Geo’s Chief Executive Chris Smedley explains: “The primary reasons for our withdrawal are threefold. Firstly, we feel that the current gap-funded subsidy model being adopted by BDUK and local authorities automatically favours the incumbent, which has the security and knowledge of revenue streams on its current network as the dominant and often only telecoms network owner in these regions. Secondly, the absence of any opportunity provided in the current procurements either to underwrite any take-up risk or to guarantee public sector revenues – for example under a Public Private Partnership model – removes the ability for us to share this with the public sector. And finally, the uncertainty around the terms and pricing for PIA, and the heavy restrictions as to what we can use it for means that, in our view, this market is not contestable.
“Whilst pricing may have reduced for the current PIA product (still not far enough in our view), the real issue is that it can only be used for providing the final drop from local exchange to a residential broadband consumer’s house. PIA cannot be used for the far more costly task of crossing the long distances in rural areas to get to these remote communities (backhaul) – making the idea of being able to build new fibre connections within them faintly ludicrous. It cannot be used to connect mobile or wireless infrastructure (a critical way of quickly rolling out competitive services in hard to reach geographies) and it cannot be used to provide leased lines to businesses. Quite simply, our business case does not stack up because of these restrictions.
“BT does not suffer from any of these restrictions when it has to assess the business case for deploying new optical fibre cable over its existing infrastructure. Only BT can deploy fibre for backhauling traffic long distances from local exchanges for itself and the wholesale ISP market. Only BT can build a business case including the revenues from the fast growing mobile and wireless data market. Only BT can deploy services for businesses over this fibre.
“For what has to be a 10 to 15 year business case, these inadequacies of the current PIA product are fatal to infrastructure competition. To make it worse, despite the strong likelihood it will receive significant public subsidy from the BDUK procurements, BT still refuses to offer a truly open dark fibre product which would allow the rest of the market to use the networks that will have been funded with public money. The Government’s stated desire for a competitive market in the provision of new optical fibre infrastructure is at risk of complete failure.”
According to Smedley, if BT is serious about encouraging the take-up of PIA, these restrictions should be dropped immediately. Rapid action should then be taken by Ofcom under its current Business Connectivity Market Review (currently planned to conclude sometime late next year, well after the BDUK procurements) to make sure that, going forward, BT is compelled to offer PIA and dark fibre on this basis – and, as with the successful LLU product, that it is required to use these products on an equivalent basis to the rest of the industry – to ensure it does not benefit from better terms than others. Otherwise, a reassertion of the incumbent’s monopolistic position is inevitable, as the UK slowly upgrades its access network to fibre.