British Broadband Cash Survives Cuts

The UK's Chancellor of the Exchequer, George Osborne, has outlined his plans for axing British public sector spending and reducing the national debt, a move that has implications for telecom investments.

While those associated with social housing, higher education, local government, and the UK police force are staring into a budget abyss, financial aid for broadband rollouts in rural areas is still in place, and is being topped up by a £300 million (US$474 million) contribution from the British Broadcasting Corp. (BBC) , though the overall amount being invested falls short of previous targets.

The Chancellor also announced plans to sell mobile broadband spectrum licenses.

Here's what was included in Osborne's Spending Review:

  • A total of £530 million ($837 million) of public money will be invested between now and 2015 on broadband networks, some in "the most remote areas of the UK," and set to benefit about 2 million households (the UK has about 24 million households). The government is specifically supporting so-called "superfast broadband pilot projects" in North Yorkshire, Cumbria, Herefordshire, and the Highlands and Islands (in Scotland). The previous administration, though, had proposed a figure of £1 billion ($1.58 billion) in government funding, though that was over a slightly longer timescale. (See £1B Boost for British Broadband.)

  • According to Osborne's report: "Advances in information and communications technologies have driven productivity improvements across the private and public sectors… [the investments will] support the UK’s broadband network and incentivise the roll out of superfast broadband in areas that the private sector would not otherwise reach."

  • That investment comprises £230 million ($363 million) of government funds plus "£300 million from the TV licence fee," which is collected and spent by the BBC. The previous government had been planning a tax on phone lines to raise money for broadband investments, but that idea was scrapped before the general election held in May this year. The money will go towards the government scheme, managed by Broadband Delivery UK, to make Britain a digital, broadband economy. (See Brits Press On With Broadband Plans , Broadband Delivery UK Formed, and Britain's Broadband Tax.)

  • The funds will support the rollout of broadband networks by carriers such as BT, which has already tapped European Union funds to support the construction of a next-generation broadband network in the largely rural county of Cornwall. (See BT Preps 'Landmark' FTTC Investment.)

  • As expected, the government says it "intends to hold an auction in 2011-12 for 800MHz and 2.6GHz spectrum, suitable for delivering the next generation of mobile broadband." (See UK Plots 4G Spectrum Auction .)

  • Not quite so expected is the news that "at least 500MHz of public sector spectrum below 5GHz will be released over the next ten years for new mobile communication uses, including mobile broadband."

  • The issue of government spending on telecom services has already been addressed, with an external report suggesting hundreds of millions of pounds could be saved through efficiencies and some good old-fashioned common sense. BT and Cable & Wireless Worldwide plc (London: CW) are hanging on to their contracts, though the value of those contracts look set to shrink. Both operators, however, say their financial outlook for the current fiscal year isn't affected by any changes, though it's likely that any cuts will kick in from 2011. (See BT Dips on Green Report, C&W Worldwide Retains Gov't Deals, Euronews: Oct. 18, and BT Updates on Gov't Contracts.)

    Some think the government could have gone further in helping encourage broadband investments, though. Equipment vendor ADC (Nasdaq: ADCT) points out that the UK's Valuation Office Agency (VOA) still imposes business rates (tax) on fiber networks that makes it hard for network operators other than the largest players, such as BT, to invest in fiber networks, even with government funds.

    "The UK government needs to offer a fair and favorable environment for private investment in network infrastructures, not just by supporting the capital build stage, but by helping to miminize operating costs once the networks are up and running," notes ADC's UK managing director Mansel Healy in an emailed statement sent to Light Reading.

    He adds: "The current levies charged to operators through the VOA's fiber valuation mean that the broadband roll-outs our country needs are often not commercially viable for many operators. What the government is announcing is effectively subsidising trials and initial capital investment, but increasing running costs through higher taxation of fiber networks." What he would like to see is the government scrapping the "fiber tax" to help increase the "impact and effectiveness of the government's investment."

    — Ray Le Maistre, International Managing Editor, Light Reading

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