CORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 1367-iii

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Welsh Affairs Committee

Broadband in Wales

Tuesday 22 November 2011

MR ED VAIZEY MP and SIMON TOWLER

Evidence heard in Public Questions 122 - 163

USE OF THE TRANSCRIPT

1. This is a corrected transcript of evidence taken in private and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.

2.The transcript is an approved formal record of these proceedings. It will be printed in due course.

Oral Evidence

Taken before the Welsh Affairs Committee

on Tuesday 22 November 2011

Members present:

David T C Davies (Chair)

Stuart Andrew

Guto Bebb

Geraint Davies

Karen Lumley

Mr Robin Walker

Mr Mark Williams

________________

Examination of Witnesses

Witnesses: Mr Ed Vaizey MP, Parliamentary Under-Secretary of State (Culture, Communications and Creative Industries), Department for Culture, Media and Sport, and Simon Towler, Head of Spectrum, Broadband and International ICT Policy (Broadband Delivery UK), gave evidence.

Chair: Good morning, Minister, and Mr Towler. Thank you for gracing us with your presence. May I invite Mark Williams to ask the first question?

Q122 Mr Williams : You are in a very jovial mood, Mr Chair, this morning. I have a general question. We have had a lot of evidence from farming unions and the small business community about the importance of broadband to businesses in Wales. I probably know the answer to this question already, but do you recognise the difficulties faced by many people and businesses and their concerns about the inadequacy of broadband provision in Wales?

Mr Vaizey: Yes, I do. Over the years, but particularly in the last 12 to 24 months, the importance of broadband has moved up the agenda. All of us as Members of this House, wherever we live, will have had correspondence from constituents concerned or frustrated about their broadband connection. Either they do not have one at all or it is slow. The reason we have put together a broadband plan, and we continue to grow it, is because we recognise that there are huge opportunities based precisely on the frustrations of people living in rural areas. A lot of people living in rural areas, particularly farmers, are running their own business, but people would also like to run businesses from rural areas. You will find even very high-tech businesses based in quite remote communities.

It is an important point to make that getting broadband out to rural areas is not simply a nice thing to do; it is very important for economic growth and lots of businesses, particularly farmers.

Q123 Mr Williams : You are right to highlight that. I can think of many householders with small businesses. Per head, for a large number of small businesses anywhere in the UK, businesses based in people’s homes are often in quite challenging areas geographically, which makes the targets that much more difficult to address.

Mr Vaizey: Absolutely. That is why it is important that we still have a target of 100% broadband coverage of 2 Megabits, even though our superfast broadband target is 90%. That is why we are keen to set ourselves a target date of mid-2015 to try and realise that.

Q124 Mr Williams : Are you satisfied that the focus is right in terms of dealing with those hard-to-reach areas, the infamous notspots, which blight large parts of mid-west Wales in particular?

Mr Vaizey: Yes, I am. We want the market to deliver in about two thirds of the country as a whole, and that will apply to Wales in terms of customers, not necessarily in geographic area. That will be mainly BT and Virgin, but there will be other companies such as Fujitsu who may also want to play a part in infrastructure roll-out. The Government can help there through deregulatory measures, which we may come on to later. The money that we have set aside for broadband roll-out-the £530 million up to 2015 and £300 million thereafter-is very much designed and focused on getting broadband to rural areas. That is the focus there.

It is important not to forget urban notspots as well. That is why we have asked the Welsh Government, and in England local authorities, to come up with broadband plans because they will know of particular notspots that might be in the centre of towns that need addressing. That is why I was also delighted when the Chancellor announced the £150 million for mobile masts. Although the initial target is to fill in voice notspots, it stands to reason that those masts can then be relatively straightforwardly upgraded to cover 4G, which is data and internet broadband. I am satisfied the focus is right, and, more importantly, I am satisfied that the money is there and available.

Q125 Mr Williams : When, on 12 July, the Secretary of State made the very welcome announcement of an additional £56.9 million to Wales, he had a message for the business community and householders, "If you suffer the frustration of slow internet connections, tell your Welsh Assembly Member that you need broadband. Urge them to make this investment and ensure that Wales is not left behind." Would you like to add anything else to that message to the communities that some of us represent?

Mr Vaizey: If I can unpack what the Secretary of State was saying, the message is very clear for the Welsh Assembly, the Welsh Government, as well as for English counties, Scotland and Northern Ireland. The money is there. £56.9 million is a substantial allocation to Wales. We can come up with various different statistics that may or may not be treated sceptically, but it is about three times more than you would get under the Barnett Formula. It is about £63 per head of the population, when the English allocation is about £44 per head. We think it is going to address it, but it is a partnership. We would hope that the Welsh Assembly would be able to find resources to match that sum. I am not talking of an exact figure, but we would hope they would provide resources to increase that sum. We hope European Regional Development funding might also play a role, and, indeed, individual local authorities in Wales. I know times are tough but people have to set priorities.

We think there is a substantial sum of money available to do that, but the important point is that we cannot do it unless we are in a partnership. So we have to work with the Welsh Government. We are happy to work with the Welsh Government, the Wales Office and local authorities in Wales through the Welsh Government.

First of all, Wales is well placed to have the Welsh Government covering the whole of Wales and, therefore, able to aggregate the funding. In some ways, we would like English local authorities to co-operate more, potentially, to aggregate their funding as well. That is a win. Secondly, my understanding is that they are almost ready to go out for tender. They are ahead of pretty much of the rest of the country in doing that. So Wales is in a very good place.

Q126 Stuart Andrew: The Welsh Assembly Government have a broadband policy. They have released a document that is intended to outline the role devolved government can play in expanding the private sector. One of its key principles is for all Welsh businesses to have access to superfast broadband. How does the DCMS broadband policy fit in with the Welsh policy and vice versa?

Mr Vaizey: We are on relatively the same page. The Welsh Government are very ambitious. That is not meant to be a Whitehall code word where your officials tell you that you are being very ambitious. I think they are genuinely ambitious. There is nothing in our plans that says a local authority or a devolved Administration could not go further than our target. We set ourselves what we think is a realistic target in terms of 90% superfast broadband and 100% 2 Megabits, but, if people want to go further, we are not going to hold them back. We cannot give them additional money. We cannot wish that money out of thin air.

Business broadband is very important. There may be other parts of the Welsh Government’s digital agenda, such as its Broadband Enabling Scheme, which I know is helping individual communities to get online, which might be configured for particular business needs. We are pleased to be working with an ambitious Government who want to ensure that Wales plays its full part in the digital future.

Q127 Stuart Andrew: Do you meet regularly with Welsh Government Ministers on this issue?

Mr Vaizey: We do. I talk regularly to my counterpart in the Wales Office. We have had regular updates with the Welsh Government. We have not had them for a few months now. They are also part of the taskforce of officials. There is a cross-departmental officials working group. Simon, I can hear you itching to get in to emphasise the close co-operation.

Simon Towler: We work very closely with Wales Office officials on policy matters to bring things in. You spoke about the Welsh Government. That is much more of an operational dialogue and co-operation, but it is close and very good. The operational dialogue is largely with BDUK addressing the practical issues and problems of rolling out broadband in Wales: for example, dialogue on elements of their national plans and sharing experience on the procurement elements, as the Minister just said. Wales is in its commercial dialogue process. BDUK generally is in a dialogue process, developing a framework contract usable across the whole of the United Kingdom. There are lots of close co-operative working issues and it is very practical.

Q128 Stuart Andrew: You mentioned BDUK. Why was Wales not included in the broadband pilot schemes that were run in England and Scotland in 2010 and 2011?

Mr Vaizey: I was not aware that it was left out of the broadband plan schemes. Do you mean the pilot schemes?

Simon Towler: Do you mean why did it not get a pilot in the first wave of pilots, as opposed to getting one subsequently?

Chair: Yes.

Mr Vaizey: The pilot schemes were based on the merits of the proposals; so we were not going to go out and choose sites. It was a process where people came to us with worked- out schemes. Obviously, we wanted to have pilot schemes that were ready to go so that we could get them up and running and learn from them for the benefit of further pilot schemes. There was no intention to exclude Wales, nor did we gerrymander.

Q129 Chair: Their application was not good enough.

Mr Vaizey: It was not a question of whether it was good enough. We picked what we felt were the four best ones to begin with. Quite soon after that, the Chancellor announced the grant of £10 million to the FibreSpeed project in north Wales. I do not know whether I am allowed to call it a pilot, but in effect it was a pilot, and we have worked closely with them to make that happen.

Simon Towler: The point about the selection of the first group of pilots was that BDUK has been looking to learn very specific lessons. Cumbria offered very specific opportunities about learning and engagement of quite a high concentration of community-led projects. The North Yorkshire Project had a very specific focus on the ability to re-use a public sector asset. The Highlands and Islands have the most challenging geography. They are the most remote and the most difficult. It was very much about the learnings that could be made applicable across the country, rather than selecting somebody because they were better or worse.

Q130 Stuart Andrew: Do you feel confident that those pilots have drawn out some valuable lessons for implementing broadband?

Mr Vaizey: Yes. Next week we are publishing a synopsis of some of the lessons we have learned. That will include the need for proper resource and governance for particular projects, project planning, clear funding strategies to ensure match funding, the importance of stimulating demand for broadband to give confidence to private investors to manage the expectations of communities and so on. All of those points will be made in what we are planning to publish next week.

Q131 Geraint Davies: Leading on from that, in terms of the insights you have from the Highlands and Islands, presumably you have found that the unit cost for delivery of these services in challenging areas, with mountains and sparse populations, is far greater than the increase in finances you mentioned of £63 versus £44 per head. The difference in cost ratios is far greater than that, is it not?

Simon Towler: Yes.

Mr Vaizey: Is it?

Simon Towler: The further out you get, self-evidently, yes. The £63 versus £44 you are talking about is an average across the piece. Particularly, if you are talking about extending fixed networks-i.e. literally digging trenches or stringing fibre-it is entirely distance-dependent. The further out you are, the more sparse the population is, the greater the distance you have to dig or string fibre, the higher the cost becomes. There is a point at which the unit cost per person for fixed telecoms crosses over with the unit costs for wireless or satellite.

Q132 Geraint Davies: Exactly. While it is good to hear that we are getting nearly 50% more per head, alongside that, we have the problem of challenging mountains and sparsity of population. Also, Wales has 74% gross value added of the UK economy; in other words, business productivity is lower in Wales. Therefore, there is a greater need, again, for investment in this catch of opportunity. Is there any opportunity to look at more investment, possibly, relatively in Wales in the light of what has happened with these pilots?

Mr Vaizey: We are not planning to put in more investment. We have set aside the money we need for broadband roll-out. There is still money available for contingencies, but we are confident that a range of different technologies will address the issue of very rural broadband in Wales. For example, Arqiva has just done a 4G trial in west Wales, and they have made an estimate of what it would cost to get rural broadband to very rural communities. As Simon was indicating, there is a range of different technologies for that core last percentage of people for whom it is very difficult to get fibre broadband. It could be satellite as well. I am confident that the funding is available, and, as Simon has just pointed out to me, the additional funding, if you were saying, "Is there any more money of the £150 million for mobile masts?", I regard as effectively part of that broadband package, because, once we get the 4G spectrum out, a lot of people will be getting their broadband via mobile spectrum. The fact that we have that money, which I welcome, means that we will be able to pump money into Wales to get the voice notspots for mobile covered and then upgrade them to 4G.

Q133 Geraint Davies: There is talk of a digital divide between Wales and England, which is again linked in to the geography and sparsity of population. Mr Towler mentioned that the economies of running lines under the ground become less and less efficient. Is there an opportunity somehow to top up the wireless satellite end in terms of benefiting Wales with regard to this inequality?

Mr Vaizey: The wireless satellite, if there was a role for satellite, would form part of the broadband plan being driven forward by the Welsh Assembly. In terms of the digital divide, I find the figures in the recent Ofcom Communications Report very interesting. The amount of broadband take-up in Wales has increased very significantly. It has gone up by 7% from about 64% to 71%, which is just below the English average of 74%. Things are moving forward in that respect. It is interesting to note that people who responded to the survey in Wales had the highest levels of satisfaction with both mobile and broadband, higher than England and Scotland. Perhaps it is part of the national characteristic not to complain as much as the English and the Scottish, but I was very pleased to see the increase in the broadband take-up.

Q134 Geraint Davies: In terms of the different objectives for Wales and England with regard to the roll-out, what is your view on how they will be perceived by prospective inward investors or people wanting to start their own business in Wales? Do you think Wales is putting forward a more attractive offer or not? Is there anything else you can do to help Wales, given this digital divide and rural difficulty?

Mr Vaizey: I do. Wales is well ahead of the game. It is ahead of Scotland. If you could compare and contrast, England has a range of different local authorities involved in getting broadband roll-out, whereas Wales has the Welsh Assembly driving it forward for the whole of Wales, and Scotland has its Government driving it forward. Wales is well ahead of Scotland and most of England in those terms. In that sense, there is a very attractive agenda there for Wales to market inward investment round the world.

Since I have been a Minister, the Welsh Assembly has always been driving forward on issues that touch my portfolio, like the creative industries and a clear digital strategy for Wales. This partnership, in terms of the money we are putting in, working with Broadband Delivery UK and the Welsh Assembly, is a very good one.

Q135 Guto Bebb: I have a quick question for Mr Towler, but it is based upon the comment made by the Minister that Wales was ready to go out to tender. My understanding is that that process has been delayed at least twice over recent months and the likelihood is that the tender process will be further delayed. In that respect, therefore, are you offering any advice to the Welsh Assembly in terms of the procurement process, because my understanding is that there are currently problems with the tendering process within the Welsh Assembly?

Simon Towler: I am not intimately familiar with the ins and outs of the Welsh Assembly Government tender process. My colleagues in BDUK may well be more familiar on an operational level. I know they speak regularly. I am sure we are happy to provide advice. That is more a question for the Welsh Government. We are here; we have expertise. The BDUK framework contract, when available early next year, will be available for use by the Welsh Government. I am not sure there is anything more I can add to answer your question usefully.

Q136 Guto Bebb: In terms of the Minister’s statement that Wales was ready to go to tender, when did the DCMS last discuss the issues of the tendering process with the Welsh Government?

Mr Vaizey: I have not personally discussed it with them recently at all.

Q137 Mr Williams : Following on from Geraint Davies’s observation about the digital divide between England and Wales, I wanted to touch on the digital divide within Wales. The Minister has alluded to progress across the board. There are particular problems in mid-west and north-west Wales. Are you satisfied with the difference of emphasis in England? You have a county-based focus finding local solutions, and then we have an aspiration for an all-Wales solution with the Assembly Government. Yes, it is completely appropriate that the Assembly Government is the driver. Are you satisfied that the relationships between the Assembly Government and people in the localities in the county councils are robust enough to deliver those local solutions?

Mr Vaizey: I would hope they are. Very early in the process you heard the occasional rumbling from local authorities about whether or not they felt they were going to be on an even keel with the Welsh Assembly Government, but I have not heard anything recently to cause me any particular concern on that point. It is important that the message goes out from this Committee that the Welsh Assembly Government work closely with local authorities and rely on their very local knowledge as compared to their oversight of the whole thing. That combination, hopefully, will be very effective. I hope people will unite to aim at a common goal, which is to get Wales as broadband-enabled as possible.

To come back to Mr Bebb’s question, since I have been brought up to date in the intervening period, I gather that BDUK is meeting with the Welsh Assembly Government next Friday to be brought up to date with the tender process. I am sure we could share the outcome of that meeting with this Committee. That would be appropriate, and the last discussion was two weeks ago.

Q138 Mr Walker : You have described the 90% target for superfast broadband as ambitious but realistic. You have also talked in your written evidence about giving the UK the best superfast broadband network in Europe by 2015. Are you on track for that aim?

Mr Vaizey: I think we are on track for that aim. We did not want to set a target that we simply could not reach. We have been realistic. There were previous targets set, for example, to get universal broadband by the end of 2012. I do not think there were the resources to do that. Sometimes it is how many engineers you have to do this work. We have set ourselves a realistic but stretching target, so there is no room for complacency or to allow the programme to slip significantly. We have now allocated all the money in Wales and around the country. We have most local authorities and devolved Governments getting their broadband plans ready for sign-off. It is a partnership with BDUK to sign off the plans as achievable. We are going to get there.

It is important as well to emphasise that the best superfast broadband in Europe includes a range of targets such as speed, price and competition, and issues like that. I am confident that we will reach that target. It is a good thing. I do not know whether I am allowed to mention Europe in the Select Committee with certain Members, but, funnily enough, in Brussels-am I even allowed to go that far?-the UK is regarded as one of the leaders in broadband. Neelie Kroes, the Commissioner, and I have regular catch-ups. She is impressed particularly by our Big Society solution to broadband inclusion, using Martha Lane Fox to encourage people to get online, but also by the rapid pace of our progress, not that I would regard European endorsement as important, I hasten to add. UK endorsement is important.

Q139 Mr Walker : Of course they are our friends and allies in Europe. Who would you say is the main competition in that arena?

Mr Vaizey: Germany and France are competitors in terms of the size of their economies and their ambitious plans. We see some of the innovations that the French undertake, and, when they go wrong, we learn from their mistakes.

Q140 Karen Lumley: Minister, you talked earlier about percentages of people taking up broadband in Wales, but there is a very big difference in certain areas of Wales. For example, in south-east Wales, we are looking at 58% of people taking up broadband. How do you account for that in the urban areas?

Mr Vaizey: There is always a range of factors. There may be notspots in some urban areas. It is important we do not lose sight of that and just assume that Swansea and Cardiff are fully broadband-enabled. There may be patches there and in England. Sometimes it is down to demographics. If I can put it quite crudely, the younger you are, the more likely you are to be online and living your life online. It is also the pace of enabling exchanges.

One thing I forgot to mention when I was addressing Mr Walker’s question about whether we are confident that we are going to reach our target is that it is important to acknowledge the contribution that the private sector is making. BT is a global company and a great British success story. They have brought forward their plans to get broadband to two thirds of premises by year to 2014. They are passing 90,000 homes a week.

Simon Towler: A quarter.

Mr Vaizey: They are putting in as much fibre as Singapore every quarter. That is the killer statistic to take down the pub tonight and tell your friends. Virgin Media passes 300,000 premises in Wales and is making available as we speak up to a 100 Megabit service. That is the pace of change there. But I cannot account for the discrepancies. I will go back and talk to my officials after these questions to see whether there is any further drilling down that would help the Committee with its report.

Q141 Karen Lumley: How often does Ofcom report to you on the Government’s targets?

Simon Towler: Ofcom is not responsible for delivering the targets. Ofcom produces authoritative reports such as the Communications Market Report on an annual basis. As you probably know, they break that down. They produce a Communications Market Report for Wales, which is the source of all our authoritative data. They are not reporting to us on progress. Broadband Delivery UK reports to the Ministers, Jeremy Hunt and Ed Vaizey, every week on the progress.

Q142 Karen Lumley: Are you satisfied with the take-up of these urban areas in Wales?

Mr Vaizey: I will not be satisfied until we reach 100%. It is a constant strive to get people to sign up to broadband and to make sure that all premises are broadband-enabled. Simon is right. We have a weekly meeting. On Monday morning, the Secretary of State sits down with Broadband Delivery UK for an hour and we go through all the issues in terms of challenges and opportunities that we face in delivering this programme. It is a very hands-on programme from the Secretary of State.

Q143 Geraint Davies: You said you would not be happy until you got 100%. Do you agree with a lot of our witnesses who have said that universal access should be a much greater priority than superfast broadband to the relative few? How do you see balancing those two objectives?

Mr Vaizey: The point about our target is that we took a view quite early on that, if we were going to invest all this money in enabling broadband, it would be good, as far as possible, to future-proof it. Rather than go for a low-level solution, we wanted, where possible, to ensure that it was superfast. In effect, our target is universal access by 2015, which we think is realistic and achievable, but, of that universal access, 90% will be superfast broadband because we think that by 2013-14 people will want 8 or 10 Megs at least, possibly more. We want to ensure, as far as possible, that there are fibre and superfast solutions. If you are going to dig up the roads, you want to do it once.

Q144 Geraint Davies: That will be for Wales as well.

Mr Vaizey : Simon, do you want to come in on that?

Simon Towler: These are staging posts. The Minister has already mentioned the European targets of universal access to 30 Megabits per second by 2020, and 50% of the population are taking up 100 Megabits per second services by 2020. There is a third European target which we pretty much meet now, today. There is less focus on that, but everybody should have functional broadband access by 2013, by which they mean about 1 Megabit per second. We are very close to that. Not many people cannot get 1 Meg. About 10 or 12% cannot get 2 Megs. We think 2 Megs is a more functional level of access.

In designing the programme to roll out broadband, there was a theoretical exercise done in remote areas to look at the costs. Coming out of that, Jeremy Hunt and Ed took the decision to combine the programmes, not to try and have two separate efforts for universal broadband at 2 Megs and a superfast programme, because the vast majority of the actions you need to take in pushing the fibre optic network deeper and closer to people’s homes will deliver superfast to most and will provide you an upgrade path for those people who you are starting with a minimum ambition of 2 Megabits per second for now, as you work towards the ability to deliver those more ambitious targets later on.

Q145 Guto Bebb: To put the question in context, the Minister has mentioned that BT are doing sterling work, and I agree with that, but there are a number of witnesses who have stated that competition within the broadband sector depends upon BT allowing access to their infrastructure. Would the Minister agree with that?

Mr Vaizey: Yes, I would.

Q146 Guto Bebb: In terms of the fact that that access is crucial, do you believe that BT have offered a fair price for that access? Do you think that opportunity for competition within the sector is being facilitated by BT?

Mr Vaizey: We recognise that what is known as Passive Infrastructure Access-i.e. access to BT’s ducts and poles-was absolutely crucial. The pricing of that access was absolutely crucial to getting a competitive solution to broadband. We certainly made it a very strong focus earlier this year to make sure we could get a solution. We were not content with the original timetable that was proposed, which would have taken about two years. I am glad that, through engagement with the telecoms sector, we have got to the right place in terms of PIA. It is much lower than people anticipated. It enables potential competitors like Fujitsu, as they announced last week, to hold successful trials with BT’s infrastructure, or they are about to hold them. We have got to the right place in terms of pricing.

To pick up on what Mr Williams was saying earlier about local councils working with the Welsh Assembly Government, a lot of the broadband success is going to be on deregulation, which is access to ducts and poles and sorting out wayleave so that people can get across land easily. Local authorities can play a role as well by making it as easy as possible for infrastructure providers to lay fibre. We have heard stories-not in Wales, I hasten to add-of individual councils in difficult economic circumstances charging telecoms providers substantial sums just to have a meeting with them to discuss planning. If they genuinely want to help their local communities by delivering superfast broadband, I am not saying it should not cost the telecoms providers anything in terms of their engagement with the council, but-and I am not saying this happens in Wales-they should have a clear engagement process on the planning issue with telecoms providers. That would be enormously helpful.

Q147 Guto Bebb: In view of your answer, is the concept of Ofcom being allowed to intervene in terms of setting a price for the market-a comment you made in May 2011-now off the agenda?

Mr Vaizey: I do not think Ofcom was planning to intervene on the PIA pricing because they are satisfied that the PIA pricing now agreed with BT is adequate.

Q148 Guto Bebb: With respect, the question I was asking was: are you satisfied that the prices are acceptable?

Mr Vaizey: Yes.

Q149 Guto Bebb: In May 2011 you did indicate that Ofcom could intervene.

Mr Vaizey: Yes, I am satisfied, aren’t I, Simon?

Simon Towler: Yes, you are.

Q150 Chair: Minister, we have heard evidence from one satellite provider of broadband, Avanti, who have been connecting remote Scottish homesteads. That appeared to be a very good news story. Is that something you are aware of? Has the experiment been a success in Scotland?

Mr Vaizey: We are aware of that. I was interested to read the evidence that was presented to you and your colleagues from the various companies that are interested in this. We have always said that broadband roll-out should be a technology neutral solution. We are not going to mandate that there should be particular technologies employed. We have always said that satellites should be part of the solution, particularly for very difficult-to-reach areas. It is not the solution for Swansea or Cardiff; it’s just not, but it may well be the solution for remote communities.

Q151 Chair: It is working perfectly well and it is delivering the 2 Megabits to areas that would never have got on cable. That was the thrust of the evidence.

Mr Vaizey: I would be wary of companies coming bearing gifts. I was struck by Everything Everywhere giving evidence, where they said that, if it had not been for the delay in the spectrum auction, they could be delivering 4G services now. They could not, because that spectrum has not been cleared yet and will not be until 2013-14. Similarly, the satellite providers are an incredibly important part of broadband delivery, but they have to be realistic about what they can deliver. The Committee’s focus should be very much on the hard-to- reach communities that are a very important part of this broadband plan, and, certainly, satellite can play a role there.

Q152 Chair: This has been asked in a roundabout way, but I have had a sense that there has been more of a priority on rolling out superfast broadband than concentrating on getting everyone up to 2 Megabits. Is that a fair perception or am I mistaken?

Mr Vaizey: Simon said no, so he might want to expand on that.

Simon Towler: I would refer you back to the explanation and clarification I was giving to Mr Geraint Davies. It is part of a whole programme. BDUK, when it is looking at local broadband plans, is ensuring that people are taking care to ensure that they have allocations to make universal provision. Taking a fibre out to a cabinet will be part of a superfast solution, but, if you are still a very long way from a cabinet, you will still only get that universal provision.

Q153 Chair: Is that going to be as much of a priority as taking the fibre in and out of cabinets to deliver superfast broadband?

Simon Towler: The point about taking the fibre out as deep as you can get it is that it does both. It is essential to the delivery of both the superfast and the universal. If, for example, you have a fixed wireless solution for dispersed and remote homesteads, you need to get fibre out to the point at which you can transmit the broadband signal out to the homes. You still have to get the fibre out there, but you have to have the customer premises’ equipment on the homes further out. It is an integrated and holistic solution. It has to be part of local broadband plans and designed locally.

Q154 Chair: In the broadest possible sense-I would not hold you to figures that would have to be educated guesses-if you meet the targets that have been set, and if Wales is to meet its ambitious targets, what percentage of people roughly will be receiving broadband through fibre, through a mobile broadband solution and via a satellite or other?

Mr Vaizey: I have a figure in my head. I want to see whether you and I agree, so you go first.

Chair: I make it clear that we would not hold you to this.

Geraint Davies: They are switching off the recording now.

Simon Towler: If you look at cost curves, about 85% to 92% or 93% of people you would expect to get fibre to the cabinet or to the premise. Some of this will be fibre directly to the premises solution. Working back from the other end, about 1% or 2% is satellite. It could be a little bit more. The HYLAS 1 satellite of Avanti has a capacity of 125,000 premises. We could use that all up, and that is quite a small percentage. I think it is about 2%. In between, you are looking at fixed wireless and mobile solutions, somewhere between about 90% up to the 97th or 98th centile.

Q155 Chair: Just to be clear, is that ballpark figure for the whole of the UK or for Wales?

Simon Towler: That forecast figure is for the whole of the UK. There is no reason to suppose that that breaks down particularly differently in Wales.

Q156 Chair: At the risk of extending this, I thought Wales, having slightly harder geography, might have a higher percentage of satellite.

Simon Towler: Satellite would suffer more in central Wales. Now we are getting into reasonably technical areas. There are places that satellite does not reach because of shadows and the topography. Even coming in at that sort of angle, you are going to have satellite notspots. Bear in mind the population density at that point is quite low, and fixed wireless versus satellite has similar challenges.

Chair: Fine; I don’t want to hog this. Mark Williams, you had a question.

Karen Lumley: The Minister didn’t answer.

Mr Vaizey: I had the figure of 8% in the back of my mind. I calculated that there are something like 190,000 premises in Wales that receive broadband under 2 Megabits. It is a population of 3 million and 1.4 million premises. I was making rough and ready workings on that basis. That would stand to reason. But it is the topography-the mountains. I heard this amazing statistic. If you flattened Wales, it would be the size of England. Did you know that? That would be a very expensive solution to have broadband.

Chair: I can see the Western Mail scribbling away as you say that, Minister.

Q157 Mr Williams: I am not sure that is a message we want to take back with us to the mountains.

Mr Vaizey: The message we want to take back is that there are more gold medal Olympic winners from Wales than any other part of the UK. Did you know that?

Mr Williams: Not if you flatten Wales.

Mr Vaizey: That is a good statistic.

Karen Lumley: They are the leader of the hills.

Chair: I can see another inquiry coming.

Mr Williams : You mentioned the population sparsity and the topography issue in mid-Wales. Those two low figures of fixed wireless and satellite would be of more significance to some of our constituents, potentially. The Chair has pinched the question I was going to ask later on. However-

Chair: That is the Chairman’s prerogative.

Mr Williams: As he often does. However, how does satellite broadband compare with mobile broadband in terms of cost, specifically?

Simon Towler: Satellite broadband depends on the provider, but your initial connection fee would be anything from about £400 up to about £1,000. That would include installation of the customer premises equipment-i.e. your little dish-and, if I remember correctly, the typical packages are between about £25 to £30, which is comparable to what most people pay, up to about £70 or £80. The typical difference with satellite is that there is a usage cap-i.e. there is a limit on the amount of data download that you are allowed to have, and that is usually lower than for fixed broadband. You would expect that. Mobile broadband packages and fixed wireless access are slightly less in cost until you get out to the furthest and most remote places because you have to build a mast structure.

Mr Vaizey: Avanti would have said in their evidence that they were cost-competitive. People want to choose the solution that is right for them. Cost is an element, but, if you are in a remote part of the country or of Wales and you essentially need satellite, it is important that it is competitive. The mobile market and the fixed market are very competitive because you have a whole range of providers. That will always mitigate against satellite, perhaps unfairly. People recognise that sometimes in a very difficult-to-reach area the solution might be slightly more expensive than if you were living in the centre of Swansea or Cardiff.

Q158 Mr Williams : As Simon alluded to this as well, notwithstanding satellite technology in particular, which some of us are heralding as the great answer to all the problems, there are still difficulties that have to be overcome and, in some instances, will not be able to be overcome for a very small number of people. That is the reality, is it not?

Simon Towler: Yes, absolutely. Satellite broadband is 22,000 miles, round trip, for the signal. That builds in a delay of about 0.7 of a second. For some purposes, with that delay or latency, for heavy, interactive gaming you get shot the second you reappear, for example. It is not very good for those purposes. The satellite providers will tell you quite fairly that their innovation does not stand still. Let’s be honest: sticking one of those things up in space is an enormous engineering achievement. These are extraordinarily gifted engineers and great minds. They have got all sorts of clever tricks like side loading-they will tell you about how well they use it for broadcasting-that can mitigate against some of these things, but, nevertheless, there are the basic laws of physics around this that put limitations on it and say that fibre optic broadband to your premises or to a cabinet will always be better in terms of the performance, but there is a cost trade-off. What we are talking about here is a series of trade-offs of what is doable.

Q159 Mr Walker : Minister, you touched on this earlier when you were talking about Everything Everywhere and their evidence. Can you explain why the spectrum auction was delayed, and, if it was purely around the clearing of the spectrum, why was that not foreseen earlier?

Mr Vaizey: It was not a question of whether or not it was foreseen. We always knew when the spectrum would be cleared. When we came into Government, there was a potential solution on the table which had been brokered by the independent spectrum broker, but that solution fell apart because of the merger of Orange and T-Mobile, which changed the rules of the game. They were then off to the European Commission to get clearance for that, and that has required them to give up some spectrum. I was not confident anyway that that brokered solution was going to hold. It was a moment in time that had passed in any event and other telecoms companies indicated to me that they were not entirely happy with the brokered solution.

We wanted to do it in a much more straightforward way. Ofcom is handling the process in an open and consultative fashion. It is going to re-consult at the end of this year and we hope that the rules will finally be agreed sometime in the spring or summer. "Relaxed" would be the wrong word, but we are aware that we have room for manoeuvre on the auction rules because the spectrum will not physically be available. The sooner people know what spectrum they have, the sooner they can plan their networks and do all the planning, but it would be inconceivable that the mobile network operators do not already have plans ready for spectrum. It is inconceivable that they would not have modelled their networks on the basis of what spectrum they may or may not secure at the auction. We cannot physically use 4G spectrum around the country until it is available, which will not be until the end of 2013 and early 2014.

A bizarre bonus is that, where 4G is being rolled out in the United States, we will be able to hit the ground running in this country because we will have seen its uses and applications in other jurisdictions.

Q160 Mr Walker : We have had some evidence from Arqiva, who were suggesting that the Ofcom plans for the spectrum auction were not ambitious enough and there ought to be higher coverage obligations. I understand the Culture, Media and Sport Committee have looked at this and they are concerned about the costs of higher coverage obligations. Where would you come down on that?

Mr Vaizey: On the coverage obligations, it may be part of the re-consultation. I have not seen what Ofcom is going to put out in its re-consultation. It proposed 95% in its original consultation. It may increase it in the new consultation. The £150 million for mobile masts that has been set aside is going to make that very achievable. It is the kind of policy intervention that was needed. It is a recognition that, now that mobile is ubiquitous, Government have a role to play in filling the notspots and coming in, and not just leaving it to the market to roll out the network. That is important and that may influence Ofcom’s approach.

Q161 Geraint Davies: Have you any estimate of what the value of the auction will be to the Government in terms of billions?

Mr Vaizey: No. We try and avoid making estimates. You can look around the world and see other countries. €2 billion to €3 billion was about the sum in Germany and Spain. One could make an educated guess, but we are reluctant to make any promises.

Q162 Geraint Davies: When the last Government did the last major auction, they managed to pay back significant amounts of the country’s debt. It is a significant issue in today’s economic environment. My understanding is that they used game theory to optimise the take from that auction. To what extent will you be considering doing that versus your other priorities of coverage and all the rest that we have been talking about until now?

Mr Vaizey: There is a balance to be struck. We have several different priorities. We want to maintain a competitive mobile marketplace. Ofcom has made it clear that it wants to keep a four-player market through its auction rules, but at the same time we want to give people an incentive to bid, so we do not want people to think there is enough spectrum for everyone all round. There will be a competitive element. But the 3G auction in 2000 was a one-off with the £20 billion that that raised. A lot of people from the private sector, not necessarily from Government, look back on that auction ruefully in terms of the amount of sums they had to bid. Auctions around the world for 4G show that those sums are nowhere near going to be realised, partly because of the capital available to telecoms companies, but also there is a different perspective on the value of the spectrum, although the spectrum is very valuable indeed.

We are not going to realise those kinds of sums. Ofcom’s initial consultation-and I am sure its second consultation also-will address the priorities of keeping a competitive marketplace, making the auction competitive, but also addressing the points Mr Walker raised about the level of coverage and other social issues.

Q163 Geraint Davies: Will maximising revenue have any bearing on it? Do we need the money?

Mr Vaizey: I am sorry to keep bringing Europe into this, but it is against European law to run an auction simply to raise the maximum amount of money. It is important that the auction is fair, open and competitive, but it is not simply an auction for the spectrum to go to the highest bidder.

Simon Towler: Ofcom made that point in evidence to this Committee, did they not?

Geraint Davies: I was trying to press them then.

Chair: On that note of clarification, as the clock strikes noon, I will thank Mr Vaizey.

Mr Vaizey: Doesn’t time pass when you are having fun, Chair?

Chair: It was fun at this end anyway. Thank you very much, Minister, and Mr Towler.

Prepared 9th December 2011