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INFRASTRUCTURE AND CAPITAL INVESTMENT COMMITTEE

AGENDA

10th Meeting, 2011 (Session 4)

Wednesday 23 November 2011 The Committee will meet at 10.00 am in Committee Room 4. 1. Declaration of interests: Alex Johnstone MSP will be invited to declare any

relevant interests. 2. Broadband infrastructure in Scotland: The Committee will take evidence

from—

Stuart Robertson, Head of Broadband and Digital, Highlands & Islands Enterprise; Roddy Matheson, Industry Sector Manager, Aberdeenshire Council, and Rita Stephen, Development Manager, Aberdeen City and Shire Economic Future (ACSEF); David Byers, Team Leader, Scottish Enterprise, and Duncan Nisbet, Project Director, South of Scotland Next Generation Broadband Project, South of Scotland Alliance; Ged Bell, Head of Information Technology, Dundee City Council; Geoff Hobson, Director and Secretary, Angus Broadband Cooperative; Vicki Nairn, Head of E-Government, Highland Council, Pathfinder North; Dr Andrew Muir, Director, FarrPoint Limited, Community Broadband Scotland; Sheena Watson, Project Manager, Digital Fife.

3. Subordinate legislation: The Committee will consider the following negative instruments—

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the Highlands and Islands Air Services (Scotland) Act 1980 Amendment Regulations 2011 (SSI 2011/367)

4. Witness expenses: The Committee will be invited to delegate to the Convener responsibility for arranging for the SPCB to pay, under Rule 12.4.3, any expenses of witnesses in its work on homelessness and broadband.

5. Welfare Reform Bill (UK Parliament legislation) (in private): The Committee

will consider a draft report on the legislative consent memorandum lodged by Nicola Sturgeon MSP (LCM(S4)5.1).

Steve Farrell Clerk to the Infrastructure and Capital Investment Committee

Room T3.40 The Scottish Parliament

Edinburgh Tel: 0131 348 5211

Email: steve.farrell@scottish.parliament.uk

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The papers for this meeting are as follows— Agenda item 2

PRIVATE PAPER ICI/S4/11/10/1(P)

Written evidence from the South of Scotland Alliance; Aberdeenshire and Aberdeen City Councils; and Highlands and Islands Enterprise

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Agenda item 3

Cover note

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The Highlands and Islands Air Services (Scotland) Act 1980 Amendment Regulations 2011

Agenda item 5

PRIVATE PAPER

ICI/S4/11/10/4(P)

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Infrastructure and Capital Investment Committee

10th Meeting, 2011 (Session 4), Wednesday, 23 November 2011

The Committee has received written evidence from:

The South of Scotland Alliance

Aberdeenshire and Aberdeen City Councils

Highlands and Islands Enterprise

WRITTEN EVIDENCE FROM THE SOUTH OF SCOTLAND ALLIANCE South of Scotland Local Broadband Plan The South of Scotland Alliance (SoSA) recently submitted a Local Broadband Plan (LBP) to the Innovation and Digital Economy Team at Scottish Government. The LBP explores in detail the challenges facing the South of Scotland with respect to the rollout of Next Generation Broadband (NGB). The LBP discusses the demographic characteristics of the South of Scotland, describes existing and planned infrastructure, and identifies the gap between current/planned service and the overall Scottish Government target of NGB for all by 2020. This report is a summary of the LBP and views previously submitted to the Scottish Government User Intelligence Group on Next Generation Broadband. South of Scotland Broadband Coverage Like most rural areas across the UK, the South of Scotland is predominantly served by BT through its network of exchanges. There is very little competition at the infrastructure level, with the main exception being Pathfinder South. This is a managed network connecting all local authority sites including schools and is provided by Cable & Wireless. Mobile provision is limited to 2G in most areas, with large areas of mobile black spots. 3G provision is restricted to the main towns only. Broadband Statistics (source: OFCOM)

Lines Receiving less than 2 Mbps

NGB Availability Take-up

South of Scotland 15% (>20,000) 0% 60%

Scotland 13% 41% 65%

UK 14% 58% 68%

SoSA estimate that more than 16,000 premises within the region do not have a fixed line connection – to receive NGB these premises would require either a fixed line installed or use an alternate technology such as wireless or satellite. Part of the reason for a lack of NGB infrastructure in the region can be attributed to its rural nature – the entire area is classed as rural or remote rural with only four settlements with a population greater than 10,000. The region covers an area of over 11,300 km

2 and has a total

population of 261,000 with an average population density of 23 per sq km, around one-third of the Scottish average and one-tenth of the UK figure. With only three exchanges in the region planned for upgrade to NGB standards, the case for intervention due to market failure is clear. In an ideal world, broadband services would be delivered in the same manner as other public utilities such as gas, water and electricity. This would entail a single supplier at the infrastructure layer, with competition at the service delivery layer. However, in the UK broadband market, we have competition at both infrastructure and service delivery layers. This results in a dilution of economic return for infrastructure providers, particularly in rural areas, leading to a lack of investment from those providers as the returns are at best minimal. Take-up of broadband services in the South of Scotland is lower than the Scottish average. Part of the reason for this is down to availability of service in the most rural areas. Also, the region is characterised by an above average aging population, smaller than average proportion of working age population, and productivity and income levels about 10% below national averages.

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Local Projects – South of Scotland The South of Scotland Next Generation Broadband Project has set a vision that will transform the region into a place that will:

Be a dynamic and successful place to choose to live and work

Be much more successful both in offering opportunity and incentive for more young people to stay in the area, while also attracting new residents

Play and be seen to play a more central role in the national economy through modernisation and diversification of the industrial and commercial base, and the region‟s contribution to Scotland‟s economy

Be seen and thought of through economic success and through greater co-operation across borders, as part of a continuous UK rather than as an extremity of Scotland, and a dynamic and outward looking region playing its full part in an enlarged Europe.

Enable residents to enjoy a better quality of life, including better opportunities to realise their full potential, economically and in other respects, with better education and training and more job choice in modern and trend-setting businesses.

Improving the Broadband Infrastructure across the South of Scotland has been identified as the single most significant enabler to unlock that vision and the Project sets ambitious goals to deliver:

The European target of at least 30Mbps service to all by 2020, with at least 50% of the population enjoying access to 100Mbps

The UK Government targets of Next Generation Broadband (NGB) access to at least 90% of the population by 2015 and at least the UK minimum connection of 2Mbps to the remaining 10%

The Scottish Government target of Next Generation Access for all by 2020 with significant progress by 2015 and an increase in uptake to at least the UK average

A regional ambition for 4G mobile coverage to at least 90% of the regional population by 2017, and critically

A network infrastructure that can support public sector network requirements for current contract renewal by 2014.

A number of requirements have been set out for this project as follows:

It is envisaged that a mix of technologies including fibre optic, wireless and satellite will be used to deliver the objectives of SoSA across the region

The solution must offer an open access network with a choice of internet service providers available to businesses and consumers at the point of access and at a cost comparable to urban areas

The solution must be defined as „future-proof‟ and have the potential to keep up with developing applications

It is envisaged that an initial phased roll out plan will be developed that will be flexible according to various factors including demand and budgets

Public sector network services will operate on the infrastructure and will be offered as an anchor tenant at a cost comparable to urban areas

The supplier will create a set of standard specifications to enable small community led network builds connected to the main infrastructure

The installation of infrastructure within new commercial and/or residential developments will be included within the planning and road construction consent process

A threshold will be placed on income earned from revenue in line with State Aid requirements and an agreed proportion of the amount above the threshold will be used to further upgrade and develop the network as technology advances

A monitoring and evaluation framework will be developed and completed throughout the project.

The first phase of the Project is planned to run through to 2015/16 with an estimated total cost of £120 million (not including areas planned for upgrade by BT). This investment enables 100% coverage (a mixture of NGB and minimum 2Mbps) across the region with an

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assumption of FTTC to market towns and distribution point communities covering 94% of the population with the remaining 6% on a wireless, mobile or satellite system. A key component of the project is the Demand Stimulation Strategy. This demonstrates how the three key sectors (business, residential and public sector) will be engaged to make maximum use of the investment. The Project has set aside up to £400,000 over the lifetime of the project in order to achieve this.

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WRITTEN EVIDENCE FROM ABERDEENSHIRE AND ABERDEEN CITY COUNCILS

1 Background and Strategic Context

This paper presents the views of Aberdeenshire and Aberdeen City Councils on the strategic need for broadband infrastructure development and the economic and social implications of this investment. This evidence is based on the Regional Broadband Plan developed for the Councils by Aberdeen City and Shire Economic Future (ACSEF). Aberdeen City and Shire Economic Future (ACSEF) is a partnership of private and public sector representatives who are committed to managing strategic economic development issues for the benefit of the area and its people. The evidence that broadband infrastructure in the North East of Scotland urgently requires upgrading is overwhelming. There is extensive lobbying from local businesses stating that the speed and quality of service available to them is constraining growth, efficiency and employment. Citizens are being impacted by difficulties in accessing community services, their ability to work in a flexible manner and the resulting impact on social cohesion. OFCOM‟s 2011 data demonstrates that Aberdeen City and Aberdeenshire have the highest rates of broadband take up in the UK (74% and 72% respectively) where there is NO availability of superfast broadband. The Economic Action Plan for Aberdeen City and Shire outlines the actions we will take to achieve our vision for 2030 which aims to ensure a high quality of life, and sustainable economic growth. ACSEF has a strong track record of partnership working and delivery and has a significant profile in both the regional and national media. In summer 2011 ACSEF undertook an infrastructure audit which informed a strategic overview of the work required to identify opportunities and develop infrastructure based on NGA (Next Generation Access) communications technologies to support and accelerate economic growth, enhance social cohesion, promote educational attainment and improve the capacity of public agencies to deliver services cost effectively. Aberdeenshire accounts for some 8% of Scotland‟s land area at 2437 square miles and around 4.7% of its people – this is reflected in low population densities in some areas. The area‟s GVA per head of population was 38% above the Scottish average in 2006 - this varied from 88% above the average in the City to 6% below the average in Aberdeenshire. There are large commuter flows into the city with an estimated 50,000 people travelling daily into Aberdeen for employment. ACSEF‟s agenda includes anchoring the oil and gas industry to the area, developing employment in the renewable and wider energy related markets and developing the Energetica corridor between Aberdeen and Peterhead into a world class location for living and working. Technology developments have seen employment grow in knowledge and intellectual property based firms, many of which trade in global markets and for whom robust, secure and high speed broadband links are vital. The area‟s geographical remoteness from its markets within the UK and Europe means higher transport costs for the substantial cluster of traditional industries involved in food and drink production, timber processing and paper making- high speed broadband links would help offset some of this competitive disadvantage. Additionally, there are the justifiably high aspirations of the wider business and resident communities to be met, driven by factors including a higher than average proportion of graduate jobs, a significant cluster of academic, research and learning institutions and in the Energetica project area, an ambitious development and lifestyle proposition between Aberdeen & Peterhead for which world class broadband provision is a given. Aberdeen City and Shire is home to an increasing number of IP and knowledge based businesses, many of

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which trade in global markets – high speed and reliable broadband connections are vital to their businesses for data transfer. 2 The Case for Broadband Investment Across the City and Shire the provision of broadband infrastructure is inadequate. In urban areas the majority of business and residential users are limited to ADSL services. However the exchange infrastructure requires significant investment. The overwhelming majority of users are supported with a maximum bit rate no greater than 7.15Mbps and in practise often receive much less due to contention and distance from exchange. As a result, both business and residential users are constrained in their ability to use the internet for both economic and social applications. Also many large businesses seeking to locate in the region in major business parks and development corridors require access to world class superfast digital infrastructure to enable them to compete and trade on an international basis. This is lacking in many parts of the region. In addition, BT has very limited plans for exchange upgrades in the area or the deployment of FTTC/FTTP (Fibre To The Cabinet/Fibre To the Premises). Rural Aberdeenshire is characterised by having a low density of population across a wide geographic area. As a result, market forces are not delivering acceptable broadband connectivity to the rural region. Many of the population live too far from an exchange to get access to effective broadband services or indeed any service at all and the low population densities in much of the region mean then next generation mobile services cannot be commercially deployed. As a result Aberdeen City and Shire has three challenges to address in order to improve digital connectivity:

Ensuring that businesses and residential customers in the City have access to a competitive market for broadband services which will, in turn drive enhanced connection speeds, improve customer service and support and enhance reliability

Provide major business users and development areas in the region with access to world class digital infrastructure that will drive inward investment, increase the competitiveness of businesses in the region and create employment

Ensure that the rural areas have ubiquitous access to broadband connectivity at a guaranteed speed and performance to meet the economic and social needs of the communities.

3 Proposed Solution In order to address these needs three potential projects have been identified in as part of the broadband development plan for the region;

Build an open access fibre access network adjacent to the route of a future peripheral road around the City. This will connect residents and the key business parks in areas such as Westhill and Dyce. There is also potential to expand the coverage of the three areas of strategic development defined by the Aberdeen City and Shire Structure plan namely, the Energetica corridor north to Peterhead, along the A96 to Inverurie and south to Stonhehaven and Laurencekirk. This will also bring superfast (greater than 24Mbps) and ultrafast (greater than100Mbps) broadband to some rural communities

Develop and implement a rural access strategy to ensure that there is 100% availability of broadband services and access speeds in the rural areas are significantly increased. This will be achieved through a blend of exchange upgrades, deployment of next generation wireless and satellite technologies and the utilisation of the Aberdeenshire Council network currently serving Aberdeenshire sites and schools.

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Enhance competition and improved service provision in the City by encouraging and driving the deployment of next generation wireless technology. The City will use its existing property portfolio as an incentive for wireless operators to deploy base stations across the City.

4 Existing Infrastructure in Region Aberdeen City has one of the highest rates of broadband uptake in the UK and a consequence of this is that the infrastructure is routinely overloaded resulting in much lower connection speeds than advertised and which consumers believe they are paying for. In March 2010 the Aberdeen City and Shire Structure Plan baseline monitoring report highlighted that out of the 103 telephone exchanges in Aberdeen City and Shire only 5 can operate at speeds up to 24 Mbps, while no „fibre to the cabinet‟ (fibre between the exchange and the street cabinet) or „fibre to the premises‟ (fibre all the way to the end user premises) has been deployed to date. Some parts of Aberdeenshire do not have access to broadband connections and whilst a number of factors are involved, consumers located more than 3 miles from an exchange are the largest group of those unable to access broadband. The existing telecommunications infrastructure within Aberdeen City and Shire is largely restricted to legacy BT copper (and in some cases aluminium) based services. Most businesses within the area use ADSL services which for many lack the speed and reliability required to maintain competitiveness. Typical download speeds are significantly less than 7 Mbps and upload speeds less than 1 Mbps. Companies requiring higher speed connectivity in the region must procure LAN Extension services or pay for dedicated leased line service connectivity at high connection and rental rates. For the majority of businesses, connectivity costs for high speed broadband are prohibitive and many are constrained in their growth plans. Full maps of the existing infrastructure are available on request. However on a street by street analysis of the area it is clear that;

the City centre has extensive fibre infrastructure owned by BT, SSE Telecom and C&W. Hence from a state aid perspective the market is effectively „Black‟. However there needs to be extensive work with the operators to upgrade exchanges and drive greater commercial use of the existing fibre infrastructure that exists

City periphery and development corridors are constrained by the absence of affordable high speed broadband services. This is an area with very limited operator presence and demonstrable market failure. This area that is prima facie black is, once investigated, proven to be largely white with some areas of grey

Rural: A „white‟ area with major connectivity issues to address. 5 Demographic profile The population of Aberdeen City is approx 215,000 of which 93% live in the central urban area, 5% in suburban towns and 2% in accessible rural areas. Aberdeenshire has a population of 244,000. 62,000 live in towns with a population greater than 10,000 people, 23,000 live in towns with 5,000-10,000 people. The remaining population (159,000), live in rural locations with 39,000 of these in remote rural locations. The table below presents an analysis of the number of businesses by sector and size. Over 74% of businesses in the City and 90% in Aberdeenshire have less than 10 staff.

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Size band (no of staff) Aberdeen City Aberdeenshire

0 – 4 5,995 10,665

5 – 9 1,390 1,460

10 – 14 630 465

15 – 49 1,015 660

50 plus 480 210

Total 9475 13,445

A final demographic trend to note is density. Across the area the average density of population is 37 per square km. 15% of the population live in areas of 12 per square km covering 47% of the region. Aberdeen City and Shire has used this population profile and distribution to plan its technical deployment options. If we look at the rural areas it is clear that a variety of technologies will need to be used as follows:

Exchange upgrades: This will be feasible to serve the populations in the small and medium sized towns within proximity of an exchange. However this is only a third of the rural population

Satellite: This will be used to serve the very remote rural populations

Next generation wireless: This will only be commercially deployed where population densities are greater than 65 per square km. This rules out much of the Shire. However it may be used in the small and medium towns given suitable backhaul and sites

Utilisation of public network infrastructure: Aberdeenshire is deploying an extensive radio network across the Shire to serve schools and its corporate offices. This could be upgraded and transformed into an open access network to serve the needs of the community as a whole.

Hence we have a blend of technical strategies to serve the rural community. If we examine the demographics of the City and its peripheral region we find that much of the business growth lies adjacent to the line of the peripheral road and in key rural development corridors. This area is not well served by next generation fibre infrastructure. The map below presents a proposed network map for the deployment of an open access fibre network. This is likely to be a partnership between Aberdeen City & Shire and private industry and would complement the proposed road building programme.

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An analysis of business locations reveals that:

40% of large businesses (greater than100 staff) and 20% of SMEs in the City and Shire sit in the proximity of the footprint of this network (access will be provided by FTTP and wireless)

If the network were to be extended to the development corridors to Peterhead, Inverurie and Stonehaven, the network would serve 50% of large sites and 33% of SMEs in the region.

Other businesses in the area are located in the city centre or in the large rural towns. Hence the area would have access to largely future proofed world class next generation telecommunications infrastructure that will drive economic growth and enhance social cohesion. 6 User Requirements and Demand Stimulation Our market testing has shown a deep pool of untapped demand for faster broadband connections among the area‟s business base. We recognise that driving up demand and encouraging businesses to exploit the superfast broadband services will require some additional assistance. We have developed business support programmes to sit alongside the physical infrastructure element of our plans. We will assist SMEs to take advantage of the superfast broadband through a mix of:

One to one support, advising senior business decision-makers and entrepreneurs on implementing digital strategies on distribution, marketing, design and production.

Seminars and workshops from digital leaders to share best practice and showcase new products and processes which can enhance business growth

Web based support offering basic „how to‟ guides and sign-posting to industry resources

Remote advice on practical support matters during the implementation phase Our goal is to drive up adoption levels and to ensure those businesses which invest in superfast broadband can maximise their exploitation of the new technology and increase the returns on their investment. Other initiatives that are taking place in parallel include:

Work Smart: A major initiative in Aberdeenshire Council to encourage flexible and home working utilising broadband and mobile technologies

Extensive investment in education and learning centres for consumers in the use of IT and telecoms services

A range of community led initiatives (supported by the Leader programme) to drive broadband access and usage in rural communities. To date four of these projects have been successfully deployed.

Partnership with the University of Aberdeen in the dot.rural project In May 2011 Aberdeen City and Shire undertook an extensive programme of market research in collaboration with The Federation of Small Businesses and the Aberdeen and Grampian Chamber of Commerce (AGCC) A total of 208 companies were interviewed in order to explore their current and future broadband connectivity requirements, applications, and importance of broadband connectivity on their business growth and performance. Some examples of the key findings are shown here:

a) Speeds currently obtained Typical downloads speeds are less than 7 Mbps as shown in the following survey results. The pie chart presents the results from AGCC members with the bar chart presenting results from the Federation of Small Businesses.

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b) Future requirements

Businesses in the area typically require 10-50 Mbps to undertake the range of applications required for their business. There was a clear future requirement for applications such as collaborative working, video content and social networking which could not be addressed under existing service provision. 5-7% of businesses required 100 Mbps connections within the next 3 years.

c) Impact on businesses Greater speeds were viewed as critical for businesses to compete effectively in the future and a lack of reliable high speed broadband was seen as putting their business at risk.

Speeds obtained

< 2Mbps, 38%

2-6 Mbps, 31%

6-10 Mbps, 16%

10 Mbps, 3%

10-20 Mbps, 6%

20 Mbps, 1%

20-50 Mbps, 3%

50-100 Mbps, 1%

Speed required

, 0% 6-10 Mbps, 11%

10 Mbps, 4%

10-20 Mbps, 29%

20 Mbps, 10%

20-50 Mbps, 26%

50-100 Mbps, 11%

>100 Mbps, 7%

2-6 Mbps, 1%

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7 Stakeholders and Market Engagement The projects in the evidence have the full backing of Aberdeen City Council and Aberdeenshire Council. In addition a number of local stakeholders have been active participants in the work to date and support the initiative. This includes the local Chamber of Commerce and the Federation of Small Businesses. As the projects commence, they will be co-ordinated with other planned works. In particular:

the planning of the Aberdeenshire corporate and schools network is being undertaken with a view to ensure it will be fit for purpose to provide a platform for serving the wider community in the future

telecommunications infrastructure plans will be factored into planned highways works including the Aberdeen Western Peripheral Road

the Aberdeen City and Shire Strategic Development Planning Authority is working closely on the plans and has ensured that the Strategic Plan and both Local Plans take account of the need for enhanced digital connectivity in the area.

Discussions have taken place with Angus and Moray Councils and the Cairngorms National Park Authority on the potential to develop cohesive areas based on geographical or infrastructure considerations to generate economies of scale to agreed solutions. This grouping may be expanded.

As part of the development of this plan, initial discussions have been held with local and national infrastructure and service providers in order to collate information on any existing infrastructure in the area along with plans and their perceptions of the market. As we move towards the procurement phase, an industry day will be held to which all potential providers and vendors will be invited. This will be followed by a series of formal procurement programmes for the respective projects. 8 Expected Strategic Benefits

a) Next Generation Access Fibre Network Our proposed investment in superfast broadband will support a wide set of impacts and outcomes in the social and environmental sphere. The main benefit of the proposed fibre network is focussed on the economic impact it will generate through growth in turnover, employment and profitability among the growing base of businesses in the key development areas in the City and Shire. We will model the tangible growth of economic output (GVA) and jobs, based on research undertaken of fibre investments elsewhere.

High speed connection is critical for business

Strongly

disagree, 0%

Disagree, 8%

Neutral, 7%

Agree, 34%

Strongly agree,

49%

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b) Rural Network

The rural network will also deliver economic benefits in terms of employment and growth in the area. In addition we expect significant social benefits arising from:

Improved social inclusion and enhanced perception of the area as a place to live and work

Improved access to public services including education learning & leisure, social care (eg housing, community care, children and families & criminal justice)

Reduced cost of public service delivery (eg enhanced staff flexibility, reduction of number of public sector offices etc).

A regular „value for money „ exercise will be conducted to collate and quantify such benefits and savings, an exercise similar in nature to the recent Pathfinder audit.

c) City Wireless Network

The City Wireless network will deliver:

Cost savings in the delivery of public services

Improved social inclusion and perception of the area as a place to live and work

Improved access to public services including education learning & leisure, social care (eg housing, community care, children and families & criminal justice)

A wider choice of broadband connectivity services in the City which will help to address the issues of low access speeds and contention

A platform for businesses to develop mobile applications (eg a local firm is already trialling an innovative portal providing business and travel information to visitors to the City)

9 Implications for The Scottish Government

a) The best way to roll out NGB in Scotland Projects in England are largely being driven at a local authority or regional level. In contrast Wales has adopted a national procurement approach. In Scotland we have a situation where market forces are addressing much of the needs of the densely populated parts of the central belt and projects are advanced in their planning in Highland & Islands , South of Scotland & Aberdeen City and Shire. It is our view that Scotland would be best served by;

Supporting the current projects with BDUK and ERDF funds

Providing financial, technical, legal and operational support to those authorities who are less advanced in their plans.

We believe that this is a better approach than running a single pan-Scotland procurement for NGN infrastructure. The reasons for this are as follows:

Scotland is not an homogenous market and the requirements of business versus consumer and urban versus rural will differ. For example our work in Aberdeen City and Shire reveals that business and consumers in the rural Shire require access to download speeds of the order 20-50Mbps which could be delivered by a blend of FTTC in rural exchanges supplemented by upgrades to existing public sector network infrastructure and next generation wireless. In contrast businesses in key strategic growth areas and business parks require greater speeds (typically up to 100Mps symmetrical) which are best delivered by FTTP deployment in selected locations. Addressing these wide requirements in a single national procurement is challenging

Scotland would benefit from having a strong competitive telecoms market with a range of infrastructure and service providers. This would drive competition, stimulate innovation and lower prices

Rural broadband is perhaps best suited by a gap funding approach whereas open access fibre projects in key areas of strategic growth may be served by the public and private sector working together in a Special Purpose Vehicle (SPV).

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b) Using Existing Infrastructure

It will not be economic to upgrade all of the rural exchanges in Scotland. Highlands & Islands, Aberdeenshire and South of Scotland all plan to upgrade the required subset of exchanges to service say 75% of the rural population. The rest of the population needs to be reached through use of satellite or harnessing the existing public sector networks which often reach into remote settlements to serve schools, health and other public sector sites. These public sector networks could potentially be upgraded and used to provide an open access network to remote rural locations. There are challenges in this which should not be underestimated. These include:

Legal issues: Can the public sector networks be legally used to provide commercial services? On what basis were they originally funded? On what basis were contracts awarded? A number of authorities across the country have faced challenges and legal issues in this area

Do the public sector bodies actually own the infrastructure or is it merely procuring a managed service (eg Pathfinder)?

Contractual issues – length, terms of use etc

Technological constraints on the existing public sector networks, ie back-haul capacity, access capacity, ability to upgrade to an open access infrastructure etc

Certainly we would strongly agree that at a service level the public sector should be seeking to aggregate demand and be an anchor tenant on any next generation broadband infrastructure deployed. The key issue will be aggregating the technical and commercial requirements of the public sector. Each will have different technical requirements, security needs, service level requirements etc. In addition there are problems of existing contractual relationships. Aggregating public sector demand has been challenging. There have been successes but these have been where there has been strong political and executive leadership and the number of networks and bodies to be aggregated is small and in a geographically defined area.

c) Funding Next Generation Broadband We believe that a second reason for segmenting the Scottish market into a series of lots or regional projects is funding. A distinction needs to be made between;

Providing next generation broadband connectivity across Scotland at a minimum speed of say, 30 Mps ( the speed target identified by the EC), by 2020 with significant progress by 2015

Providing ultrafast broadband services at speeds from 100 Mps to 1 Gbps to business users in key locations. This will provide Scotland with locations with a world class digital infrastructure. This will drive economic investment, employment and attract knowledge based industries.

These are two different but complementary goals. We believe that Scotland needs to drive BOTH in formulating its strategy for NGB.

a) Funding Rural Networks Provision of basic broadband connectivity in rural areas is clearly the focus for the BDUK funds and is one where larger incumbent operators (eg BT, C&W) are likely to provide match funding. Other carriers and service providers are finding it more challenging to justify matching investment in rural areas – although much depends on how challenging the requirements specification is. The delivery of a superfast broadband to all users in Aberdeenshire is a very expensive undertaking. Other rural authorities, such as Cumbria and Scottish Borders have estimated costs up to £100m to deliver superfast broadband. The exact figure will not be known until a detailed technical survey is undertaken of every exchange together with a technical plan of the number and locations of every street cabinet.

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Other local authorities considering this approach have partnered with infrastructure providers to deliver as wide a coverage of superfast services as possible related to the size of the grant received from BDUK and the authorities‟ fund. In Northern Ireland for example, they have aimed to get superfast broadband services to at least 75% of the rural population with the most remote regions receiving lower speeds via satellite or other technologies. To provide a similar level of coverage in Aberdeenshire would cost approximately £50 - £60million with Aberdeenshire Council expected to contribute gap funding of 25% of the total costs, approximately £12.5m to £15m if the BDUK funding model used in England were to be applied, in which case we would expect 25% would come from the Scottish Government and 50% from private industry.

b) Funding Ultrafast Open Access Fibre Network The provision of superfast next generation broadband services to key areas of strategic growth can be a compelling case and will attract a wider range of private sector interest. This will include wholesale carriers such as Geo and SSE as well as leading telecommunications solution suppliers. Such projects are typically funded by ERDF and matched by the private sector. An example is the proposed Aberdeen City and Shire peripheral network serving the main business centres around Aberdeen (eg Westhill, Dyce) and along the main strategic growth areas to Peterhead, Inverurie and Stonehaven. An example of a successful project of this nature already operational is FibreSpeed in North Wales. The capital expenditure of the open access fibre network in Aberdeen City and Shire has been estimated to cost up to £15million. The study has confirmed that there is an underutilised (and non BT owned) optic cable running along the length of the A90, along the A98 and along the A96 between Aberdeen and Huntly. Ideally the project would seek to partner with a wholesale service provider, by means of a special purpose vehicle. This SPV will in turn sell services to operators and internet service providers which may range from national players to innovative local companies. These service providers will sell services to the end consumer and business market in the region. A new fibre optic cable should be laid adjacent to the (Aberdeen Western Peripheral Route) AWPR to cover Westhill, Kingswells and Dyce, which are all poorly served at present supplemented by local fibre and wireless access within the key business parks. It is assumed that 50% of the cost would be funded by the private sector and 25% from The Scottish Government (using BDUK (Broadband Development UK) funds and ERDF (European Regional Development Fund)). The final 25% would come from Aberdeenshire and Aberdeen City Council.

c) Funding City Wireless network

The deployment of next generation wireless could be achieved through a straightforward contractual arrangement between Aberdeen City Council and a network operator to deliver a service on a commercial basis with the city. The City Council may wish to consider within this the value of access to public service buildings and other infrastructure within this either becoming a chargeable fee or a commitment to delivery in return for ongoing revenue. The cost of this deployment should therefore be cost neutral to The City Council.

d) Authority commitment

Aberdeen City Council has secured approval to submit a bid of up to £2million of capital funding from the Council‟s 2012/013 capital programme towards the implementation of Digital Network Development within the City (along the route of the AWPR/Energetica Corridor) and within the Aberdeen City core area. On 10th November 2011 Aberdeenshire Council Policy and Resources Committee approved funding of up to £18m,over a period of 4 years commencing 2012/2013 towards the cost of

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implementation of the rural access strategy and their share (together with Aberdeen City Council) of implementing the open access fibre network.

e) Commercial Model Uneconomic rural networks are best addressed via a gap funding model. Superfast, business centric networks may be a SPV between the public sector and industry. The SPV could own:

Trenches and sub-ducts along highways and roads up to the boundaries of customer sites

Fibre infrastructure

Network management and billing systems

Layer 2 electronics The public sector could own the passive infrastructure (ie ducts and fibres) and operating partner undertakes all operations and owns layer 2 equipment. This is the preferred option of major equipment vendors. Here the risk of the capital build and ownership lies exclusively with the public sector with the private sector partner bearing the operational costs. Alternatively the public and private sector partner share ownership and risks across the passive and active infrastructure. Utility partners and wholesale operators are more comfortable with such an approach as their mission is the ownership of core infrastructure. Under this scenario all risks are shared by the shareholders of the SPV. In the long term there is potential to sell the SPV or renegotiate the ownership structure.

f) Risks These are:

State aid: This is a challenging task. Market failure has to be proved along with a clear commitment to an open access architecture that will drive competition in the market. The process is lengthy and rigorous and evidence has to be collated at a very granular level.

Attracting private sector funding: The industry has many such projects to tender for and operators and solutions providers are now being selective where they bid. There has to be a clear vision and a strong commercial case to justify private sector investment. We believe that Scotland would attract a wider number of private sector companies and capital by having a number of standalone attractive projects rather than a single national procurement

Timescales: There is a very high risk that Scotland is falling behind England and Wales in the deployment of next generation broadband infrastructure. Further delays in developing a clear strategic plan and allocating funds are likely to lead to a loss of competitiveness, increased costs and Scotland being a lower priority for private sector investment

Complexity: The broader the goals, scope, coverage and service requirements of a procurement, the more lengthy and complex it will be

Harnessing demand; See above for the challenges of public sector aggregation. However the need for a public sector anchor tenant on any project is key

Clear standards; The Public Sector Network in Scotland will clearly be a „network of networks‟ and clear policies need to be made, particularly in areas such as security

Support for local authorities; Local authorities urgently need clear guidance from The Scottish Government in areas such as funding policy, state aid applications and possibly procurement

6) Conclusions In summary the key messages to The Scottish Government are:

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Do not simply focus on providing „me too‟ broadband services. It is essential to ensure that Scotland has a number of genuinely world class innovative projects (eg Aberdeen peripheral network) which showcase the region, drive economic growth, and act as a world class test bed.

Scotland is not an homogenous market and projects should be driven at a regional/local basis to ensure that: - The existing projects identified by Highlands & islands, South of Scotland and

Aberdeen City and Shire are not delayed - Local needs and requirements are addressed - There is greater potential to harness local public sector infrastructure in line with

the McClellan report - The legal and commercial complexities are minimised

Scotland will attract a greater diversity of operators (and funds) by funding local/regional projects

Do not underestimate the complexity of seeking to aggregate public sector demand. Different goals, budgets, legacy infrastructure & contracts, security needs and politics all make this a challenge. Public sector bodies generally procure advanced managed services which do not always lend themselves easily to unbundling at a wholesale level.

Use public sector contracts as an anchor tenant wherever possible

Timing is key and Scotland is falling behind other parts of the UK (and Europe). Ensure any plan can be quickly implemented i.e. agree basis for distribution of funds in Winter 2011/12 and run procurements in 2012.

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WRITTEN EVIDENCE FROM HIGHLANDS AND ISLANDS ENTERPRISE Introduction Highlands and Islands Enterprise (HIE) is the economic and community development agency for an area covering more than half of Scotland‟s land mass stretching from Shetland in the north to the southern tip of Argyll and including almost 100 inhabited islands. In line with the Government Economic Strategy, HIE‟s purpose is to generate sustainable economic growth in every part of the Highlands and Islands. Our vision is for the Highlands and Islands to be a highly successful and competitive region in which increasing numbers of people choose to live, work, study and invest. HIE organises its activities under four priorities:

Supporting businesses and social enterprises to shape and realise their growth aspirations .

Strengthening communities and fragile areas

Developing key sectors, particularly distinctive regional opportunities

Creating the conditions for a competitive and low-carbon region The Importance of Digital Connectivity to the Highlands and Islands HIE considers that modern digital connectivity is one of the essential components of creating a successful region. Its importance is recognised by our partners, our businesses and our communities and is arguably the single most common theme raised by our clients, partners and politicians. Ubiquitous access to high quality, affordable broadband services underpins all HIE‟s strategic priorities. For businesses and social enterprises it enhances productivity and drives innovation. In our communities and fragile areas it has the potential to boost economic development, retain young people and attract new residents. Connectivity, both fixed and mobile, is central to the successful development of emerging sectors such renewables, digital healthcare and cloud computing but also to more traditional sectors such as tourism or business services which are increasingly digital in nature. It is also a prerequisite for any region that aspires to remain competitive in today‟s network-based knowledge economy or move towards a low carbon economy. HIE wants everyone in the Highlands and Islands to access and benefit from Next Generation Broadband. Although it will be challenging we are confident that over time this will be achievable. However, we are determined that the region enjoys an early rollout of the new high-speed services and that action is required now to prevent even our major population centres falling behind the rest of the country. In a region such as ours, which the market sees as uneconomic, we do not believe that “do nothing” is a realistic option. However, being a truly digital connected region is not just about the physical infrastructure and competitive services. It is essential that our businesses, communities and citizens understand the potential benefits that can be achieved through improved connectivity and have the necessary information and skills to realise these benefits. In policy terms the importance of digital connectivity is recognised at Scottish, UK and European levels. Key areas of remit

• to assess the coverage, availability and uptake of broadband across Scotland.

There has been significant private and public investment in the Highlands and Islands over the last 10 years which has led to good coverage of basic broadband across the region for

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businesses and communities. Also, the Pathfinder North project has provided high quality connectivity to schools and Council offices. Around 95% of premises in the Highlands and Islands can access ADSL broadband, with the remaining 5% able to receive a broadband service through the Connected Communities wireless project in the Outer Hebrides and the Scottish Government‟s Broadband Reach satellite project. Whilst availability is good when compared with many other European countries, it is lower than the UK average. Over 60% of premises have a broadband connection. This is similar to the Scottish figure but lower than UK levels. Take-up levels in Scotland have remained at 61% since early 2009, whereas UK take-up levels have continued to increase to 74%.

1

Broadband speeds achieved in the region, however, lag significantly behind the UK average of 6.2Mbit/s2. Indeed, research conducted in 2009 showed that broadband speeds in Inverness averaged just 2.5Mbit/s

2, compared with over 6Mbit/s in Edinburgh and Glasgow.

Rural exchange areas are often large in comparison to the urban equivalents and many premises at the edge of the area are out of reach of ADSL or receive low speed and/or unreliable service. In addition, the use of Exchange Activate technology in 63 of the region‟s smallest exchanges provide a maximum speed of only 0.5Mbit/s. It is estimated that around 28% of premises in the region do not receive a 2Mbit/s service, compared with only 11% of UK premises not receiving this speed. In addition, fewer than 20% of all phone lines in the Highlands and Islands can access faster ADSL2+ services (which deliver up to 20mbps speeds), set against national availability of 80%. Coverage of 2G mobile services is comparable with other rural parts of the UK, although some parts of the region (including the Outer Hebrides and Shetland) are among the worst served in the country. Furthermore, whilst 95% of the UK population can access 3G mobile broadband services, coverage in the Highlands and Islands is restricted to a few of the main population centres.

to consider the ways in which different local areas are working to promote access to broadband in Scotland and how good practice might be shared.

HIE has long been a pioneer in using public funds to address market failure in the delivery of telecommunications services. HIE continues to prioritise the importance of digital connectivity as we consider it is a major driver for achieving many of the outcomes set out in the Government Economic Strategy and our Operating Plan. To highlight connectivity issues, HIE has spent the last two years engaging in discussions with key stakeholders and partners from across the region. These sessions have brought together industry groups, local authorities, academic partners, and community groups to develop a shared understanding of the importance of digital connectivity. These discussions were distilled into a draft Connectivity Roadmap which provides five strands of activity that need to be progressed to ensure the region remains digitally competitive. The activity strands were endorsed by the Convention of the Highlands and Islands in October 2010. The five strands of activity are:

Optimising current connectivity;

Incremental improvements, including progress towards 2Mbit/s to all by 2015;

Improvement to mobile connectivity, both 2G and 3G;

Next Generation Access, including securing early pilot(s) or rollout;

Influencing on behalf of the region. In July 2010, Broadband Delivery UK (BDUK) announced that it would undertake a small number of trials in the UK to test how next generation broadband projects could be delivered

1 The Communications Market Report: Scotland, Ofcom August 2011. 2 Ofcom press release March 2011.

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in rural areas and to help shape the UK Government‟s wider plans for the country. Through the discussions that had already taken place to develop the Connectivity Roadmap, HIE was well placed to put forward a project of strategic importance for the region. This project aimed to deliver next generation broadband to around 40% of the region‟s population. It was announced in the Comprehensive Spending Review 2010 that the Highlands and Islands was one of four projects to receive initial funding. Following this announcement, HIE undertook a further round of discussions with over 15 telecoms infrastructure providers to ensure that our plans were fit for purpose and were likely to achieve our desired outcomes. The result of these are that HIE has chosen to undertake a single procurement which aims to meet Scottish Government, UK Government and EU targets. In June 2011, HIE launched a procurement for a suitably experienced partner to coinvest in the provision of Next Generation Broadband (NGB) services throughout the region. The rollout is expected to be delivered in phases beginning in late 2012. The following milestones have been provided to suppliers as a potential rollout plan for the region, however the final rollout phases will not be confirmed until after contracts have been signed:

2013 – NGB connectivity and backhaul Points of Presence (PoPs) to as many settlements as possible but with coverage to at least two settlements within each local authority (LA) area; 2014 – Minimum of 50 settlements connected and receiving NGB services. PoPs established across the Highlands and Islands area; 2015 -20km radius covered from each of a minimum 50 settlements + 2Mbps coverage to all. Note that the total coverage achieved at this stage is expected to meet Scottish Government targets; 2017 -NGB coverage progress check; and 2020 -NGB to all.

It is estimated that the total value of the contract could be in the region of £200m to £300m (this includes both public and private sector funding). Initial public funding will come from BDUK, HIE and ERDF. HIE is working to identify additional sources of funds in Scotland, the UK and Europe. The timescale for delivering the phases outlined above will be dependent on the availability of funding. HIE‟s wider ambition is to make the Highlands and Islands a truly digital region. Connectivity is the crucial first step however by itself it is not enough. Therefore in addition to its normal engagement through account management of businesses, social enterprise and communities, through its initiative, Digital Highlands and Islands, HIE will address issues such as stimulating the digital economy, digital skills and digital participation. In much of this activity we are closely engaged with other public agencies such as Local Authorities, Business Gateway, Scottish Enterprise and Skills Development Scotland. We are also working with Pathfinder North as they consider options for re-tendering and are exchanging information with the South of Scotland on our respective approaches to NGB. We are through BDUK in touch with the other NGB procurements across the UK and have visited both Cornwall and Northern Ireland to learn from their experience. We shall be pleased to pass on what we have learned to other parts of Scotland.

• to consider what work is required by the Scottish Government, infrastructure providers and others in order to expand Scotland‟s digital infrastructure.

HIE believes that the best way to expand Scotland‟s digital infrastructure out into the rural areas is to encourage the private sector to provide wider coverage of the technologies,

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products and services that it provides on a commercial basis in urban areas through appropriate use of public funds. We have experience of projects at our own hand where assets are retained in public ownership and we can retain a greater level of control over services provided to end users. However, the telecoms sector is fast changing and it is difficult to predict with any certainty how the market might change and how long we must maintain our direct involvement. We have also found that in the main both businesses and consumers like the choice and keen pricing of mass market packages rather than bespoke local offerings. On balance therefore, we favour a “gap funding” style of intervention rather than direct provision. However, we do rely on the telecoms industry being prepared to invest alongside us rather than simply selling us a service. The industry also needs to recognise a shared responsibility to stimulate demand for the new services through appropriate awareness raising and general promotional activities. HIE is also very supportive of the idea of aggregating public sector broadband equirements as proposed in the McClelland Review, and believes that these plans could, over time, lead to real savings. However, based on our previous experience careful consideration needs to be given to any attempt to combine the purchase of public sector network (PSN) services and NGB in a single procurement. This could be overly complex and there is a risk that a PSN procurement would not automatically bring about sufficient improvement in the availability of NGB for small businesses and households to meet current Government targets. We consider that our project will provide significant benefits to the region‟s public sector organisations when they come to re-tender for their own broadband services. Although there are some concerns as to whether our project will bring benefits in time for the first of these re-tenders (Pathfinder North plans to have its new contract in place by March 2014) HIE is confident that its project will extend the availability of high bandwidth services across the Highlands and Islands and bring prices more in line with urban centres. HIE is committed to working closely with the Scottish Government to assist with the development of the Next Generation Broadband Infrastructure Plan and the other aspects of Scotland‟s Digital Future. We value the Scottish Government role in liaising with the Department of Culture, Media and Sport and Ofcom to ensure that Scotland‟s interests are heard at a national level. In particular, current deliberations on the future use of radio spectrum are potentially of great importance in encouraging development of commercially attractive wireless services for delivery of broadband in areas where fibre based services would be too expensive even with public support.

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1

Infrastructure and Capital Investment Committee

10th Meeting, 2011 (Session 4), Wednesday, 23 November 2011

Subordinate Legislation Cover Note

Title of Instrument The Highlands and Islands Air Services (Scotland) Act 1980 Amendment Regulations 2011 (SSI 2011/367)

Type of Instrument Negative

Laid Date 27 October 2011

Circulated to Members

18 November 2011

Meeting Date 23 November 2011

Minister to attend the meeting

No

SSI drawn to the Parliament’s attention by Subordinate Legislation Committee

No

Reporting Deadline 28 November 2011

Purpose 1. These Regulations amend the Highlands and Islands Air Services (Scotland) Act 1980 which makes provision for assistance by way of grants or loans in connection with air services serving the Highlands and Islands.

2. A copy of the SSI and the Executive Note is included with the papers and these provide full details of the purpose of the instrument.

Subordinate Legislation Committee Report

3. The Subordinate Legislation Committee had no comments to make on this instrument.

Recommendation

4. The Committee is invited to consider any issues which it wishes to raise in reporting to the Parliament on this instrument.

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2

Steve Farrell

Clerk to the Committee 26 October 2011