EU will accelerate broadband rollout by easing regulation

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As part of several proposals intended to expand high speed broadband coverage throughout the EU, the Commission are planning to allow ISPs to install closed networks in rural and other less populated areas.

This would create greater financial incentive for ISPs to bring broadband to remote rural communities, since it would guarantee that the people in these communities would all subscribe for their internet service with them rather than with one of their rivals.

However, while this is encouraging news for every internet provider that's complained of the risks involved in setting up broadband in secluded hamlets and villages, it will effectively invite monopolies.

Furthermore a relaxation of the law is arguably unnecessary because, as a handful of emerging ISPs are proving, there are other ways of cost-effectively delivering broadband to remote locations without allowing monopolies to put a serious damper on competition.

Open and closed

Of course, before rural broadband monopolies get anywhere near to becoming a reality, the European Commission will have to actually put their proposals to the European Parliament.

So far, these proposals remain at a very early stage, with the only proof of their existence being a document reportedly seen by Reuters.

It suggests that national regulators will be given the power to suspend restrictions on closed networks on a case by case basis, as long as ISPs can demonstrate that these restrictions would place an unreasonable financial burden on them.

Currently, providers can legally install a network in a new area only if it will be open to other providers once installation is complete.

This openness permits other providers to come into a newly connected area and offer internet services to its residents.

While this fosters competition and greater choice for customers, it can be a considerable gamble for whichever company installs the broadband network.

They can invest millions of pounds in laying the necessary cables and fitting the necessary cabinets, only to risk seeing their rivals swoop in to take potential customers.

The remaining 5%

This risk has been an obstacle to the rollout of high speed broadband in rural areas, particularly in the UK.

ISPs such as BT and Virgin Media worry that, if even a fraction of customers in a small rural village end up signing with other providers, the profitability of kitting out these villages with broadband will quickly disappear.

This is one of the reasons why the Government's Broadband Delivery UK (BDUK) project is behind schedule.

It was originally due to connect 90% of UK premises to superfast broadband by May 2015. However, because of EU funding issues and the withdrawal of all interested parties besides BT, this deadline was pushed back to December 2016.

And while the Government claimed on March 9th of this year that BDUK had just managed to meet its 90% target, there's still the additional target of supplying 95% of the UK with superfast broadband by 2017.

This second target has proven more elusive, since the remaining 5% is made up of a greater proportion of thinly populated rural areas.

As a result, the likes of BT and Virgin Media haven't always been eager to help these areas, and because of this the rate of broadband rollout has slowed (PDF) in recent months.

Their reluctance was evident in the recent case of Crazies Hill, which after being non-committally courted by both ISPs went on to sign a deal with Gigaclear, a much smaller provider.

This is why - at least from the perspective of the bigger ISPs - it's a good thing that the European Commission is on the brink of allowing closed networks. Such networks would give them a much stronger guarantee of a return on their investments, thereby encouraging them to be much more proactive in supplying rural areas with broadband.

Uncompetitive and unnecessary

And yet, it really has to be emphasised that "closed network" is merely a synonym for "monopoly".

By giving an ISP the right to be the only provider for a particular area, the European Commission would end up prohibiting the residents of that area from being able to switch their broadband supplier should they be dissatisfied with the service they receive.

As can already be seen from many other industries, an absence of switching and competition results in customers having to pay higher fees and bills than they would have to under more open circumstances.

If a similar situation were allowed in the broadband industry, there'd be little doubt that those providers who benefited from closed networks would have very little incentive to keep their charges fair.

In fact, there's already a relative absence of competition within the broadband sector. This is why Ofcom recently called for the legal separation of BT's Openreach arm from BT as a whole, so that Openreach would be more able and willing to collaborate with BT's rivals when it comes to rolling out broadband.

Given that the situation is therefore already less than ideal, it would only get worse if the EU were to condone what were essentially localised monopolies.

Yet aside from the dangers of monopolies, it isn't in fact necessary to allow closed networks in order to speed up the expansion of the UK's broadband network.

Let's look at the case of Crazies Hill: after the best part of a year receiving half-hearted interest from BT and Virgin Media, the small Berkshire hamlet agreed a deal earlier this year with Gigaclear to supply local residents with ultrafast broadband.

With a population of 300, the community was far too small to entice BT and Virgin into providing them with broadband. Since these bigger ISPs were scared of losing on their investment, they'd demanded upfront fees of anything between £100,000 and £200,000 in order to go ahead with installation.

Against this approach, Gigaclear simply asked that at least 40% of the residents committed to subscribing to the internet service they'd be able to provide once the fibre optic cables had been fitted.

This is the model they've been applying to various other small rural areas through the UK, and it's one that's being used by other smaller ISPs like Call Flow. With it, they were able to serve 20,000 properties between their debut in September 2011 and April 2016.

This may not be much, but it shows how there is a way around the assumption that installing broadband can be profitable only in bigger areas, or only if a monopoly is granted.

By asking for a 40% subscription rate, Gigaclear found a way of ensuring a return on their investment in Crazies Hill without effectively banning other providers from attempting to enter the area.

This is why it's the kind of model that needs to be considered very carefully by the EU and Ofcom before any drastic relaxation of open network legislation is allowed.

It's also the model that should be considered by the Government when it awards more of its BDUK contracts.

Otherwise, the remaining 10% of the UK yet to be connected to a superfast broadband network may find that they're stuck with a provider they don't like, and who doesn't provide them with good value for money.