Policy paper

Shared Rural Network (SRN) - transparency commitment publication

Published 11 March 2021

This was published under the 2019 to 2022 Johnson Conservative government

1. The Department for Digital, Culture, Media & Sport (DCMS) is publishing information in relation to the SRN programme, as required by Article 3.7 of the UK-EU Trade and Cooperation Agreement (TCA). This transparency notice provides information on how the programme meets subsidy principles set out in Article 3.4 of the TCA which are now binding under domestic law by virtue of s.29 of the European Union (Future Relationship) Act 2020. In line with these commitments, a UK state subsidy online database has been set up and will be administered by BEIS. The award of Grant Funding is made by the Authority under section 13A of the Industrial Development Act 1982.

2. The government announced on 9 March 2020 that it had agreed a £1 billion deal with EE, O2, Three and Vodafone, the four Mobile Network Operators (MNOs), to deliver the SRN. The network will be underpinned by spectrum licence coverage commitments on individual MNOs to ultimately reach 90% coverage each, which together will deliver a collective footprint of 95% geographic coverage. The programme is made up of private and publicly funded elements:

• The four MNOs will collectively invest over £530 million in a shared network of new and existing phone masts. This investment is in areas of partial commercial coverage, referred to as partial not spots (PNS) - areas where there is currently coverage from at least one, but not all operators.
• Government will invest over £500 million to target hard-to-reach areas where there is currently no coverage from any operator (Total Not Spots or TNS). As part of the government funded element of the programme, government will also fund upgrades and deployment for all four MNOs on mobile sites being built to deliver the Home Office’s Emergency Services Network (ESN - Extended Area Service Network) Programme. References to the TNS project and TNS subsidy include this element of the funding, as it relates to the additional radio equipment on upgraded Home Office sites.

3. As part of the public investment, DCMS is committing grant funding of £354m to Digital Mobile Spectrum Limited (DMSL), a joint delivery vehicle which the four MNOs have repurposed to be the recipient of the grant funding and to support such delivery. The funding will be to enable the TNS deployment and purchase of the radio equipment required to upgrade the Home Office sites. The grant funding period will amount to 20 years, commencing in February 2021, with capital expenditure taking place over a six year period.

4. Under the terms of the TCA, interested parties are entitled to request further information in relation to this grant funding. Requests must be made in writing to enquiries@dcms.gov.uk.

I)The subsidy pursues a specific public policy objective to remedy an identified market failure or to address an equity rationale such as social difficulties or distributional concerns (“the objective”).

5. The objective of the aid is to deliver 4G coverage from at least one MNO to 95% (i.e. the collective footprint where services are available from one or other of the operators) of the UK by the end of the programme, a priority identified in the 2017 UK government manifesto. As part of the programme, the grant recipient will support the MNOs in the MNOs’ delivery and build of the network infrastructure. The MNOs will subsequently deliver services from that infrastructure to extend mobile coverage across the UK including into parts of the country where it has been challenging for operators to deploy commercial networks. The programme will capture positive externalities that stem from mobile connectivity including economic impacts (GDP, productivity and job creation) and wider social benefits (network effects and digital inclusion).

6. There is a strong case for intervention in the TNS target areas to remedy market failures and the socio-economic consequences of poor coverage to businesses and consumers. Thirty-five years of commercial investment in mobile networks has left some rural areas unconnected, given that higher infrastructure costs (remoteness and geographical challenges) and lower benefits (lower population density) make it commercially unviable to provide network coverage. Absent intervention, there is no reasonable expectation that this lack of investment will be remedied in the near future. The historical use of spectrum auctions has not found an effective and lasting solution to widespread good coverage. In its consultation on the award of the 700 MHz and 3.6-3.8 GHz spectrum bands, Ofcom considered that improving the availability of good mobile coverage beyond the levels likely to be delivered by competition alone would bring significant social benefits to the UK, and therefore that intervention is necessary. Technical and commercial models for delivering coverage such as the use of auctions have been exhausted, requiring an alternative model involving some level of public funding but also a more efficient and collaborative approach.

7. Consumers generally prioritise price when choosing a provider, posing little incentive for operators to compete on marginal coverage benefits. Although evidence suggests rural consumers may be willing to pay some premium to cover the cost of greater coverage, prices are set nationally and there is no differentiation between the customers based on their location, which means operators do not differentiate services based on geography or provision of service.

8. As more activities and public services move online-only (homework, flexible/remote working, access to public administration), there is an inherent need for reliable connectivity. This has been heightened during the COVID-19 pandemic. Some of this can be achieved via substitution of wifi or broadband from a home connection, but an increasing number of households and businesses are mobile-only and not all households have access to reliable fixed broadband connections. Additionally, a fixed telephone connection is not a substitute for mobile in all cases. Consumers who are more vulnerable (vulnerably housed, some young people, tenants who move frequently) can benefit most from access to public services often only have connectivity via a mobile phone.

9. The TNS subsidy awarded by DCMS forms an integral part of the coordinated effort required by government and industry to create a joint solution to remedy market failure, aggregating benefit streams and sharing costs, offering consumers not only coverage, but an increased choice of services across multiple MNOs.

II) The subsidy is proportionate and limited to what is necessary to achieve the objective.

10. The SRN programme is structured so that its publicly funded elements address areas where market failures persist, and are therefore targeted at 4G ‘white areas’ i.e areas where there is no coverage and which are unlikely to see any roll-out in the near future.^{[footnote 1]}

11. Public funds will be targeted at the improvement of coverage in TNS areas. The programme is intended to take advantage of opportunities for broader efficiencies as the grant will provide for MNO deployment on Extended Area Services (EAS) masts being built as part of the Home Office’s Emergency Services Network programme. Given the clear cost savings involved, the SRN will also encourage the use of existing infrastructure where practical - with those savings passed back to government. There will also be a consultation process to ask industry to provide us with details of existing infrastructure which may be of assistance, informed by mapping exercises.

12. The TNS investment is proportionate and is limited to resolving the infrastructure need at cost. Specifically, the TNS build is done on a cost recovery basis, with only costs expended on eligible items available for grant funds. If any government funded sites become commercially viable for any MNO in the life of the programme, ongoing government support to the relevant MNO for operational expenditure will cease and clawback mechanisms for a proportion of capital expenditure have been provided for. Under the terms of the grant agreement, DMSL and key project participants are required to run procurements of subsidised contracts in a manner compliant with the Public Contracts Regulations 2015 and in all cases to conduct procurement activity so as to ensure fair and effective competition across the market.

13. Commercial analysis indicated that a competitive process for the construction and operation of the SRN infrastructure would not be appropriate, and that a direct grant to DMSL was the only viable solution, justified under conditions of Standard 5 of the Government Functional Standard for General Grants. Namely, as the only organisation jointly owned by the MNOs, DMSL was considered the only organisation which can guarantee delivery of mobile coverage to all customers, share commercially sensitive information in a competition law compliant manner and create a joint radio plan.

III) The subsidy is designed to bring about a change of economic behaviour of the beneficiary that is conducive to achieving the objective and that would not be achieved in the absence of the subsidy being provided.

14. In rural and remote areas of the UK where there is no good^{[footnote 2]} mobile coverage provided by any MNO, there is a limited commercial case for other types of market-driven, private investment, due to the low population density and high costs of delivering coverage. Even though there may be isolated premise coverage via fixed networks in TNS areas, such services do not address the need for mobile broadband where people live, work and travel. This intervention seeks to address this failure. In the thirty-five years in which the mobile networks have been in place, private investment has demonstrably not achieved full coverage of the UK landmass where people live, work and travel.

15. The rural areas which are most likely to benefit from the SRN project do not present commercially attractive opportunities for roll-out in the normal course of business especially given that building sites in those remote rural areas is significantly more expensive. Changing investment and infrastructure requirements of the industry suggest that dense, highly integrated urban networks, focussed on 5G deployment will be target areas of investment in the coming decade. It is clear, therefore, that without SRN, the MNOs would not be able to justify investment in the target areas on purely commercial terms. Without the SRN programme, the MNOs would not be subject to any other obligations to actively target the areas in scope (excluding any legacy coverage obligations in the MNOs’ spectrum licences).

16. Government undertook a rigorous economic assessment of the SRN against a short list of alternative options, in accordance with requirements of HM Treasury’s Green Book. Two alternative scenarios were assessed including a ‘do minimum’ option (namely Ofcom’s 700 MHz spectrum auction license obligations), and a more ambitious SRN option which would deliver 97%, rather than 95% aggregate coverage. The SRN in its current form was found to deliver greater coverage outcomes for a significantly lower government spend. While the operators assessed the costs of each option using publicly available information, government commissioned detailed economic analysis to quantify the benefits and inform the right level of intervention. It illustrated that mobile devices have become vital tools, facilitating access to a range of activities and services and leading to a range of positive externalities outlined in paragraph 27.

IV) The subsidy should not normally compensate for the costs the beneficiary would have funded in the absence of any subsidy.

17. As outlined in paragraph 6, the subsidy is not compensating any costs that the beneficiary would have funded in the absence of a subsidy. It is not anticipated that investment in TNS areas will be commercially viable in the near future, due to prohibitive costs and low population density. The subsidy is also limited to compensation of cost, and forms part of a broader market initiative to drive the maximised sharing of infrastructure and enable efficiencies in currently underserved areas.

V) The subsidy is an appropriate policy instrument to achieve a public policy objective and that objective cannot be achieved through other less distortive means

18. An industry-led approach provides a unique opportunity to address the “objective” in an equal and shared way. In such a case it also has the potential to extend coverage more extensively and at better value for money for taxpayers than alternative interventions such as conditions placed in spectrum auctions - while spreading the benefits of the programme across all mobile consumers.

19. The SRN programme is outcome focussed, with the aim of reaching an aggregate 4G mobile geographic coverage of 95% coverage (i.e. the collective footprint where services are available from one or other of the operators) across the UK and ensuring good quality 4G coverage where people live, work and travel. 4G is the main technology providing mobile broadband, and the standard for good quality mobile coverage in the UK and worldwide. No other technology such as satellite or fixed wireless access can currently provide the same level of mobile service at the same prices.

20. The UK government considered that the SRN proposal delivered a better outcome for rural consumers and businesses at lower cost to government than available alternatives (including previous proposals from Ofcom to include coverage obligations in its forthcoming spectrum auction), as the SRN will result in each MNO reaching 90% geographic (compared to two of the four MNOs reaching 90% through the auction obligations) and an aggregate coverage of 95%. The SRN will also be delivered at a lower cost to government (just over £500 million, including funding provided to the Home Office for use of EAS sites) compared to the auction obligations (where total discounts estimated at up to £800 million were potentially available).

21. The use of a grant to a joint venture was considered the most appropriate method of ensuring funding for the MNOs to deliver the programme. This model is preferred because it is simpler and the terms of the grant require the recipient to conduct procurement for the build of the programme in an open and fair way and in accordance with public procurement regulations. In this way, the broader supply chain will have an open opportunity to bid to deliver works.

VI) The subsidies’ positive contributions to achieving the objective outweigh any negative effects, in particular the material effect on trade or investment between the Parties.

22. The TNS subsidy targets areas of total market failure. We expect to see positive effects throughout the digital infrastructure ecosystem, together with socio-economic benefits throughout the UK. An open and fair approach to procurement will also ensure that the supply chain can participate and benefit, addressing any material effects on trade or investment between the Parties.

23. The subsidy will have little materially negative effects on trade and investment between the UK and EU. As outlined against previous principles, the subsidy has been limited to the minimum necessary required to target market failures, therefore minimising any impacts on trade or investment. Any further negative effects are mitigated by the fact the open procurement will be open to all suppliers, including EU bidders. The subsidy covers only the costs incurred by the project, meaning that there cannot be an indirect subsidy that boosts any of the recipients’ positions in the EU market.

24. Wireless infrastructure providers and large or small work contractors will have opportunities to compete and provide an offer for engaging in the standing up and potential ownership of infrastructure as part of a consistent procurement framework. DMSL will ensure that these providers have an opportunity to bid for contracts in the provision of the infrastructure.

25. The UK mobile market currently has four MNOs who own spectrum licences for the purposes of mobile coverage (EE, O2, Three and Vodafone), each of which are partners in the SRN programme. By the UK government providing funding for all of the MNOs to build and share infrastructure in TNS areas, it will ensure they will be able to operate, and fully compete against each other for customers in previously uncovered areas.

26. The SRN will ensure the widest level of technology agnostic wholesale access to relevant infrastructure. In addition to all MNOs - wholesale access to the grant funded sites will need to be afforded to any new entrants to the mobile market. UK Mobile Virtual Network Operators (MVNOs) also present in the market, buy wholesale capacity from the four UK MNOs and resell this to consumers, negotiating to offer their services using one of the MNOs’ spectrum and infrastructure. The programme is also likely to enhance competition for MVNOs as they are able to offer further choice to consumers in these previously uncovered areas.

27. The positive externalities that stem from increased mobile coverage are extensive, outweighing any negative effects:

a. Consumers will have more reliable access to emergency services, and will allow for emergency calls from mobile devices in total not spots that see coverage for the first time.

b. Consumers in rural areas will get improved choice as more providers will offer coverage for the first time; they will get fuller value from their contract where they live, work or travel as partial not-spots are closed and total not spots covered for the first time as they get to use up more of their data allowance than now.

c. Consumers will benefit from improved access to mobile banking, government services and shopping and online navigation.


d. Improved connectivity can also help to reduce the ‘digital divide’.

e. Network effects from improved connectivity between remote and urban areas raise the value of the network across the UK; it can contribute to social inclusion for vulnerable socio-economic groups.

f. Improved mobile broadband can drive economic growth by enhancing productivity and improving sales for rural businesses.


g. Improved indoor coverage can facilitate flexible working which reduces travel time and improves productivity in rural areas.

h. Rural tourism will be boosted as more people are attracted to areas that have good coverage, leading to increased spend in the local economy.

i. More coverage will enable new applications in industry sectors where rural connectivity is required (e.g. IoT in farming and health businesses based in these areas.


j. The TNS framework will contribute to minimising the impact on the natural environment in the rural areas by providing sharing opportunities of a limited number of sites.

1. The majority of intervention areas currently receive no 3G coverage, though there is overspill. The MNOs initial calculation suggest that the current level of 3G overlap into the TNS areas would be around 4.1% or 0.35% of absolute geographical coverage. (This figure may be subject to change as MNO radio plans develop). ↩

2. Ofcom defines ‘good’ coverage as a level of quality that provides consumers with the kind of experience they expect today: reliable voice calls and a high probability of access to data speeds of at least 2 Mbps. ↩