Anyone who’s had an up close and personal relationship with BT’s OpenReach business will know that we have a national problem with our IT/telecom infrastructure. BT Group is increasingly an uneasy mix of boring utility assets and more exciting media/tech properties. But the boring bit of the business – OpenReach, charged with managing the telecoms physical infrastructure – is resisting a huge step change in technology. Its invested countless tens of billions in retaining a copper wire-based infrastructure which is connected to a fibre backbone. Copper remains the default route to the home for most Brits and every once in a while we hear an excited PR release saying we urban areas can expect boost to their speed taking them close to or above 100 Mbps. As for rural areas, they’ll have to wait until the universal service obligation comes along (in 2020) specifying a minimum average 10 Mbps connection.

These speeds obtained from copper are laughable and its clear to anyone with detailed knowledge of the data networks needed in the future that we need to make the wholesale shift to fibre to the home…NOW.

OpenReach won’t fund this huge undertaking because

  1. Its invested in copper to the home and doesn’t want to destroy its key asset
  2. It’ll cost an absolute fortune and the funding for it simply isn’t there

When Labour during the election laughably suggested nationalising the energy utilities I felt like writing to their policy chief and shouting – “ you’re looking in the wrong place for nationalisation. Start with OpenReach for god’s sake”.

Here is a business with a natural national monopoly that is behaving rationally in favour of its own assets (copper with some fibre) but irrationally for the national good. We need a massive investment in getting 99% of all homes and businesses on fibre now. Crucially OpenReach is now regulated within an inch of its life with cash flows burdened by a massive pensions deficit. It’s effectively a national monopoly that is systematically failing. Nationalise it now! Pump infrastructure spending into upgrading the national broadband network and then re-privatise it again in five or ten years time when we have a national fibre programme rolled out.

The next best thing – get infrastructure funds involved

In the absence of such dramatic moves, we do have the announcement today that the government has launched a National Digital Infrastructure Fund (NDIF) – with £150m in government cash plus money from the private sector, provided through funds managed by M&G and Amber Infrastructure.

This is potentially great news and opens up a broader question. When are we going to turn broadband networks into dull, boring, predictable utility assets that can source their cash from infrastructure funds? I’ve pasted in details of this new initiative from the report yesterday by investment trust analysts at Numis.

When are we going to turn broadband networks into dull, boring, predictable utility assets that can source their cash from infrastructure funds?

I’ve pasted in details of this new initiative from the report yesterday by investment trust analysts at Numis.

Having talked to sources involved in this new initiative, a number of  observations emerge:

  • The fund is completely focused on fibre to the home/business solutions. Great news! No more “padding out” the increasingly useless copper network. These funds also look like they’re taking over from the myriad local public-private partnerships dotted around the country.
  • It sounds like the Amber fund will be focused on more innovative start-up and early stage based local initiatives while M&G will focus on the slightly more established rival fibre networks. A good example for what might come out of the Amber funding model is an outfit called Gigaclear ( which is very much focused on getting fibre to rural communities. Bring it on !!
  • These funds will in effect pump prime technological innovations which will look to reduce the cost of fibre in the ground (or on the pole) solutions. My own suspicion is that they’ll focus on wealthier areas first, with poorer members of the local community likely to piggyback off wealthy customers in a village or town demanding better broadband. poor rural areas will still be waiting until the dawn of time before they get fibre!
  • The end game is also clear. Outfits like Amber would love to invest more in broadband infrastructure – it could be the next big new thing in infrastructure. But first, the government needs to work out how to fund it properly. And outfits like OpenReach need to be turned into boring utilities with even more rigorous regulatory controls.

More from Numis on the new fund

International Public Partnerships (INPP) has committed jointly with HM Government to make an investment in digital infrastructure and particularly fibre optic broadband connections. INPP has committed up to £45m to a co-investment vehicle, named the National Digital Infrastructure Fund (NDIF), with HM Government committing up to £150m.

NDIF will seek investment opportunities in businesses and projects that own and build digital fibre-based network assets and related infrastructure. Investments are expected to be made over the next four years, with the HM Government commitment being for a 10 year period. Investments are expected to fit INPP’s mandate and target returns, with a focus anticipated on long-term fibre broadband assets which will generate stable returns for the co-investment vehicle. The involvement of HM Government is to support its policy of boosting the deployment of full-fibre connections and ultrafast broadband access across the UK.

Amber Infrastructure, the external manager of INPP, bid alongside the company, and has committed £5m of investment. Amber will manage the NDIF and will receive a base fee (and in certain circumstances a performance fee) from NDIF. However, to avoid potential duplication of fees, INPP has entered into an arrangement with Amber such that INPP will have no liability in respect of additional base fees in excess of those currently chargeable under the existing investment advisory agreement.