Perfect storm in the midlands

You couldn’t make it up!  I had to smile – laugh, even – at the confluence of topical commercial and regulatory issues that recently played out in Birmingham.  It’s a complicated story of broadband development, and some facts are difficult to establish, but here’s how it appeared to me… 

1.    Birmingham City Council wanted to provide ‘ultrafast’ broadband connectivity to businesses in some previously un-served areas of the city - Digbeth, Eastside and The Jewellery Quarter.   

2.    Both BT and Virgin have trunk network (duct infrastructure) in some parts of these areas but have hitherto chosen not to exploit it.  BT has said it has some limited plans to develop access network in the area but its preferred FTTC solution was seen by the Council as failing to provide adequate broadband performance.

3.    The Council discussed with both BT and Virgin the possibility of gaining access to their existing infrastructure but neither approach was ultimately successful.  Virgin is of course under no regulatory obligation to provide wholesale access to its infrastructure, and declined to do so.  The BT regulated access product (PIA).was found unsuitable because: 

·        Some BT duct was unfit for co-location

·        The pricing of BT’s PIA product proved to be unattractive

·        PIA is essentially not available to business customers.

4.    The Council therefore applied for c£10million (or was it £6million?) of public funding via the government’s ‘super-connected cities’ scheme (which has set aside £114m for similar projects in 10 of the largest cities).  The proposed network is intended to be genuinely open access and will offer a full array of wholesale services. 

5.    The application was successful and received state aid approval from the European Commission in June of this year, the first such clearance to be given.  However, while the council claims to have kept BT and Virgin fully informed throughout, both have now made formal requests to the ‘Commission to have that decision revoked.  (Virgin has also appealed to the European Court of Justice to have the Commission¹s decision struck out). They argue that the money will be used to build a state-funded rival in areas already well covered by their own broadband networks. This, they allege, would contravene state aid rules, would be a waste of taxpayers’ money and would undermine broadband investment from the commercial sector. 

What to make of it all?  Chi Onwurah, shadow BIS minister, sees it as ’another example of the chaos and incompetence at the heart of the government's broadband strategy’.  Yet it could equally be seen as a vindication of that very strategy – letting the private sector lead broadband investment in urban and marginal areas.  BT and Virgin may have been wrong-footed on this occasion but they are likely to be much more alert in future to pockets of demand, either to extend their existing network or to offer access to potential public sector investors.  

On the other hand, the story seems to endorse critics who see government reliance on BT’s current network technology, based on FTTC, as a short-sighted strategy.  On the face of it, the Birmingham experience also supports regulatory criticisms that BT’s PIA remedy is not fit for purpose (for all the reasons suggested to Ofcom) and that third party access obligations should probably also be imposed on Virgin’s network.

Quite a storm.