BDUK consults on commercial, funding and procurement models for urban superfast broadband rollout

Broadband Delivery UK (BDUK) has launched a consultation with suppliers and local authorities in which it has outlined the possible arrangements suppliers and city authorities could put in place to benefit from state funding when developing 'next generation access' (NGA) broadband networks.

Last September the Government announced that London, Edinburgh, Cardiff and Belfast were among 10 major UK cities that had won a share of £114.1 million of public funds to deliver superfast broadband networks in their area. It later revealed that a further 12 smaller cities, including Aberdeen, Coventry, Newport and York would share a further £50m of funding to allow those authorities to establish infrastructure capable of delivering "ultrafast" broadband services.

In its urban broadband fund consultation document BDUK has now outlined three possible commercial models that suppliers could pitch to the contracting city authorities.

Suppliers could, it said, design and build the NGA broadband infrastructure but hand back ownership to cities to allow the authorities to sell "access to communications providers on an open access basis".

"Under this model the ownership of the infrastructure would remain with the City authority who would accept ownership from the supplier, and therefore pay, based on successful quality testing and in accordance with an agreed profile of milestones," BDUK said. "Following the completion of the infrastructure being built the City authority would be accountable for exploiting the infrastructure to achieve a commercially viable payback."

"An organisation typically envisaged in this model would be focused on building network infrastructure, but may not be interested in adopting a long term ownership of the risk, and potential reward, of exploiting the broadband network infrastructure. A City authority would procure a standard infrastructure programme, most likely from a single supplier and would adopt an approach to procurement that seeks the most competitive supplier based on the cost and the quality of the build proposed," it added.

Alternatively suppliers could design, build and operate an NGA network themselves and contract with communication providers on an open access basis, BDUK said. Suppliers would own the infrastructure under this model, it said. The nature of the open access suppliers would have to provide under this model is likely to be determined following negotiations with the European Commission on state aid issues, it added.

"The infrastructure assets would be provided on an open access basis," BDUK said. "This obligation for open access for suppliers on an equivalent basis is likely to be greater than existing regulatory approaches (ie the current regulatory requirements around Passive Infrastructure Access). Obligations would likely extend to any existing assets of the Supplier, which would need to be provided under the same level of access as any new infrastructure."

"Discussion is on‐going with the European Commission on the type of access that will be required within an urban state aid scheme. Access conditions and restrictions may range from: requiring the supplier to have functional separation of its wholesale and retail divisions in order for it to offer downstream services to residential and business customers; to requiring the operator to make the infrastructure available for any purpose (eg Mobile mast infrastructure backhaul, leased lines) in order to maximise the ‘openness’ of the subsidised infrastructure," it said.

The third commercial model that BDUK has said could be utilised is one where suppliers would own and operate an NGA network in which they themselves "provide active services" and allow other providers to do so also on equivalent terms and on an open access basis.

BDUK said that this model would require suppliers to give rivals open access to their existing infrastructure assets too and that suppliers could also be placed under a further restriction to fully separate their own retail services from their wholesale operation. There are ongoing negotiations with the European Commission about the scope of the restrictions necessary for the model to comply with state aid regulations, it added.

BDUK said that city authorities could decide to hand suppliers the state funds allocated to the project to add that to suppliers' own capital to deliver on the particular commercial model chosen. Alternatively the authorities and chosen suppliers could form a joint venture in order to combine capital and share the risks and rewards inherent in the model, it said. A number of other funding models are possible, BDUK added, including a scheme that would see the city bodies fund the new network infrastructure themselves and simply contract suppliers to design, develop and deploy the infrastructure "and any associated systems".

In addition BDUK said that there were a number of procurement models city authorities could use for their urban broadband projects. It said the authorities could run the procurements themselves and receive only "generic commercial and technical input" from Government to ensure that the competition is being run in line with state aid requirements. Alternatively the authorities could allow Government to run the competition and enable suppliers to bid for contracts with more than one city where urban broadband funds have been allocated, it said.

"The results of this consultation and wider engagement will inform DCMS and cities on: options recommended and used by cities within their implementation planning and projects; discussions with the European Commission on the development and acceptance of an urban state aid umbrella notification; and development of DCMS supporting activities and arrangements for UBF (urban broadband fund) schemes," the consultation document said.

“This is useful both for suppliers and cities and gives welcome clarity on the detail of options for how the scheme can work,” said Simon Colvin, a telecoms expert at Pinsent Masons, the law firm behind Out-Law.com. “The outcomes of the consultation will help BDUK to guide cities in their analysis of the options in readiness for market engagement."