solution, it would take a very long time.

The private benefit to the operators does not cover the whole of the economic benefit or the social benefit to Scotland.

Various organisations—local authorities, community groups and the rest—have said that Scotland seems to be taking a market-led approach, while other areas are taking a different approach. In Wales, for example, the Welsh Assembly seems to be taking the lead in the roll-out across the country. Should we be taking that sort of approach? Are things really so different in Wales? What can we learn from what is happening there? Should the Scottish Government not be taking a lead, rather than leaving things to market-led solutions?

We have said consistently that the Scottish Government should be leading on this. That does not mean that we think that the Scottish Government will have to put in a huge amount of money, but it will have to put in a huge amount of leadership.

A key thing is to secure as much private sector investment as possible. BT has not yet finished saying where it will deploy to. If BT Openreach can go further in Scotland than BT has so far said that it will do, it would be worth while not to freeze out that investment by going too far with immediate promises. A strong lead is required.

In Wales, the challenges are similar to those in Scotland. Cardiff and Swansea will get a bit of private money, but the rest of the country will require a lot of Government intervention, and that is the approach that the Assembly is taking.

Many groups have suggested to us that a huge amount of effort seems to be going into creating a patchwork of community groups, local authorities and business organisations, in which people are doing their own wee bit to try to get ahead of the game in their area. Is that resulting in wasted money and effort? The word “wasted” might not be the right one, but I will give you an example. We heard about a community group that is trying to get connectivity in the glens of Angus. The group has gone through a series of consultations, but even though everybody agrees that they would be greatly helped if they had broadband, there is no money to put broadband into the glens. Those people have been through a lot of work and hassle—and that situation seems to be repeated across the country—but if the Government were to direct the work, we would be bound to save a lot of money and effort.

Going through that process can be hugely frustrating for community groups. To be successful, a group needs a champion or champions within the community, and they need some technical expertise, but they also need some money. People can galvanise support and get a head of steam behind their idea, but if money is not there, most of them will hit a brick wall.

Near here, community groups to which I have spoken in East Lothian have sound projects for delivering broadband locally that—as has happened in the Angus glens—have fallen down because the groups cannot get access to backhaul at an affordable price. So, yes, their effort has been wasted or unfruitful so far, not because they had a Mickey Mouse design for what they wanted to do or because they did not have enough money to do it, but merely because the backhaul was not available.

The group that has LEADER funding to take broadband out to Garvald and around Haddington is having problems in getting a backhaul connection. It can get a connection in Macmerry, but that would cost twice what it would cost to get one in Edinburgh. Given that there is a fibre connecting the two, the cost of delivering that service in Macmerry should be no more than the cost of delivering it in Edinburgh; it is simply what the market will bear.

We do not need the fibre available right there in every community. In the Sleat and Knoydart example that I have talked about, the backhaul comes from the Gaelic college of the University of the Highlands and Islands on Skye, 25km away. The last bit can be delivered to a small community by wireless, but that cannot be done for the whole of Skye—it needs to have the fibre coming out. We need to get fibre accessible everywhere. These community efforts would then often be the way that the gaps would be filled in. The moment that people saw that communities were filling the gaps, companies would spring up from people saying, “We know how to do this. We’ve done it in our community. Let’s form a company and do it for the next community.” I know people who are thinking in that way.

At the moment, if communities have people with the skills, ideas and motivation to do that, they are ahead of the game. However, if communities do not have such people, what happens to them? Do they just get left behind? That is not how things should be.

The moment that the backhaul is available, you will see small or large companies coming in and filling the gap because there is business to be done at the end using those community methods. However, I agree about the current situation.

At the moment, communities rely on organising themselves and taking the initiative.

Even where that happens, they are limited by the main connection.

The communities are coming in because nobody else is doing it. The connection is not being provided for them, so they are taking action themselves. That is where we get a patchwork rather than an overall approach and sharing of best practice that allows the opportunity to be provided.

Those communities that can build and run their own networks—excepting the backhaul issue—will be the exception rather than the rule. There are companies that can help—Fibrestream, Gigaclear, Rutland Telecom and those sorts of guys—that do specific community-based activities, but to take a holistic approach along those lines will be quite challenging. The single biggest thing that communities can do is organise demand. Demand stimulation and awareness raising really help the business case for private sector investors. If investors had assumed that they would get 30 per cent take-up after four years but 90 per cent of the community signed up to take the service, that would make it work for them where they previously did not think that it would.

Your organisations are only three of God knows how many organisations that are involved in this. How on earth will all those organisations play a part in delivering broadband in the future? There seem to be dozens if not hundreds of different interest groups and parties involved in attempting to roll out some sort of network. What role will your organisations play in the future of that?

The broadband stakeholder group is a policy advisory group that works at the UK level. Our role has been to advise Government on the procurement approach for BDUK and on how it can maximise the money that it has available. Our members are the main industry players. We have a broad spectrum of 20 or so industry members, all of whom will be involved in the deployment of broadband or the use of the networks. That includes guys like the BBC and ITV, as broadcasting is a part of our conversation as well. Our role is to advise Government on the implementation of the overall strategies.

Likewise, we are a policy advisory group advising Ofcom and other stakeholders on the consumer interest. We advise Ofcom about the consumer interest in the markets that it regulates, and we advise Governments and other stakeholder organisations that are developing policy in the area. We do not do; we advise.

As you know, we are Scotland’s academy, so we do all sorts of things.

When the Carter report came out, we felt that there were some points missing, certainly in a Scottish context, and that we had expertise that could be brought to bear in the analysis of the distribution of population, in looking at the physics of the situation and in saying that, for Scotland, the real problem is backhaul.

We made a contribution and we are continuing to contribute as we can, by explaining and developing the conclusions of our report, but we have no long-standing need to be in the area. In fact, our interests will probably now move to the issues of take-up. Our contribution has been to identify some problems clearly and do a job of public understanding, which as scientists we often do to say that there are some things that can be said clearly. In this case, the thing that can be said clearly is that, without fibre, Scotland will be left behind. After that, we leave it to you or the Government to make things happen.

The subject areas that I wanted to cover have been touched on, but working on the basis that the best way to get a straight answer is to ask a straight question I will cover them anyway.

Evidence from the RSE suggests that the Government’s targets could be met by patching existing infrastructure, but it also says that that approach would be disastrous in the long term. In an ideal world, what would your structure be for the roll-out of broadband across the whole of Scotland?

In an ideal world?

Yes.

We would have about 1,700 places in Scotland where there was a market that delivered connection to the open internet, similar to what someone might buy now in the Gyle. In other words, those places would be connected by a robust fibre network, and the market would then do the rest.

For instance, you could say that all of Scotland’s schools would have one of the hubs. I have done some work to suggest that, if that happened, you would need only 300 more places to cover the whole of Scotland. That is an approach that uses just schools; I have not looked at what would happen if you used schools and local council offices.

There are all sorts of places that are already in public sector ownership and need connectivity. If you used them as hubs, you would do what we recommend in our report. All that you would then need to do is sort out the commercial and organisational stuff that says, “These hubs are connected by fibre, here is the way that somebody accesses them and here are the terms on which that happens.” We believe that you would then find that the problem would be solved by the market.

We know that, over much of Scotland, copper takes over when the fibre runs out and that the distances involved make it a practical solution. The concern is that there are large areas of Scotland—perhaps the least populated areas—where that will not be possible. What mix of technologies will be necessary to get the service to that last 5 per cent?

If you had those 1,700 hubs, everywhere bar Fair Isle would have broadband within about 20km—but Fair Isle is a rather special case. Where the population is sparse, there are wireless technologies, which have been demonstrated to work well, that could take the service to a house or a group of houses. Where there is a population of a couple of hundred in an isolated hamlet, you could have wireless technologies taking the service to the hamlet and either copper or fibre within the hamlet. That would work perfectly well and would be possible to install.

My concern is what happens in some of the suburban areas that are 5 or 10 miles from our main cities, where the population may be too dense for the wireless solutions that we have explored in the remote areas—wireless has limitations in its overall capacity—and where there are large distances between the homes that are too long for copper and which make it too expensive to put in fibre.

Those areas will be quite a challenge and I would like some work to be done on that matter but, generally, about 80 per cent of the population of Scotland live within 500m of 2,000 neighbours. It is incredible how tightly knit most of Scotland is. Wireless solutions will work fine for about 10 per cent of the population—that is the last 10 per cent in, for example, BT’s terms. That leaves about 10 per cent in the middle, who live in not very close-knit suburbs. I am not sure what technologies we will end up using for those people.

11:00

Will 4G have a role?

In all those situations, 4G will have a role in that, where you have a point of presence, you will put in a mast and there will be 4G. The questions are, “What is its reach? How do you relay the signal if you want to cover a big area?” I am sorry, but I do not have in my head the detail on the reach of the 4G signal.

Where the population is more spread out, a repeater mast is needed. If the area is very sparsely populated, that mast might be for only half a dozen people, so it is not worth paying for it. Technologies are emerging. For example, Vodafone is producing technology using femtocells, which are little cells that people can put in their homes. It will also produce devices that businesses can use. Once the backhaul connection is available, the cost of the end-user equipment is £60—the device is plugged into the internet and it provides the user with Vodafone’s signal, so they get their mobile phone connection just from putting in the £60 device. In a village, the device could cover a small area around its location. Those areas are easy, but the suburbs will be hard.

With 4G, the coverage depends on the spectrum band that is used, so 800MHz will be really good for increased coverage of the cell.

Within the last 5 or 10 per cent of the population, 4G wireless services will be the technology of choice and some of them will need to use satellite towards the end of that tranche. One 4G 800MHz licence currently has coverage obligations on it, so it has to cover a certain population.

As part of the process, should we consider setting higher targets for the area covered?

That is exactly the point I was getting to. In terms of current 3G coverage, Scotland does better than Wales but it does far less well than England and it is below the UK average. There is a coverage obligation on a national licence. Where is the operator most likely to focus its coverage? Probably not in Scotland. One point to think about is how the licence is set up and whether it focuses just on coverage of the UK or specifically on coverage in the nations, with a target that must be reached within each nation. My mobile operator sponsors will perhaps not thank me for suggesting that, but from a Government perspective it is an option that is worth considering.

In many rural areas, a lot of spectrum goes unused. Current 3G spectrum goes unused because operators do not have coverage or because only one operator has coverage. Making use of that spectrum is difficult within current market structures, but there is a lot of potential that is worth exploring.

Does that include white space within the broadcast network?

Yes, white space can be added to that. A lot of capacity goes unused, but finding ways to access it can be difficult. White space is probably easier to get to, but it has slightly less capacity than the existing mobile spectrum that is not utilised.

My final question is another relatively simple one, but it could go a long way. We have heard many examples of how broadband is being developed in other countries. From those examples, do you have a preferred model that would best suit Scotland?

Scotland’s geography probably means that it faces unique challenges. Certainly connectivity to islands is something that few other countries have to struggle with. The geography is such that a Dutch Reggefiber will not suddenly appear; it is far easier to dig up roads in flat places—

You have got me worried. We are on our own, are we?

No, in urban areas the issues will be similar to the issues in the rest of the UK. It is the issue to do with the island and highland areas that makes Scotland unique.

You are not going to tell us simply to do what country X, Y or Z did.

No, and that is partly because a lot of other countries do not have a plan.

There are countries with plans that are in some sense more comparable with Scotland than Holland is. Finland, Sweden and the Trentino region of Italy have all led from their Governments in slightly different ways.

In Sweden there is a patchwork approach, which works. There is a collection of networks; each municipality builds its own network and each housing estate can do so, and the networks then connect together. Recently, I asked someone from Sweden, “How do you get the backhaul to that place way up in the north of Sweden?” He said, “Well, we pass the traffic to the next community.” That is literally what they do in Sweden. They have done what the internet originally did—that is, they have lots of little networks and they connect them together. Sweden has found a different solution, but I do not think that it would work in Scotland or be the best approach for Scotland. A national core network will give better performance in all sorts of ways, and better resilience—well, possibly not better resilience, but certainly better performance.

Finland has put a requirement on the operators to provide what we would call a fibre hub within 2km of every community. A community is defined as more than eight houses—if I remember rightly; it might be more than 12 houses—within a 1km square, so it is pretty small.

In Trentino there was a Government plan to invest a lot in a core fibre network. Whenever they put a tunnel through the Alps or dig a road they put in fibre, so there is a fibre network that connects everywhere—and then the rest is happening.

Is the company owned by Berlusconi?

Trentino is a law unto itself. It is a rather interesting thing, actually. It is definitely not owned by Berlusconi.

We should move on.

Professor Fourman, you mentioned the pathfinder project and said that state aid rules had been quite obstructive. For the record, will you flesh out what you said?

My understanding is that, in the 2001 paper that I mentioned, a key driver in the thinking behind putting the network in was that the investment would create an infrastructure that third parties would be able to use to provide business and consumer connections. However, when the network was put in, it was procured simply to deliver services to schools, so when communities subsequently asked whether they could get connectivity from the pathfinder project, they were told no, because the network was not procured with that in mind and people would get undue advantage if they made profits from it. That is my understanding of how the situation played out.

I have read a little around the issue and I understand that it is possible to include other public benefits in a procurement. In other words, it is possible to include the requirement to provide such services in the procurement. Had that been done in the pathfinder project, it would have been fine under state aid rules. They do not in themselves mean that the approach cannot work, but in that instance the procurement was such that it precluded other uses of the network.

Thank you.

Jamie Hepburn has questions on broadband take-up.

The written evidence from the Communications Consumer Panel provides useful figures from the “Communications Market Report: Scotland”, which states that 30 per cent of adults in Scotland do not use the internet at any location, compared with a UK-wide figure of 20 per cent. Of those in Scotland who do not use the internet, 30 per cent say that it is because they do not know how to use it, whereas the rate for the UK is less than half of that, at 14 per cent.

I ask the witnesses in general, but particularly Ms Ballantyne, given that I cited her organisation’s evidence, to say what they believe the key barriers are to the take-up of broadband in Scotland and what needs to be done to engage with people who feel that broadband is not for them.

You set out the key reason that people in Scotland give for not being connected. As you say, in Scotland, 30 per cent of those who do not use the internet say that they do not know how to use it, which compares with just 14 per cent in the UK as a whole. That suggests that a higher percentage of people in Scotland feel that they lack the skills or knowledge. Another interesting point is that 22 per cent said that they have no need for the internet, while only 8 per cent quoted price as a barrier. Price is often thought to be more important than it is, whereas the issue is more about people’s attitudes to using the internet. We need to overcome some of those attitudes.

A key point that is relevant to efforts to increase take-up is the fact that people buy benefits—they buy a computer and broadband package because of what it can do for them. People who do not know or understand what a computer will do for them simply will not engage. Why would they spend the money? All our research shows that we need to find compelling reasons to take people into using a computer and broadband, such as the ability to talk to their grandchildren in Australia through Skype or to follow their local football team on the internet.

To give a simple example, recently, an elderly lady with no digital skills suddenly asked her daughter for a Kindle because she had seen one and realised that she could increase the font size on it. That meant that she could start reading again, as she had virtually stopped. Of course, the next thing was that she was on Amazon downloading books. That took her on to the computer and, once she was on Amazon, the world was her oyster. We need to find that initial thing that takes people in. A lot of work can be done on that, and many of the digital participation groups work with people on it. Family and friends are also extremely important as they can be mobilised to work with people who are not on the internet to help them find ways into it.

In Scotland, we have particular issues with the over-55s, people on low incomes and those in the D and E social groups, who are underrepresented in access to and use of the internet. That impacts on Scotland’s overall figure, which is that only 61 per cent of people have broadband compared with 74 per cent in the UK. That is because of the population distribution in Scotland. We have problem areas that we must target to increase take-up.

From my experience, I can say that it is cheaper to follow a football team on the internet than it is to pay at the gate.

You cited cultural or systemic barriers to accessing broadband and the internet more generally, but you said that expense is not particularly significant. You said that it is an issue for 8 per cent of people who do not access the internet, although I make it 14 per cent, because there are three categories: 8 per cent said that a computer is too expensive, 4 per cent said that access is too expensive to set up, and 2 per cent said that charges are too expensive. However, 14 per cent is still a small proportion of the overall number of people who say that they do not need or want to access the internet. On that basis, what is your opinion of Consumer Focus Scotland’s suggestion that social tariffs be introduced to make it cheaper for certain individuals to access the internet?

11:15

It would depend on how they were implemented. If they formed part of the kind of universal service obligation that we have with telephones, they might help. However, given the low number of people who cite price as an issue, I would be concerned about any such move. Moreover, people tend to overestimate the cost of getting connected. As research across many markets—not just the communications market—has demonstrated, people sometimes cite price as a reason for not doing something instead of going into their real reasons. It is easy to say, “I can’t afford it. End of conversation.”

But might the converse also be true? Instead of admitting that price is a problem, might people say, “I don’t want to access the internet because I don’t know how to use it”?

We need to concentrate on value for money. If people see a reason for having access to the internet and appreciate that it will do something for them, the issue of price becomes far less significant. Price is an issue to people who do not know how they would use the internet. As I said, it can distract us from looking at certain much deeper reasons. In any case, there are ways around the price issue; for example, some people use the internet by proxy through their friends or family.

We have carried out a lot of in-depth research to tease out the price issue, and we found that it tends to diminish as we establish a relationship with the interviewee and get more and more into the other reasons. It is not a huge barrier. I would have a problem with the introduction of a social tariff if it meant that the funds that are available for addressing other issues were reduced. It is not a magic pill or a silver bullet; if it were to exist, it should be part of a package.

Can you tell us a little more about the research that you have carried out and what you hope to achieve through it?

We carry out quite a lot of research. I believe that our submission refers to the framework—

Perhaps we are talking about the same project, but I understand that you have also carried out research into people who are offline in areas of extreme deprivation.

I can certainly talk about that. As you probably know, only 50 per cent of people in Glasgow have broadband. The panel is carrying out a fairly major piece of research that covers the whole of the UK but is aimed at trying to understand what the issues are for low-participation groups, how they can get the most out of being online and how we can increase their breadth of usage. We want to explore the key barriers in areas of deprivation. We will be getting the thoughts and views of stakeholders and front-line people on those low-participation groups and we will be doing in-home interviews with people who are not connected, who are low users or who have been connected but have since dropped their connection. In those interviews, we sit with people at the computer and see how they are using it, so we can start to understand what excites people and what puts them off.

We are also going to carry out a number of in-depth interviews in Glasgow to get to some of the key elements of the problem. Given that that is qualitative research, it will focus on the hows and whys and will go into depth with a small sample of people. As we build confidence with them, we will be able to touch on some fairly sensitive matters. It is difficult research, because it involves asking vulnerable people to talk about their vulnerabilities. It will not give us the total solution to the Glasgow problem but, in the context of the wider research that we are doing, it will start to define some of the key issues.

Normally, after the qualitative research—the hows and whys—we go on to do quantitative research, which allows us to see the extent to which the views and opinions that have come out are replicated in the population that we are examining. Although we do not have the budget to do that quantitative research, I am pleased to say that there is a strong possibility that a major charity that I have been talking to will take the research that we have done and explore it further. I cannot tell you the organisation’s name as it has not agreed to do so yet, but I hope that we will have solutions to the Glasgow problem by some point next year.

I will not press you for the name. Is the research that you are conducting in Glasgow part of your consumer framework for digital participation?

No, it is a separate project.

Will you tell us a little about that framework?

We developed the framework in order to look at the five-stage journey that people take to get online and stay online. The initial piece of research was a literature review that considered something like 71 reports—there is a lot of research in the area—and identified the key issues. After we developed the initial framework, we went out to talk to people and find out the extent to which it reflected the journeys that they were making. It can be used by policy makers to help them to see what is needed in order to get people connected to the internet. It helps them to identify the gaps and overlaps in provision and to target new provision.

There are five stages to the journey: getting interested; getting online; making it work; enjoying the benefits; and managing the risks. Within that, there are various things that people need to achieve in order to move on to the next stage. We can use the framework to chart the journey that various groups need to make. An elderly person with no computer experience might have to move through all five stages of the journey. A younger person might be further towards the right-hand side of the journey and might need to consider only the final stage, which involves managing the risks. A parent might have some of the confidence issues that are a feature of the middle stages, and might also be concerned about managing the risks.

At a policy level, the framework enables policy makers to see what is needed. At the front line, it enables people to adjust their services to help the groups that they work with and address the issues that they have.

You said that people need to see the value-for-money aspects of digital connectivity, but surely it is not only about value for money. It is also about, for example, ensuring that children have access to the internet for their learning. People might disadvantage their children if they do not have that connectivity.

Yes. When I talked about value for money, I meant that, by paying however much you pay—£15 or £20 a month—you get all these benefits, such as the fact that your children can use the internet to help with their education, you can buy things more cheaply online, and so on. Understanding all the benefits of being online is what makes people willing to pay the money, as they consider them to represent value for money.

As there are no further questions, I thank our witnesses for their evidence. If there is anything further that you think that we should know, please send it in in writing as soon as possible.

I will suspend the meeting briefly to allow a new panel of witnesses to come to the table.

11:24 Meeting suspended.

11:27

On resuming—