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Digital Scotland 2020: Achieving World-Class digital infrastructure: a final report to the Scottish Government


5. Policy recommendations

In our final chapter we provide a list of policy recommendations and points for consideration which the Scottish Government will have to take into account for the World-Class 2020 vision to become reality. Our recommendations are categorised by element. We also illustrate where in the international cases some of these actions have been adopted. We include in the recommendations, items which are relevant to Scotland, but have not arisen in the other study countries.

5.1 Infrastructure deployment

There are three main approaches taken for achieving world class infrastructure deployment in the international cases (Section 4), they are as follows:

  • Option 1 -Competitive Market model - Lithuania and South Korea
  • Option 2 - Mixed model - Sweden and Ireland
  • Option 3 - Government Funding - Australia

In addition, South Korea represents a blend of Options 1 and 2, as the bulk of infrastructure deployment has been based on a competitive framework and private investment; at the same time the government has fostered and facilitated the investment as well as supported broadband adoption and utilization through various government programs.

With respect to Scotland, we dismiss Option 3 as being unrealistic. We don't believe there is the political will or the legal capability to attempt structural separation on BT in Scotland (even if Scotland is independent).

The most realistic approach for Scotland is a combination of Option 1 and Option 2. The competitive market model, Option 1, is the right solution where demand can be stimulated (by both government and service providers) and therefore it is economically efficient for service provider to deploy their network. The Mixed Model, Option 2 with private and public investment is correct for those areas where commercial deployment will not reach, such as remote and rural areas, islands etc.

Given our proprosal for Option 2, we have developed a set of recommendations to achieve the infrastructure vision in 2020.

Recommendation 1 - examine options to share network access roll out costs with other utilities

In Ireland the government shared communications deployment costs with other infrastructure investment (such as the electricity grid upgrade and distribution system). This option should be explored in Scotland.

More specifically, we recommend a formal programme to investigate the three components to 'riding over' public and utility networks: (1) where to go; (2) the accessible infrastructure that goes or is planned to go there; and (3) the measures that would be necessary to direct communications providers to share and reduce costs.

This should be completed by December 2013 to provide time to integrate in any enhancement for 2020.

Recommendation 2 - leverage other utility infrastructure

Continue to explore the use of other assets such as existing backhaul connectivity delivered to schools and libraries; the issues differ from Recommendation 1 in that most of these services are leased circuits assembled into a functional network, often with restrictions upon use, capacity and control.

The Irish and Swedish cases provide insight in to this Recommendation.

Make available infrastructure information for non-communication provider service routes (cable routes, ducts and other technical planning data); this provides data that would be required for Recommendation 1.

The Lithuanian case provides insight in to this Recommendation.

Recommendation 3 - Public Networks - SWAN, Education (Schools & Universities)and Health

The public networks are intertwined and yet separately commissioned, implemented and funded.

The Scottish Government is already reviewing the combined role of Ja.Net and the Pathfinder project, this should be broadened to take into account the Ja.Net N3 gateway. There are a range of issues relating to the nature of the network delivering the Pathfinder connectivity and the ability to re-use this connectivity. Ja.Net restrictions may be eased in coming years.

Understanding the impediments to 'riding over' the Ja.Net, N3 and Pathfinder connectivity and what actions can be taken (1) to mitigate the restrictions during the current contract; and (2) dependent upon when the contract expires, to remedy the problems at contract renewal.

We recommend the government completes the review and understands the preferred routeby December 2013 to provide time to integrate in any enhancement for 2020.

The broader opportunity to link all public sector locations across central and local government and to utilise this connectivity to deliver the necessary connections for communities as a whole would have a profound impact on the availability of high capacity links especially in rural Scotland.

There are a number of potential initiatives that are relevant to SWAN in particular and the public sector networks as a whole: (1) the greatest imperative is to identify those utility based communication systems that could be co-opted or commercially engaged to help deliver a shared route between sites and to the more remote locations; and (2) the opportunity to aggregate demand across the public sector such that any commercial offer attracts the best terms possible.

We recommend the government undertakes a review of utilities and related industry sector telecommunication network assets and assesses the opportunity to aggregate demand in a way that positively influences the ability to buy capacity and support community access.

Recommendation 4 - new builds and certification programme

South Korea instituted two programmes to facilitate fibre into new buildings (MDUs) and created a certification programme to demonstrate the broadband readiness of new MDUs. It is recommended that the Scottish Government should institute such a change to the planning rules and building controls in Scotland at the earliest opportunity.

Recommendation 5 - Tools to enable infrastructure and technology deployment

South Korea utilised a range of tools to promote innovation in technology development including: tax credits, R & D grants, and other tax benefits. The Scottish Government may be able to use similar tools in its financial toolkit to stimulate innovation. We recommend the Scottish Government explores the range of tools both as an independent nation and in its current form.

Recommendation 6 - Rural area deployment

Sweden has stringent national mobile broadband coverage requirements for the second LTE licence. Other case examples do not show such extensive rural coverage. We recommend the Scottish Government should examine the mechanisms to deliver fibre to all communities with 1,000 premises / 2,000 people and data capable mobile wireless coverage (LTE and its 2020 successor) to greater than 98% of the geography and 100% of the population. (See also Section 3.4 and 4.9).

Recommendation 7 - aggregation of diverse rural networks

The route to 2020 will see a range of small, rural networks developed in areas where there is no economic incentive for commercial providers to roll out; these will include community projects funded by community broadband schemes.

There should be a 'basic standard' so that these networks might be assimilated into a wider commercial network over time.

We recommend the Scottish Government explores the options and ensures that when contracts are created this flexibility is built in.

Recommendation 8 - Open access

The Swedish model offers 'public sector' fibre in competition with the incumbent. The recent legal challenge by two operators to Birmingham's plan to follow the same approach is, as yet, unresolved. The Swedish approach delivers what is necessary for a 'future friendly, digital infrastructure' and it is one that the Scottish Government should consider. We recommend the Scottish government examines the arguments for the "Swedish approach".

Recommendation 9 - Network roaming in rural areas

Rural area roaming takes place in other EU markets. There is a need to deploy the technology to support network roaming in Scotland. There are, today, a number of mechanisms to allow emergency services and other government agencies to roam between networks; these include using SIMs issued in Lichtenstein and other localities where the operators and regulators actively support roaming by operator code.

The Scottish Government should examine the case for roaming by operator code, the use of shared radio access network(RAN) or another solution that delivers the same fit, form or function.

5.2 Fostering demand stimulation and take up

The 2020 vision of everyone participating in "anything, anytime, anywhere" implies almost everyone is digitally literate, energised, confident and motivated to interact in society. This could be with friends and family, commercially, with the public sector or with machines[10].To achieve this vision, the demand stimulation and educational programmes must widen their objectives beyond just "take up".

Recommendation 1 - review current and past demand stimulation programmes

There is quite a range of programmes identified in the international case studies, particularly in South Korea, used to stimulate the take-up of digital services. However, there is no evidence of the actual impact that the individual activities may have had on take up and continued use. Similarly, at home, both the Scottish and UK governments, through a range of delegated bodies have undertaken an assortment of stimulation programmes.

Any scheme will have to rise to the challenges inherent in the introduction of any new product or service. Given the relatively short timescales, it is imperative that all proposed approaches are evaluated quickly and rigorously; the effective ones will also have to be resourced adequately and sustained.

Evaluation of the deployed approaches has to balance two competing issues: (1) to allow enough time for the approach to have crossed the chasm from the 'early adopters' into the 'early majority'; and (2) not continue to fund an approach that isn't going make it into the majority.

We recommend a short, sharp evaluation of the current and past programmes to understand what approaches have or have not workedand which may be scalable and transferrable to a larger platform. The requirement is to change public behaviour and therefore the field should not be limited to previous 'digital' programmes.

There is a need to specifically review behavioural approaches that have impacted SMEs.

Recommendation 2 - leverage digital solutions in education

South Korea, Lithuania and Sweden provide examples of success by embedding digital access in education: South Korea provided free PCs to low income students with good grades; Sweden set targets for digital literacy; and Lithuania provides access to school diaries and reports online supporting students and encouraging parents to engage.

The world of education in 2020 will inherently be 'on-line-centric' engaging with those in education will be relatively easy but for those of school age the biggest challenge will be engaging with parents or carers. There are two implicit Recommendations: (1) to ensure that those in education have access to the technology to engage in education beyond the walls and time boundary of the school day; and (2) that those who care for and support them have at least the basic skills to follow what their children are doing.

Recommendation 3 - leverage public sector research and university research programmes which focus on demand stimulation

Investigate opportunities to devise research on stimulating demand and take up of communications services with, amongst others, Scottish universities and Research Councils UK.

Recommendation 4 - Create targeted stimulation programmes (financial, educational, training) for the last 10% of unconnected citizens

Again, South Korea offers a potential model by providing subsidies to low income families and free broadband for five years. They also developed programmes for niche market sectors such as farmers and the disabled as well as training for housewives. Sweden offered tax deductions for home computers. Ireland created a co-funded national awareness campaign which targeted both citizens and SMEs.

We recommend that the Scottish Government, in coordination with other stakeholders such as educators and the third sector, devise targeted programmes based on a segmentation of the market which identifies the final 10%. This may include segments of the elderly, the disabled, residents of certain institutions (e.g. nursing homes), and residents in remote areas,

The Scottish government may also have more flexibility with regard to financial incentives as an independent country. This aspect is beyond our scope but clearly needs to be examined.

Recommendation 5 - Targets and awareness campaigns promoting new public sector services

Promote new ways of providing healthcare, teaching, communicating with the public sector by 2020. For example, in Australia there is a goal to have 25% of specialists to provide tele-health services to patients by 2020.

The challenge in instituting these types of programmes will be to achieve consensus on how to proceed across stakeholders (professionals in the public and private sectors, end users and third parties, such as insurers) without delaying significantly their implementation. Accordingly, the Scottish Government may have leverage to proceed with innovative approaches within the government sector (with respect to citizen-government interactions across many domains, from tax submissions to securing of permits as well as in the public health system, etc.). Specific targets should be set in each of these government-based activity segments to foster eGovernment in the broadest sense.

As for campaigns to build awareness and stimulate adoption of new online mobile-based practices, a review of previous such initiatives in Scotland and elsewhere (both broad-based and targeted at particular populations or activities) should be launched immediately so that a series of Vision 2020 campaigns can be planned intelligently and rolled out.

Recommendation 6 - Targeted opportunities

Estonia has by far the most highly-developed national ID card system in the world. Much more than simply a legal picture ID, the mandatory national card serves as the digital access card for all of Estonia's secure e-services. The chip on the card carries embedded files which, using 2048-bit public key encryption, enable it to be used as definitive proof of ID in an electronic environment.

It's wonderful but it doesn't work without a UK national ID card. Introducing such an ID card and making its use culturally and practically acceptable is a monumental task in its own right.

We recommend the Scottish Government explores analogous examples that fit the culture, practice and habits of the Scottish population now and are sufficiently ingrained to be used at the heart of schemes for the future.

Recommendation 7 - Participation in national and international research

The South Korean government funded and promoted a range of technology and application programmes as part of its supply side demand stimulation with some failures (Wibro). Similarly funding of basic and pre-commercial research already takes place in the UK (TSB) and European Union through programmes such as the 7thandHorizon 2020, innovation platforms and events such as ICT2013[11]in Lithuania which will showcase ICT research projects focusing on science and industrial leadership.

The Scottish Government should participate in and monitor activities such as those above and maintain a dialogue with universities and corporate stakeholders who are active in research activities. The government currently has a large innovation fund, but it targets all sectors. We recommend the government should explore the pros and cons of establishing its own "innovation fund"to develop thedigital economy strategy. This could either be by carving out some of the funds from the current innovation pot, or by establishing a new fund. However, we do not recommend the South Korean approach to government trying to choose technological winners.

Recommendation 8 - Review of tax credits for SMEs

The Scottish Government should examine if tax credits to SMEs would assist the final 5-10% to take up digital services. The credits should be tuned to business applications and ICT training programs, as otherwise they may simply stimulate higher use of entertainment software and social media.

Recommendation 9 - explore targets for mobile and on the move and flexible working activities

The Australian government has created a goal for 2015 that at least 12% of Australian government employees have a tele-working agreement with their employer. Given the vision of anytime, anywhere access to communications in the 2020 vision, a goal for Scotland of, say, 50% of Scottish employees with a tele-working agreement would not be unreasonable.

5.3 Funding options

While the international precedents show a wide range of funding options, tailor made to the specific local situations, there also a few common threads: rural broadband requires some kind of public funding for commercially less attractive areas; a leading role of the incumbent operator cannot be taken for granted (and -in some cases- may not be desirable); and thirdly, EU member states use their access to funding provide by the EU and EU institutions, including the EIB. The recommended action points for demand stimulation require public or PPP funding. Funding for infrastructure deployment can be provided by private parties (as was the case in Lithuania's urban areas), but timing and effectiveness may not support government objectives (as in Ireland) and require corrective or accelerating action. Infrastructure funding options need to distinguish between urban and rural deployment and take into account timing issues, as illustrated in Figure 22.

Figure 22 Funding Flowchart (Kalba International & BAS LLP)

Figure 22 Funding Flowchart (Kalba International & BAS LLP)

Recommendation 1 - Design national roll-out plan

Pursuant to the Digital Agenda for Europe (DAE), all European Member States are developing national broadband plans, in accordance with DAE targets. South Korea and Australia both adopted the same approach, by developing a national broadband strategy. Following the adoption of a national broadband strategy, the implementation of the strategy will require a roll out plan as well as a demand stimulation plan. The roll-out plan will make a detailed timing and costing of the plan possible.

Recommendation 2 - Detailed financial modelling and choice of suitable financing structures

Next, the roll-out plan needs to be translated into a detailed financial model, which takes into account costs, timing and revenues, and has the flexibility to run different scenarios and test the sensitivity to assumptions. Based on the financial model and funding options available the most suitable funding sources need to be selected.

Recommendation 3 - Structuring and Marketing of financing facilities

Once the most suitable funding sources have been identified, the intended facility or facilities need to be structured, taking into account project specific elements and prevailing market conditions. Where applicable, procedures for government and EU funding need to be reviewed and translated in specific action points.

Recommendation 4 - Documentation and closing of financing facility/facilities

Depending on the complexity of the desired funding structure(s) and the number of funding sources involved, documentation can take a substantial amount of time, in particular where public or other funding sources are required to follow rigid procedures and approval processes.

Recommendation 5 - Arrange public funding for parallel demand stimulation programs

The need to coordinate infrastructure roll-out and demand stimulation impacts the funding strategy as well: in particular if funded by the government, funds to finance demand stimulation should be allocated in the budget and available when needed to complement the infrastructure roll-out

Recommendation 6 - Manage financing facilities

A suitable structure needs to be set-up to manage the financing facilities, which are likely to be long-term. Apart from administration and reporting requirements, attention should be given to continuing investor and stakeholder relations. Furthermore, for long term facilities, market conditions should be monitored and attractive refinancing opportunities should be evaluated.

5.4 Regulatory Recommendations

The two international cases which included some proactive regulatory contributions to broadband development were Sweden and Lithuania. In most of the other cases supra-regulatory initiatives followed from governments.

There are a range of Recommendations listed below. Almost all of the activities are currently undertaken by Ofcom. Should the referendum lead to an independent Scotland then it is possible all of the above Recommendations (and indeed all communications and postal regulation) will be undertaken separately for Scotland and by a Scottish regulator. We discuss some of the regulatory activities which have a direct impact on infrastructure and service development in the UK and therefore delivering the Scottish vision.

Recommendation 1 - mandated access to infrastructure

In South Korean as part of the network access regulations, the government required the cable TV service providers to lease capacity from network operators, such as Korea Telecom and Powercomm,who in turn were required to make their capacity available on a wholesale basis. In the Lithuanian example, the regulator required the incumbent to provide access to "cable ducts and other relevant infrastructure such as poles, collectors, towers, masts, premises and other equipment." (Lithuanian case Section 2[12]). These requirements enabled competition in the provision of broadband services by multiple service providers in one case (South Korea) and multiple network owners in the other (Lithuania).

In the UK, the requirement to provide wholesale access to fixed infrastructure is reviewed, assessed and mandated through the market review process. The Wholesale Broadband Access (WBA) Market and Wholesale Local Access (WLA) Market reviews are two of the primary mechanisms. Ofcom has begun the process for these two market reviews by publishing Calls for Input. When completed in March 2014 they will set the framework for wholesale access until 2017. The Scottish Government should monitor the findings of the market reviews and, potentially, respond to the proposed framework.

Recommendation 2 - Spectrum re-assignment

The example in the Lithuanian case examines the re-assignment of 900 MHz spectrum, with three mobile operators agreeing to swap frequencies with the role of the regulator as coordinator, proposing alternative exchanges of frequencies until a consensus was reached. This was an innovative approach to create a win-win situation so that the three operators all have sufficient spectrum to deploy an LTE solution.

In the UK all aspects of spectrum policy and management reside with Ofcom. Whether this approach would be acceptable to either Ofcom or any of the mobile operators is unclear, however it is worth keeping in mind for the future. Ofcom has attempted to achieve similar pro-competitive objectives through re-farming of existing mobile spectrum (e.g. 1800 MHz band) but has found it difficult to achieve consensus among the operators on how best to move forward.

In an independent Scotland, it is likely all spectrum requirements would sit with a spectrum authority within the Scottish government-within the telecom regulator or communications ministry or an independent spectrum agency, the three main models that different countries follow-or some hybrid thereof, unless the Scottish government reached a different agreement with Ofcom and the UK government.

Recommendation 3 - License obligations in spectrum licences

Sweden proves the leading example for this Recommendation. The regulator imposed a nationalgeographical coverage obligation for the winner of the license in the 800 MHz band to ensure coverage in rural areas. However, there was a limit set to the maximum amount of investment required and the requirement applies specifically to homes and businesses identified by the regulator

There is a coverage obligation[13] included in the upcoming auction for 4G spectrum in the UK. This places a requirement to cover 98% of the UK population and not less than 95% in England, Scotland, Wales & N. Ireland for one block of spectrum along with indoor coverage requirements across the 800, 900, 1800 and 2100MHz bands. This is a good first step to improve mobile coverage; however, the details need to be more focused on Scotland.

This type of measure should be considered for all future spectrum releases, but should target population and geography. The Scottish Government should consider 98% of geography and > 99% of population as coverage targets.

NB - The market will factor the implications of coverage into the value of spectrum and therefore increased coverage obligations is likely to reduce the bid value of spectrum at auction.

Recommendation 4 - Monitor Universal Service

The current UK government created a universal service commitment for 2 Mbps by 2015. This is not at all world class and would not enable the vision as described in Chapter 2. It is also not a regulatory obligation.

There also exists a separate universal service obligation (USO) for fixed telephony and other services as part of the European Regulatory framework. The USO resides with BT in the UK.

The European Commission undertook a periodic review of universal service in 2010 and published its recommendation in 2011[14] whereby it decided not to amend the current concept or principles nor mandate a broadband data rate or include mobility in the definition.[15]

We have two recommendations:

1) establish the effectiveness of the universal service commitment for Scotland

2) examine universal service obligations in other markets, both within and outside of Europe, to understand if the trend is to create a faster, broadband obligation.This could include assessing the cost and benefit to Scotland of imposing a USO. While we know that very few governments have included broadband as part of the universal service provision to date, this may change over the coming years

Recommendation 5 - monitor revision of relevant markets susceptible to Ex-Ante regulation

The EC has published a questionnaire for the public consultation on the revision of the recommendation on relevant markets susceptible to ex-ante regulation in the electronic communications sector. It has been more than four years since the current list of relevant markets was adopted.

We recommend the Scotltish government monitors the review of relevant markets. It is probable, that an independent Scotland , would define the national market would be defined as Scotland, rather than the UK. Therefore it is important for the Scottish Government to understand the implications for Scotland going forward to 2020.

Recommendation 6 - Prepare for World Radio Conference (WRC) 15 and subsequent WRCs

There will probably be two WRCs up to 2020 with the first meeting taking place in 2015. Our recommendation differs depending on Scotland's status post 2014.

If Scotland is independent, there will be a great deal of advance preparation, consultation, objective setting necessary; Scotland could undertake this for 2015 supported by a programme of activity commissioned in 2013. A more informed plan could be developed for the post 2015 WRC.

It may well be in Scotland's greater interest to maintain a 'British Isles' block within the ITU and consequently the WRC to limit the co-ordination issues.

If Scotland is not independent, the government should have an advocacy role in the UK process, after taking into account where other UK stakeholders stand and helping develop coalitions on key issues for Scotland. The UK is under-resourced in the ITU arena and consequently the WRC process and provides only one sub-group chairperson; Scotland could engage in the process more closely and seek to provide a centre of excellence for one of the lapsed areas of technical support in the ITU.

This is just one aspect of the international role which Ofcom currently undertakes. The Scottish government will need to develop a plan for all international aspects of its electronic communications policy as an independent nation. As a devolved nation delivering a centre of excellence to replace areas that Ofcom has allowed wither would provide a route to having greater influence in the UK position.

Recommendation 7 - Monitor plans and take proactive actions for future release of spectrum beyond 4G

There will be future releases of spectrum between 2013 and 2020 including "5G" spectrum and public sector spectrum in various bands at a minimum. The Scottish Government will need to monitor plans for future spectrum release and be ready to implement their own initiatives depending on the referendum decision.

Spectrum Auctions

Shared Spectrum

Propose two groups:

Market chooses

Social need

Spectrum where the primary user's (eg Defence, Transport or Home Office) utilisation is limited by geography or time.

Less attractive to mobile network operators but of great significance for other uses, for example:

  • Sensor connection for the electrical power distribution system
  • Train to trackside communications
  • Wireless service in remote locations

Spectrum is also expected to be auctioned by UK MoD during this period and possibly by other entities, such as broadcasters and other government entities. The Scottish Government should play a role in reviewing and commenting on how these releases of spectrum are to be implemented, including with respect to the use of the resulting auction receipts.

Recommendation 8 - Copper to Fibre switchover

A date should be set for the end of copper plant in public telecommunications networks with migration plans for all public fixed network connectivity is delivered by fibre. This Recommendation would send a clear message to the markets, provide a target for vendors and provide an unequivocal upgrade path. The Scottish Government in its current guise as a devolved nation should lobby Ofcom. As an independent country it needs to set clear political objective.

5.5 Future Research

Recommendation 1- Indicators for 2020

New indicators will be required to measure the adoption and use of digital technology and services as Scotland approaches 2020. The evidence gathered will inform future policy decisions across the suite of public services. Ofcom gathers statistics on communications take up and use. Departments of the UK and Scottish Government examine household and business use etc.Many international bodies such as the ITU and OECD gather and analyse data. We recommend the Scottish Government researches and develops a set of indicators which will demonstrate success on the path to anything, anywhere, anytime.

Recommendation 2 - Examine utilities network infrastructure

Leveraging other infrastructure in Scotland is key to the 2020 vision. We recommend the Scottish Government further examines the use of utilities (including rail) telecommunications infrastructure to provide access and backhaul solutions.

Recommendation 3 - Explore Connecting Europe Facility (CEF) funding options

The CEF will potentially contribute to telecommunications infrastructure projects from 2014 - 2020. At the present time the amount of funding which may be available is uncertain. A proposal for regulation has not been adopted yet and could go through several iterations before agreement by the European Parliament (EP) and the Council.

We recommend the Scottish Government monitor the development of the CEF proposal through the EP and Council taking a pro-active stance where it is in Scotland's interest. In parallel the government can examine the advantages of using this form of financial instrument in non-commercial areas as well as looking at what interest this may generate from the private sector.

Recommendation 4 - evaluation of demand stimulation programmes

In addition, as noted earlier, there is a need forevaluation of demand stimulation programs, in Scotland and elsewhere, that will allow intelligent decisions to be made concerning which types of projects should be supported going forward. Similar evaluations should be undertaken with respect to digital utilization campaigns. Both these efforts should be completed as soon as possible, given the planning cycle for the programs involved. We recommend the evaluation is undertaken in early 2013 as it can then include any plans for promoting the Step Change 2015 programme.