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Sunday, 21 September 2008

Funding rural FTTH in the UK

So Caio says the case for major public sector intervention is weak. If we are talking about straightforward subsidy or significant change to the regulatory regime (as he sets out), then I agree. From what I can see of the evolving market there is a sound business case for smaller community owned fibre networks. With the right conditions, the right technology choices, and the appropriate financial backing, I believe that these local fibre networks can be successful sustainable businesses. Neunen is an interesting case in this respect. As I understand it the goal was never to be profitable, merely sustainable, and yet several years into the project and OnsNet appears to be making a healthy operating profit, and servicing its debts. From my perspective as someone seeking to promote such a network I have to say I'm a little confused about the debate over this issue.

It looks like the same old tired public vs. private arguments are being rehashed. We still don't seem to have advanced our thinking beyond this stale black/white dead-end. And yet plenty of campaigners and promoters are actively talking about cooperative and mutual solutions, which can deliver both the public sector ethos and the private sector entrepreneurial spirit in one and the same package. And as for funding, no-one is really expecting major subsidy from the public purse, are they? If we are clever, and perhaps a little lucky, we may be able to leverage some public sector funding, just as the private sector does, but it seems pretty unlikely that government - at any level - is going to pour the millions in that are needed to build networks of even fairly modest scale.

No, what is really needed in order to generate real progress in this emerging community fibre sector is, in my humble opinion, access to large chunks of patient risk capital. Capital that is a little socially minded, but which still requires a fair return. BT and others question the business case in rural and other areas of lower population density. But that's because BT needs to give its investors a return in a few short years, so it is driven by its shareholders to focus on the low hanging fruit of the large urban population centres.

And yet the recent Taylor report on rural housing tells us that economic growth based on remote working ICTs in rural areas is roughly double that which is seen in urban centres, and this despite the poorer performance of ADSL in those rural areas. Ofcom's Consumer Panel says that rural communities should be at the head of the queue for FTTH, and there is increasing evidence to show that the benefits of NGA would be most strongly felt in those rural communities. The arguments in favour are compelling, but how to make it happen when BT and its ilk are driven by the short termism that is inherent in the City.

It's an interesting conundrum, and opens up some equally interesting possibilities. There has been plenty of talk about social enterprise in the last five years or so, and government seems very keen (as do Cameron's Tories). Is this not the single biggest opportunity for social enterprise to transform the UK telecoms market? We are nearing a tipping point in telecoms - not just in the UK but across the whole of Europe and beyond. A very real opportunity exists to end the de facto monopoly and at the same time create a substantial community owned telecoms utility player. It is surely a challenge and will demand some real vision on the part of those individuals and organisations that could prove pivotal.

But the prize is enormous: an end to the drip-feed asset sweating approach that over the years has drained billions and billions of pounds out of local communities and economies and into the hands of BT's City investors. The potential of delivering true Fibre to the Home to rural communities whose sustainable long term future - in the face of increasing transport costs - increasingly depends on the availability of high bandwidth low cost connectivity. The impact would be huge, and hugely positive. But who is out there that might be willing to invest the sums required over the length of time needed?

In part, the capital could come from the communities themselves. Community share issues have been effective in raising large sums for community owned wind farms. The Industrial and Provident Society legislation - currently being upgraded - provides an ideal vehicle for this approach. In some fibre rollouts, end users are buying their connection, using savings, or perhaps securing funding against the value of their home (which will of course be enhanced by having a fibre connection). Public sector involvement might be in part about aggregating their planned investment and/or usage costs over several years in order to provide a larger chunk of finance at the outset. And the CDFIs (Community Development Finance Institutions) of which there are many, need to be looking actively at the lending opportunities in this space.

On a perhaps more outlandish angle, and given the game-changing nature of this tipping point, such an investment might prove attractive to a player who is known for their leftfield approach, for their slightly philanthropic bent, and for their substantial minority share of the UK broadband market. Virgin territory?

1 comment:

Cybersavvy UK said...

Believing also that what we need is PPC Partnerships/funding - Public-Private-Community - I have recently been investigating the organisation Philanthropy UK, and other similar groups. Philanthropy in the UK appears to be taking a different line to that, say, in the US. No more just giving for the sake of it to a worthy cause.

Some of the investors would appear to have the 'characteristics' outlined above, in particular seeing a return, whilst donating to grow a sustainable 'business' of benefit to the 'needy'.

I think this is a line that needs further investigation, and more importantly, an approach to some fo these groups to see how UK philanthropic investors react.

Although Virgin may be interested in the community approach, several attempts to engage them have over the last 18 months or so have, as yet, failed.