The next generation fund
54. In order to generate the substantial funds needed to support such an undertaking, the Government intends to propose a small general supplement on all fixed copper lines (that is, residential copper lines, the equivalent business analogue and ISDN2 lines and cable telephony lines) from 2010 for a Next Generation Fund. Such a model would be the communications sector equivalent of the Renewables Obligation, which is paid for through household and business energy bills to deliver an objective which the market otherwise would not. It would apply to fixed line rather than mobile because mobile operators already contribute with licence coverage requirements for mobile telephony and broadband.
55. Such a supplement needs to be set against the historic fall in telecoms prices. Unlike all other utilities or, indeed media services, telecommunications prices have fallen significantly and steadily in real terms over many years. Today the UK retail telecommunications market is among the most competitive in Europe. Consumers enjoy either the lowest or among the lowest prices, depending on their usage patterns of any major European market. Indeed, many consumers pay no separate charge for broadband – it being included as a free element within a bundle of voice, line rental and pay television.
56. At wholesale level, the UK currently has the second cheapest prices in Europe for broadband only DSL, the third cheapest for voice and broadband DSL, and the fourth cheapest for voice line rental. ADSL prices for a 10MBps service can be as low as £5.99. The cost-based basket of wholesale prices for today’s copper-network has fallen by £8 per line per year in real terms since 2005. Over the same period the retail price for combined voice and broadband has fallen by around £90 per annum in real terms.
57. Against that background, the Government believes that it is right to share a small part of that saving, and that a Next Generation Fund supplement of 50p per month on fixed lines represents a fair and sensible national investment to ensure that the overwhelming majority of the country can get access to next generation broadband. Low income households – those on social telephony schemes – would be exempted.
58. Over time there has been modest fixed line to mobile-only substitution. Even so, a supplement of 50p per month can be expected to raise £150m-£175m a year for the Fund. This amount might be sufficient to make investment in connecting most of the Final Third by 2017 as commercially viable as connecting the first two thirds of the population.
59. We envisage that the Next Generation Fund supplement would be collected by all fixed line operators, including cable. It would not be consolidated for accounting or tax purposes by those operators. The amounts collected by the operators would be passed to Ofcom (in the way that spectrum AIP payments and commercial broadcasters’ Additional Payments for their licences are collected) and placed in the Consolidated Fund.
60. The Government envisages that the Network Design and Procurement Group responsible for delivering the Universal Service project would then hold tenders to which all operators (including cable) proposing to install a next generation service would be eligible, on a reverse auction basis to provide next generation broadband to the Final Third.
61. A key part of the programme will be to ensure a coherent framework for network designs, operating systems, common processes and regulatory requirements so the next generation access networks across the country work as effectively as possible for all parties. In particular, the networks need to offer all end users an optimum level of service quality and choice.
62. The Government will consult on the detailed design and implementation of such a measure in the normal way.