To seek Cabinet Member approval for a proposed Joint venture to develop ultrafast broadband services for the Hereford Enterprise Zone.

that the negotiated deal including that plan be brought back to the Cabinet Member for consideration and approval.

1                 EZ status provides a huge opportunity to fast track the build out of 170 acres of development land, creating 4,000 job opportunities over the 25 year lifetime of the zone.  Access to good broadband is seen by Government as a major policy priority  in establishing the zones.  This is even more important in Hereford, where to exploit the zone’s full potential we need to address comparative locational disadvantages particularly in accessing physical transport infrastructure such as the motorway network.  Having ‘best in class’ broadband capability gives the zone first mover advantage as a business park and a competitive edge in attracting communication focussed and data hungry businesses. Without taking action, only BT FTTC (fibre to the cabinets) and leased line services will be available. These do not allow the site to be competitive against other areas, particularly with the increasing scope of the Super Connected City programme.

2                 Different commercial and operational models have been considered. The full joint venture approach under the MEIP allows for the development of appropriate broadband services, and commercial benefit from the investment in the duct infrastructure, without the requirement for a state aid notification – which could potentially add significant delays.

3                 To undertake a joint venture development to deliver ultrafast broadband services requires an appropriate partner (or partners) to provide the necessary investment and technical capabilities. A respected company in the sector has approached the EZ with a view to undertaking a joint venture to commercialise the investment in duct infrastructure on the site having become aware of that investment. Their interest suggests that the approach is commercially viable.

4                 The company in question has provided an outline proposal for a joint venture development. However, it is believed that the initial proposal may have scope for an improved commercial outcome for the council. Interest in undertaking some form of joint venture commercial arrangement has also been expressed by another local company – who already have a high bandwidth (1 Gbps) backhaul fibre connection to the site. Further activity to identify and select the most appropriate joint venture partner is considered necessary and appropriate to seek to ensure the best deal.

5                 There is a need to provide a detailed commercial analysis to meet the requirements of the MEIP development. Detailed negotiations with the identified joint venture partner will allow the full commercial scope for the council to be determined, and develop the detailed commercial analysis required to demonstrate that no state aid is involved.

6                 A robust business plan is required as a condition of the use of the MEIP. The business plan must demonstrate a reasonable expectation of an appropriate return on investment – a condition of proving that no advantage is conferred, and as such the investment is not state aid.

7                 A potential deal would see the most expensive component of the duct infrastructure outstanding installed by the private sector partner, and an annual financial return to the council (EZ) by that partner.  Entry into a deal would ensure that the private sector partner would look to maximise uptime and usage of the network to the benefit of the several hundred businesses on the Estate and on the Zone.

The preferred option, Option 1, is a full joint venture.

1                 Option 1 - Full joint venture option

The council (on behalf of the EZ) would enter into a full joint venture (with no fixed duration) with a communications provider to establish a wholesale service portfolio for the site.  The council/EZ would undertake a market engagement exercise to identify an appropriate partner to undertake a joint venture approach.

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. It is expected the EZ/council would be able to contribute the existing duct infrastructure (to date) as its equity contribution to the joint venture, with the partner contributing appropriately to ensure the commercial viability of the undertaking. Undertaken using the “market economy investor principle” (MEIP), this approach is not state aid. The full joint venture option has the advantage of providing the best opportunity to deliver ultrafast broadband services to the site pro-actively, and to gain an optimum commercial benefit without requiring state aid notification.

Disadvantages

It has the disadvantage of requiring careful commercial planning and negotiation to ensure best value to the council/EZ.

2                 Option 2 - Do nothing

Advantages

No further investment would be needed.

Disadvantages

Open access duct infrastructure for the enterprise zone (EZ) has been installed to support the provision of 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, but no commercial benefit will be gained by the council other than basic fibre tax. It is also unlikely that it will lead to widespread availability of fibre based ultrafast broadband services. The duct infrastructure will also not be extended to serve the remaining areas of the Rotherwas industrial estate which are not part of the EZ. Doing nothing will result in uncertain utilisation of the existing investment in duct infrastructure, and potentially poor availability of fibre based ultrafast broadband services for the EZ.

3                 Option 3 – Basic infrastructure provider option

The council (on behalf of the EZ) would offer free access to the duct infrastructure directly to communications providers.

Advantages

Conceptually, this is relatively simple. However, 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 management of the whole relationship with communication service providers. It would also be important to ensure access is provided at “market rates” – though it is not clear what “market rates” are since there is no established and active market for these infrastructure services in the UK. The “basic infrastructure provider option” has the advantage of strong commercial control over the use of the infrastructure.

Disadvantages

This option would require a dedicated expert capability to be established at a cost to the EZ (council).  It would also require additional investment to complete the full infrastructure network, and an ongoing financial commitment to manage its use.

4                 Option 4 - Concession option

The council (on behalf of the EZ) would offer a concession to service providers to use the passive infrastructure to deliver wholesale services on a commercial basis.

Advantages

This is a relatively established principle for the delivery of Wi-Fi services in busy urban areas – where access to “street furniture” is offered on a concession basis. The “concession option” has the advantage of providing an opportunity to deliver ultrafast broadband services to the site, and to gain a 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).

5                 Option 5 - Joint venture concession option

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.