Joint venture deal could bring "ultrafast" broadband to Hereford Enterprise Zone

Herefordshire Council is already out of the blocks and wants a partner to set the pace.

A joint venture bid has been signed off at cabinet level – assessed as the best of five options.

The Hereford Times has learned that two companies have already expressed an interest in the idea of a joint venture to HEZ, one with an outline proposal to commercialise  investment in broadband infrastructure, the other with a high bandwidth fibre connection to the site.

What can be confirmed this week is a cabinet level agreement to the principle of developing a joint venture opportunity to deliver broadband services to HEZ and Rotherwas industrial estate.

That agreement provides for the choice of partner to be signed off by the Director of Economy, Communities and Corporate Geoff Hughes.

The negotiated deal - including a business plan - would be brought back to the relevant cabinet member for approval.

HEZ is pitched as having to potential to develop around 170 acres of land at Rotherwas for hi-tech business and especially attractive to firms in the defence and security sector.

As such, ultrafast broadband is a priority, particularly as a counter to the zone’s recognised location disadvantages  like distance from the motorway network.

Without taking action, only BT fibre to the cabinet (FTTC) and leased line services will be available.

The council has considered alternative commercial and operational models, but assessment outlines a full joint venture approach as allowing for the development of “appropriate” services.

There is commercial benefit seen in investment in related duct infrastructure without the requirement for a state aid notification - which could add significant delays.                 

 A potential deal would see the duct infrastructure – the most expensive component - installed by the private sector partner, with an annual financial return to the council by that partner. 

Entry into a deal would ensure that the private sector partner would look to maximise usage of the network to the benefit of HEZ.

The basic  broadband services  previously available to Rotherwas is recognised as having been entirely inadequate for business use.

A reliance on very long ADSL lines resulted in very low bandwidth.

Until recently, the only alternatives were leased lines or wireless broadband services.

Leased Lines are prohibitively expensive for most business users, and wireless unacceptable to many businesses on the site.

The BT backed Fastershire programme  has brought an FTTC service to the site.

Four BT cabinets serve the Rotherwas industrial estate and HEZ site with the expectation of 30Mbps download and 5Mbps upload  bandwidths.

Although a big improvement on existing provision, FTTC does not provide a competitive service in comparison with other  locations where ultrafast broadband services will be made available.

An open access duct infrastructure was identified as a means of making fibre based ultrafast broadband available services on the site with a scheme planned over four phases to cover proposed business occupation on HEZ and the industrial estate.

The first and second phases are complete with Installation costing around £300,000.

A third phase is ready to be installed while the fourth opening out the existing estate has been planned, but is not an initiative the HEZ can readily invest in as it only helps the existing estate.

This phase would be subject to the conclusion of the negotiations and will cost around £175,000.

BRINGING ULTRAFAST BROADBAND TO THE HEREFORD ENTERPRISE ZONE – THE OPTIONS

PREFERRED OPTION -  FULL JOINT VENTURE

 The council, on behalf of HEZ, enters into a full joint venture - of no fixed duration - with a communications provider to establish a wholesale service portfolio for the site. 

 The Council/HEZ would undertake a market engagement exercise to identify an appropriate partner.

Council papers identifying potential partners put BT, Virgin Media, Airband, Gigaclear, Broadway Partners, Hyperoptic, ITS Technology Group and WarwickNet amongst those that could “become appropriate”.

ADVANTAGES

The joint venture approach is seen as allowing the public sector to work with a suitable service provider to share risks and resources  make the service provision viable.

It is expected that the Council/HEZ  would be able to contribute the existing duct infrastructure as an equity contribution to the joint venture.

 The partner would contribute to ensure the commercial viability of the undertaking.

Undertaken using the “market economy investor principle” this approach is not state aid and is pitched as providing the best opportunity to deliver ultrafast broadband services to the site pro-actively – and gaining optimum commercial benefit - without the need for state aid notification.

DISADVANTAGES

Requires very careful commercial planning and negotiation to ensure best value to the council and HEZ.

THE OTHER OPTIONS ASSESSED        

DOING NOTHING

No further investment needed.

DISADVANTAGES

Open access duct infrastructure has been installed for the HEZ to support fibre based broadband services.

This infrastructure is part constructed and needs to be commercialised.

If no further action is taken, the infrastructure may remain unused or may be only partly used by service providers with no commercial benefit to the council beyond basic fibre tax.

It is also unlikely that it would lead to widespread availability of fibre based ultrafast broadband services on the HEZ.

The duct infrastructure would also not be extended to serve the rest of Rotherwas industrial estate  not part of the HEZ.

THE “BASIC INFRASTRUCTURE PROVIDER” OPTION

The council - on behalf of HEZ - offers free access to the duct infrastructure to communications providers.

ADVANTAGES

Relatively simple as a concept but there would be some necessary management of the infrastructure and its use.

This would require a “dedicated expert” capability to be established for the management and maintenance of the duct infrastructure and of the relationship with service providers.

It would also be important to ensure access is provided at “market rates” –  though it is not clear what “market rates” are with no established and active market for such services  in the UK.

The option does offer the potential for strong commercial control over the use of the infrastructure.

DISADVANTAGES

 The “dedicated expert capability” would come at a cost to the council and HEZ.

Also, additional investment would be needed to complete the full infrastructure network, with an ongoing financial commitment to manage its use.

THE “CONCESSION OPTION”

The council -  The council - on behalf of the HEZ - would offer a concession to service providers to use the infrastructure to deliver wholesale services on a commercial basis.

ADVANTAGES

An established principle for the delivery of Wi-Fi services in urban areas – where access to “street furniture” is offered on a concession basis.

Provides both an opportunity to deliver ultrafast broadband services to the site and to gain  commercial benefit.

DISADVANTAGES

There are no known cases of concessions for the use of duct infrastructure. 

Although concessions for the use of existing infrastructure are not considered state aid, recent guidance suggests that the construction of infrastructure specifically to be used in a concession model may represent state aid.

As with the basic infrastructure provider option, it would be necessary for the EZ or council to complete the construction of the duct infrastructure to ensure complete coverage of ultrafast broadband services. 

It has the disadvantage of requiring investment to complete the infrastructure construction, and an unclear state aid position (which realistically requires notification to avoid challenge).

JOINT VENTURE CONCESSION

The council (on behalf of the EZ) could offer a limited period concession to a service provider to use the passive infrastructure to deliver wholesale communications services, and enter into a joint venture with the chosen concession holder.

ADVANTAGES

The joint venture approach allows the public sector to work with a suitable service provider to share risks and resources as necessary to make the provision of services viable.

Through the concession style approach, it is expected that the EZ/council would be able to contribute the existing duct infrastructure as its equity contribution to the joint venture, with the partner contributing appropriately to ensure the commercial viability of the undertaking.

Undertaken using the MEIP ensures this approach is not state aid.

The joint venture concession option has the advantage of providing an opportunity to deliver ultrafast broadband services to the site, and to gain a commercial benefit without requiring state aid notification.

DISADVANTAGES

This approach has the disadvantage of requiring careful commercial planning, and investment to complete the infrastructure construction.

The limited period of the concession based approach may well also restrict the commercial attractiveness of the approach compared to a full joint venture option.