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Of competition, rent seeking and the UK government broadband project BDUK

A comment piece over at the Guardian has compelled me to write my first post on this fair blog. I have been mulling over the idea about writing something about rent seeking and fixed lined broadband rollout in the UK for some time, but BT’s great broadband scam has pushed me over the edge finally.

The Guardian writer blames the market, competition and Margaret Thatcher for the fact that BT has won all of the government contracts to build fixed line broadband in the UK.Though most Guardian writers blame this triumvirate for most things, this writer makes a tenuous link between BT and competition ultimately calling for the renationalisation of broadband in this country. (He sounds much like Susan Crawford over in the US, but that is a post for another time) But what he gets so very wrong about blaming competition for the inability for the government to rollout broadband is that it is BT’s rent seeking behaviour coupled with a centrally planned project that has contributed to the so far unsuccessful UK broadband rollout project called BDUK.

There are so many reasons that BDUK has not succeeded that it hard to know where to begin. But for the purpose of this post it is important to understand that the broadband targets and rules for entering into procurement as a provider changed over the course of the last three years. Initially, the project was to provide next generation access (NGA) to 100% of the UK by 2015 and now it may only succeed in delivering 90% by 2017. Fibre to the home (FTTH) was the initial target and eventually fibre to the cabinet (FTTC) became the final and less optimal solution. The regional areas that divide up the entire BDUK project into smaller, sub-project areas were far too small to achieve economies of scale. The list goes on, but changeable rules against which companies and consortia were to pitch to be on the ‘approved’ list meant only risk and uncertainty for those businesses. In the end only BT survived and thus BT became the monopolist provider.

But if I ran BT I would make sure that I was the only procurer on that list through whatever means possible, including rent seeking. And that is precisely what they did. OFCOM, the telecoms regulator, DCMS, the department responsible for BDUK and BT have a cosy relationship with advisors and consultants making the rounds in contracts and positions among all three. But BT has a massive incentive to ensure that their fixed line broadband network became the only networked used to rollout new broadband services. If other vendors were chosen for BDUK then this old network, made up of traditional copper lines and some fibre, would be completely bypassed thereby rendering the network useless. Quite high stakes if you are that behemoth BT. Even an outsider’s attempt to petition DCMS to include wireless in its definition of ‘next generation access’ failed because it would mean using a new and probably non-BT network. Not allowing wireless as one of many ways to achieve rural broadband access is essentially absurd in this day in age. But the BDUK project stipulated only fixed line Internet access at delivery.

So while we do indeed have competition in urban areas and many rural areas for broadband access services (as most services like TalkTalk rent BT lines at wholesale prices) we have very little competition in broadband infrastructure and that is an important difference. BT has played their cards well in a centrally planned system created by civil servants who have made policy in order to achieve the delivery of fixed line broadband Internet access. No one person is to blame, but through bad policy making, EU regulations, rent seeking by BT, and no comprehensive oversight, we have a project that will be delivered well over time and budget and paid for by the taxpayer. True competition in services, diversified Internet access types, and infrastructure would have delivered far richer choices. Currently BDUK remains Hayek’s worst nightmare.

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20 comments to Of competition, rent seeking and the UK government broadband project BDUK

  • RRS

    BT has played their cards well in a centrally planned system created by civil servants who have made policy in order to achieve the delivery of fixed line broadband Internet access. No one person is to blame,

    The Mandrinate Lives!!

  • Interesting, do you have the source for the original plan for UK to have NGA to 100% and that also to have been FTTH?

    The esteemed Broadband Stakeholder Group estimated a cost of the order of £25billion to £30billion for 100% FTTH, but just £5 billion for the same FTTC.

    So given the amounts current Government and previous talked of investing (£500m to £1000m), even if we ignore BT totally, it looks unlikely they ever had a real ambition for full FTTH coverage, and have never found a clear statement saying NGA for all.

    Yes there are 2 Mbps USC for virtually everyone comments and statements from ministers and Government a plenty.

  • Regional

    In Boganstan the broadband network was designed by two Gubbmint ministers on a beer coaster and the cost has gone from $4 billion to $80 billion with the take up rate being negligible.

  • I’m not so sure that this is rent-seeking. Your example about the exclusion of wirelss seems to suggest the related evil of regulatory capture rather than direct rent seeking.

    Of course a large part of the BT advantage is that it really only had about one plausible competitor – Centrica (national grid / british gas whatever they call themselves). No one else has general rights to dig up roads without masses of planning permission or existing rights of way, pipes, access etc.

  • The original strategy paper is here: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/78096/10-1320-britains-superfast-broadband-future.pdf

    I stand corrected, however. Buried in this paper is the 100% target, but it is not FTTH. On page 4 it says, “A mix of technologies –fixed, wireless and satellite – will be needed to deliver superfast broadband throughout the UK. One technology choice will not be suitable for all circumstances.” Quite ironic as this approach was eventually ruled out.

    Completely agree, too, that Centrica was the only plausible competitor. However OFCOM continues to work towards lowering the barriers to access for PIA, but I think they have been working on this for years without much improvement or work even….

  • In Boganstan the broadband network was designed by two Gubbmint ministers on a beer coaster and the cost has gone from $4 billion to $80 billion with the take up rate being negligible.

    As somebody down here is fond of pointing out, it would be cheaper to mail porn DVDs to those living in the sticks and the same purpose would be achieved.

    And as somebody has also noted elsewhere, this is less about giving rural folk access to the internet than providing city-level services to wealthy and connected city-dwellers with second homes in the country.

  • Mr Ed

    The original article talks about getting away from the London-centric economy. The answer is simple, send in the Army to lay charges and demolish the Bank of England, although a naval gunnery demonstration from a recommissioned HMS Belfast might be a better spectacle, it might need towing down the Thames a bit to ensure the right elevation and preserve surrounding buildings, once the crew (volunteers from Samizdata?) get their eye in.

    I recall NTL digging up vast areas of Britain in the 1990s for cable TV, a purely urban exercise, and after various mergers or takeovers, the initial capital is presumably in the same hole in the ground as the investment in the Channel Tunnel. Living as I do in rural Britain around 6 miles from a traffic light, my broadband is perfectly adequate for work. There is almost no mobile signal, but I survive.

    As for the DCMS, the Department for Culture, Media and Sport, both Hitler and Honecker would like the ring of that name, Goering obviously wouldn’t, he said Godwinning.

  • Is there some regulation preventing a non-governmented third party from building a wireless broadband network into rural areas anyway? Or is it just too expensive?
    I’d have thought (costs permitting) that since the government option is years away, the market was wide open for some entrepreneur to leap in with a separate solution right now with a wireless product.

  • wh00ps: from what I know, it is too expensive – it is profitable only in areas where population is dense enough. But as has been mentioned, the wireless option is there – at least in theory, absent regulation etc.

  • While I can see how that paragraph can be interpreted as 100%, it is contradicted at various points in the rest of the document.

    “1.13 To achieve our vision, we need superfast broadband in rural and urban
    areas and we are committed to driving superfast broadband services into areas
    where commercial investment alone will not deliver it. That’s why we have
    committed £530 million in the Spending Review to support broadband rollout8.
    One of the key lessons learned from the work done by Broadband Delivery UK
    over the summer with the industry in its Universal Service theoretical exercises
    was the importance of backhaul for the deliver of both superfast broadband and
    more basic broadband service.9 We remain committed to delivering a decent
    level of broadband service to virtually all, but a further key conclusion of the
    exercise is that it does not make sense to attempt to separate out the effort to
    deliver universality from the drive to provide superfast broadband in the more
    difficult to reach areas.”

    Certainly by May 2011 the Gov was talking of 90% explicitly. So while they aligned the spending in 2010, it seems even then from a reread of the document that they knew £530m was not enough to do superfast for all.

  • To my mind “rent-seeking” means buying a house and letting it out. Which is fine by me.

  • monoi

    From what I understand from a friend working in the industry, BT is more a project manager, with plenty of companies doing the work as sub contractors.

    But I rejoin the point that it is a bit rich to blame the market for pure governmental and bureaucratic screw ups.

  • Rob Fisher (Surrey)

    Mr Ed: “I recall NTL digging up vast areas of Britain in the 1990s for cable TV, a purely urban exercise, and after various mergers or takeovers, the initial capital is presumably in the same hole in the ground as the investment in the Channel Tunnel.”

    I could be wrong but I think it all ended up in the hands of Virgin Media, who provide fibre to just outside my house.

  • Tedd

    It seems to me that the industry has been talking about this for a long time. We used to jokingly call it “fibre to the bathroom” back in the mid nineties. But is there really a market demand for it? I have old-school cable modem access and it does everything I’m willing to pay for. I’m not a gamer, but I suspect my internet use is well up the distribution curve, otherwise. In other words, even if the market were functioning perfectly, would we have FTTH? I suspect not.

    BT’s behaviour may not have technically been rent-seeking, but the very proposal of FTTH is itself rent seeking, is it not?

  • Richard Thomas

    Patrick, in this kind of context “Rent Seeking” tends to mean convincing the government to let you take someone else’s house and then charge them to live in it.

  • It sounds like somebody needs to get into the right of way business and establish pathways for utilities that are not under government control.

  • Mr Ed

    @ Rob, I think that’s correct, but I never got cable and I have no TV, so these things are a distant memory. I don’t recall the figures about the return on investment or write-off, but I think that there was no government assistance for the whole scheme, other than permission to dig up roads.

    Is the current scheme an echo of Lenin’s ‘electrification of the Soviet Union’?

  • Johnnydub

    As someone who works in the business, the biggest issue is the local loop / last mile.

    As someone observed, the value of the copper in the local loop owned by BT is worth more as scrap than BT’s entire share price.

    Also twisted pair copper is too crappy for good broadband. DSL makes the most of it, but as someone who lives in zone 3 in London I could never get above 4 mbps or so. I now have Virgin Media’s service, which is fibre to the junction box followed by a coax local loop. I’m now getting 60 Mbps +

    So the issue is clear; in the sticks you’ll never get enough customers to pay for the investment in physical infrastructure.

    So as usual, it comes down to how much subsidy can be thrown at it…

  • Richard Thomas

    I’m sure customers in the sticks would find their own methods if they could. Though government forbids that, of course.

    Do you not have satellite internet there? I used it for a while when I lived in the middle of nowhere. The lag made it not suitable for gaming and VOIP but it was nice and fast.

  • @Johnnydub Look up the WiMax networking standard (802.16 or 802.16e-2005) and you might be surprised.