The Scottish Government

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2. Introduction

2.1 Background

Widespread and affordable broadband access is essential to realise the potential of the Information Society. Governments worldwide are increasingly realising that broadband access to the Internet will be central to the economic development of their countries. Availability figures, expressed as percentage of total lines or total households, are used to measure this broadband progress with as near to 100% availability being the ultimate aim. Broadband in this context is generally defined as at least a 512kbps service, making the availability of basic ADSL the most common measure, due its delivery over the standard phone line.

The expansion of ADSL services to all exchanges in Scotland has increased the availability figures substantially over the last two years, in particular, with the target set, and achieved, of availability to 100% of communities. However, ADSL performance is dependent on the condition of the local access copper loop running between the exchange and the customer. The broadband signal degrades with distance, and can also be affected by a number of interference mechanisms on the line. So, although 100% of communities may have access to broadband, this does not, of course, translate to 100% of households within that community.

Putting this position into context, a report on International Broadband Market Comparisons ¹ covering up to September 2005, shows the UK in top spot for a number of measures.

The UK, including Scotland, has extended its lead on extensiveness, primarily due to the DSL exchange roll-out across the country, which brings the UK level to the often quoted 99.6%. The UK (and Scotland) are, therefore, the top rated amongst the key broadband enabled countries compared:

Take-up has been a major challenge for the UK, although significant improvements have been made, and the UK is rapidly catching up with France, which has 35% household penetration.

The take-up index is a measurement of household broadband penetration, and to qualify as broadband in this measure, a service must be capable of delivering 'always-on' services to each individual, at data rates above 128kbps.

Canada has seen substantial success to date, with strong Government-led initiatives to push broadband out to all - although it is still well behind Scotland, and the rest of the UK, in overall availability. Canada, along with major rural geographies, such as the US and Australia, are all exploring the use of broadband satellite and wireless broadband to address this issue, in the absence of ADSL services.

The conclusion of this is that the UK is, generally, very well placed in comparative terms for broadband availability. All countries face the similar problem of how to extend to the last remaining percentage of the population.

2.2 European Perspective

Mason is not aware of, and has not found evidence of, 'not spot' projects in Europe. One reason 'not spots' may be less of an issue is the generally high-level of availability in the UK, and the desire to fill in the last gaps. In comparison, for a number of European countries, the availability issue is more widespread. In addition, the average line length of copper networks is shorter in other European countries compared to the UK, as shown below.

2.2.1 European Commission 21 March 2006 - 'Broadband for all'

The Commission considers wide broadband coverage in Europe as crucial for fostering growth and jobs in Europe.

Competition Commissioner, Neelie Kroes, underlined the importance of EU state aid rules in this respect: "Deployment of broadband may be hampered by market failures in rural and remote areas. In such cases, well-targeted state aid may, therefore, be appropriate, e.g. in the form of public private partnerships to support the construction of open networks. However, we have to make sure that state aid does not crowd out private initiative, nor distort competition to an extent contrary to the common interest. The Rural Development fund is worth €70 billion between 2007-2013, with national funding on top. I urge Member States to tap the potential of broadband in their national Rural Development strategies."

The EU's structural and rural development funds can help local authorities to build local services around broadband connections, while state aid policy ensures that public support from national funds does not distort competition. The Commission has already approved a number of broadband projects over the past year, finding, in several cases, that aid was compatible with state aid rules ( UK, Spain, Austria, Ireland), or that there was no state aid involved (two decisions in France).

As reported in the Bridging the Broadband Gap Communication, despite the general increase in broadband connectivity, access in more remote and rural regions is limited because of high costs, due to low density of population and remoteness.

This population scarcity limits the exploitation of economies of scale, entails lower rates of demand, and reduces expected returns from investment. Commercial incentives to invest in broadband deployment in these areas often turn out to be insufficient. However, on the positive side, technological innovation is reducing deployment costs.

Rural areas also lag behind urban area in terms of connection speeds. The Communication reports that download speeds between 144 kbps and 512 kbps have been the most common in rural areas in the past two years. In more urban areas, average speeds are in the range of 512 and 1,000 kbps. While in urban areas, there is a clear trend towards higher bandwidth, in rural areas speeds tend to remain constant. This divergence follows from lower technological performance resulting both from distance, and from lack of competition. This is seen in Scotland through the deployment of limited Exchange Activate technology at 512kbps.

The Commission also recognises the role for wireless and considers, for example, that a scarcely populated, isolated area may be better off with a wireless solution, and a small town with a wireline solution. No specific technology option will offer the best connectivity in all situations. The optimum is often achieved by a combination of technologies and solutions. In conclusion, best solutions can only be identified at the local level.

The Commission considers that local Government bodies are well placed to collect local information and aggregate local demand for broadband services. They know the local topography, and may determine the optimal technology mix. They may facilitate the development of local services, or launch pilot projects to explore new technologies. They may support the rollout of future-proof, high-capacity, infrastructure that is open to competitive service providers on non-discriminatory basis.

The conclusion is that these local bodies are best placed to plan a broadband project that takes into account local needs and technological requirements. One of the actions from the Communication is that public intervention, in the form of loans and grants, often as public-private partnerships, should be further developed in under-served areas.

Uncertainty of demand affects expected returns on investment and inhibits commercial investment. Local Government bodies are well placed to organise a registration system and assess the local demand, which can eventually be brought to the market. When collective demand within a community is not sufficient, it may consolidate aggregation across several communities.

2.3 Example Strategies

Most UK regions do not appear to be taking forward 'notspot' projects. However, two examples here in the UK of the different approaches to filling the last gap are Advantage West Midlands and the Welsh Assembly Government.

2.3.1 Advantage West Midlands

AWM runs the Rural Broadband Access Project ( RBAP). Their broadband project procured services through a number of lots. In addition to BT, two further suppliers were successful, with Avanti winning 17 of these lots, with another 18 won by QiComm. Consumer prices were set within the contract to match market rates. Nine lots had too few premises, with the resultant intervention rates working out at £4-5k per premise. The project retained funding for one-off grants as a fallback. Additional clusters were packaged into new lots, and provided for Avanti and QiComm to quote as a change control to the initial contract.

2.3.2 Welsh Assembly

A Regional Innovative Broadband Support ( RIBS) scheme is in place to upgrade the final 35 exchanges standing in the way of 100% broadband coverage (in terms of exchanges) in Wales. According to the RIBS rollout schedule, the majority of the exchanges will be enabled by September 2006. The next stage will be to identify any remaining blackspots, and explore ways of bringing broadband to these residents . At the moment, people in blackspot areas are asked to register their details on the Broadband Brokerage website. The identification of blackspots will be an ongoing process and, once identified, the Welsh Assembly Government and BT will work together to identify a way of bringing broadband to this area - a similar position to which Scotland is currently addressing.

2.4 Conclusions

It is clear that Scotland is in a very good position for broadband availability in relation to other countries, as evidenced through comparisons undertaken by independent review bodies. The percentage of out of reach within Scotland is lower than in all other countries measured and, in many of these, broadband availability is a far more widespread problem, reflecting the position in Scotland before the recent exchange upgrade programme.

The position from Europe is still to encourage the spread and performance of broadband, and funding is likely to remain available. Well-targeted state aid is seen as appropriate, and the role of public private partnerships seems to be encouraged. The EU also recognises that no specific technology option will offer the best connectivity in all situations, and that the best solutions can only be identified at the local level.

The scale of the problem is difficult to determine. BT currently views the location of these 'not spots' as commercially sensitive, and location details are not therefore made available in this report. This creates two issues for the wider market:

• Firstly, it is difficult to independently audit the true broadband availability.
• Secondly, it makes it difficult to ensure that the remaining broadband not-spot areas are enabled.

The Scottish Executive considers broadband to be a key enabler of e-business, and that it has the potential to deliver substantial economic and social benefits. Whilst the Executive is not committed to providing broadband to every household, now that all exchange areas have been enabled, this study has been commissioned to attempt to obtain a comprehensive picture of this problem across Scotland and consider a 'fair' and appropriate prioritisation of solutions.

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