New build developments – delivering gigabit-capable connections: partial business and regulatory impact assessment

2. Purpose and Intended Effect

Background

The provision of broadband connectivity for new build housing developments is a commercial matter between housing developers and network operators. Despite the ever-increasing importance of digital connectivity in our everyday lives, broadband is not considered an essential utility in the same way that electricity, gas, or water are. The 2021/22 Programme for Government outlined our view that digital connectivity is as important as the essential utilities and committed to ensuring that Scotland’s interests were represented as the UK Government developed proposals around connectivity to new build housing developments.

Currently the market delivers gigabit-capable internet connections for the overwhelming majority of new build homes and the situation has been improving in recent years. However, a small percentage of homes continue to be built without gigabit capable connectivity available.

At present, building regulations require that all newly constructed buildings be equipped with a “high-speed-ready in-building physical infrastructure” to help the cost-effective installation of cabling providing a minimum broadband speed of 30 Mbps.

The National Planning Framework 4 (NPF4) is Scotland’s strategic planning framework, adopted by Scottish Ministers in February 2023. The Framework underpins national planning policy and provides guidance and information around development plans. The statutory development plan for any given area of Scotland consists of the National Planning Framework and the relevant local development plan(s).

NPF4 has commitments around digital infrastructure. Policy 24 states Local Development Plans (LDPs) “should support the delivery of digital infrastructure, including fixed line and mobile connectivity, particularly in areas with gaps in connectivity and barriers to digital access”. This reflects Scottish Government’s wider ambitions on the rollout of both fixed line and mobile connectivity with LDPs providing appropriate, universal, and future proofed digital infrastructure supported in the new policy. In areas of no or limited connectivity development proposals that deliver new digital services or provide technological improvements will be supported in NPF4.

Telecommunications is a reserved matter to the UK Government under the Scotland Act 1998. The Department for Science, Innovation and Technology (DSIT) has responsibility for telecommunications legislation. The Communications Act 2003 gives the independent regulator Ofcom statutory duties in relation to regulating the telecommunications market in the UK. The deployment of networks in public roads is a devolved matter, overseen by the Scottish Road Works Commissioner. The Commissioners remit stops short of infrastructure in homes, or broadband speed.

At present, the minimum standard of connectivity is set by the Universal Service Obligation (USO) which transposed the European Universal Service Directive into UK legislation. The Obligation is implemented by Ofcom as the telecommunications regulator and gives consumers a legal right to request a connection of at least 10 Mbps download speed from designated providers (in Scotland this is BT (British Telecommunications) plc only) up to a cost threshold of £3,400 per premises.

The Department for Digital, Culture, Media and Sport (DCMS) held responsibility for telecommunications prior to February 2023 and consulted on delivering gigabit capable connections to new build housing developments between 29 October 2018 and 21 December 2018. The consultation response was published on 17 March 2020. Despite building regulations being devolved the UK Government proposed to use this vehicle for implementing a policy of mandating gigabit capable connectivity up to a cost cap. The UK Government has engaged with the devolved administrations to explore options to align the rest of the UK with the legislation they have introduced in England.

The UK Government ruled out legislating to place obligations on operators and instead opted to secure voluntary agreements outlining the level of commitments operators were willing to make. Openreach agreed to an operator contribution of up to £1,400 per premises, Virgin Media committed to at least £500, rising to £1,000 per premises in some larger sites. The reserved nature of telecommunications gives the Scottish Government no powers to place obligations on telecommunications operators.

Openreach offer gigabit-capable (fibre to the premises) connectivity free of charge to developers where a site has more than 20 plots. For sites of between 2 and 19 plots a published rate card is a backstop offer to developers with Openreach endeavouring to connect more sites at a lower cost where this is commercially viable.

Objectives

The principal policy aim of this work is to deliver high-quality digital infrastructure to new build housing developments. This will enable productivity gains and increased labour force participation from remote working, wellbeing improvements, potentially speeding up the rollout of gigabit capable connectivity to nearby premises and other social benefits through access to public services, education, and health. More widely, the deployment of gigabit capable networks will also help strengthen the economy by growing the necessary infrastructure for digital sectors to thrive.

This policy aims to ensure that new build housing developments can receive gigabit broadband at outset. This is defined as connections that can supply speeds of over 1,000 megabits per second (Mbps). Gigabit-capable connections are often, but not always, delivered by full fibre connections and can also be delivered via technologies such as cable (DOCSIS 3.1) and fixed wireless access. The policy is technology neutral and does not prescribe the type of technology that must be used if it can supply speeds of over 1000 Mbps.

The proposal intends to mandate gigabit-capable connectivity, as is deemed reasonably practicable, from the outset up to a per premises cost cap for new build homes. The cost cap proposed was arrived at in consultation between industry and the UK Government and is set at a level that would enable 99% of new build premises to be delivered across the UK.

By taking a stepped approach where gigabit-capable connectivity exceeds the cost cap the requirement to install passive infrastructure to support a gigabit-capable connection reduces the barriers to retrospective deployment. This requirement for passive infrastructure is in addition to the provision of a ‘next-best’ technology – usually a superfast connection (speeds at greater than 30 megabits per second). In cases where this cannot be met within the cost cap the requirement falls to providing a connection in line with the Universal Service Obligation alongside the passive infrastructure for retrospective deployment of a gigabit capable connection.

Rationale for Government Intervention

Scotland’s Digital Strategy ‘A Changing Nation: How Scotland will Thrive in a Digital World’ states that we will ensure that every part of Scotland, and every community within it, can access good quality connectivity.

The Scottish Government is investing in several digital infrastructure projects to extend connectivity networks into non-commercial areas. This includes the R100 broadband programme, which includes the £600m investment in three regional contracts, the Scottish Broadband Voucher Scheme and commercial coverage. The vast majority of connections delivered through the R100 programme will be gigabit capable (FTTP (Fibre To The Premises)) connections.

The broadband infrastructure market has many of the characteristics of a natural monopoly: very high fixed costs, low marginal costs, and high barriers to entry. The provision of broadband infrastructure requires the construction and maintenance of a large, extensive, and diverse network – with high fixed capital costs. The greatest market share is held by Openreach who wholesale several products on their network to retail providers such as BT, Sky and TalkTalk. Virgin Media O2 are the second largest provider using a hybrid-fibre coaxial network and are extending their network by building full fibre connections. Smaller providers - ‘alt-nets’ - such as Hyperoptic, CityFibre and Gigaclear are also building full fibre connections increasing the total number of premises passed.

In cases where a gigabit-capable connection is not immediately available the requirement for passive infrastructure to be installed this reduces the barriers to retrospective installations that cost the supplier (and potentially the developer) more than installation at the time of build. Without the proper passive infrastructure in place retrospective deployment can cause difficulties where developers are reluctant to allow work that will delay the adoption of roads by the local authority. In some cases, this results in developments being bypassed by commercial rollout and a need for a publicly subsidised intervention at a later date.

The UK Government has committed to £5bn of funding for Project Gigabit to deliver 85% gigabit capable broadband connections across the UK by 2025, and nationwide (approx. 99%) coverage by 2030. The Ofcom Connected Nations update: Spring 2023 shows that the percentage of premises passed by a gigabit capable network in Scotland stands at 68% in January 2023, rising from 63% in May 2022.

Ofcom analysis of projected deployment in Connected Nations – Planned Network Deployments published in November 2022 projects that by March 2025 gigabit-capable networks will pass 85% of premises in Scotland. This relates to where detailed planning is in progress or high-level plans are agreed with funding approved. This figure rises to 87% when considering plans where funding has not yet been approved.