Public Accounts Committee and BT

A little reading from The Register.

It was an inflammatory and political session, indeed I saw a couple of posters on this forum defending BT's position via social media but it does raise a couple of questions.

BT claim to be spending about 2,500,000,000 reaching 66% of the UK's homes and businesses.

BDUK is to add another 24% to that to take the total to 90%. Now, according to BT their total spend for that 24% is going to be 700,000,000, and according to the National Audit Office their CapEx is going to be around the 360,000,000 mark.

Is it just me or is BDUK failing as a 'gap funding' model if BT are actually going to be spending less per home passed, and noticeably less at that, than on their commercial rollout?

What you also need to consider is that within the £2.5Bn there is the investment in the exchanges and other overheads which needs to be taken out before a comparison can be made.

But its simple a cabinet costs £29k it was said today so must be true

In reply to a post by Ignitionnet:

Is it just me or is BDUK failing as a 'gap funding' model if BT are actually going to be spending less per home passed, and noticeably less at that, than on their commercial rollout?

Surely the whole point of BDUK is precisely that? The areas involved are not viable at the normal BT spend per property passed, so it would be a nonsense if the BDUK ones cost BT more than the commercially viable ones, or anything approaching it.

There are clear indication though of BT over charging. The BDUK cabinet costs are coming in 12.5% higher than those they charged in NI

Their project management costs are coming in at over double those in NI

The programme is over 2 years late and the BT contribution has dropped from 36% to 23%

There were initially 9 bidders of which all eight competitors dropped out., A clear indication of a lack of a level playing field

In a normal business environment you would but such large contracts with 2 suppliers. This is to de risk the project and to bench mark the suppliers

Typically about 70% would go to the cheapest and 30% to the next cheapest. The exact mix would depend on a number of actors including actual cost difference between the two bids

NAO expect the 95% target to be hit 22 months after original, but the 90% is May 2016 12 months late

There was the suggestion of restarting the process to get more bidders on board and use lessons learnt, would that be a popular move?

It may not be popular but the sort of information being established does indicate that there have been serious failing with the bidding process and the contracts and there are issues with the BT costs

If these things are proven there may be no choice in that contracts may have to be re bid

It's supposed to be a gap funding model, Bob. Google gap funding.

I'm not sure I understand why any investment in the commercial rollout should be taken out before comparison?

Could you explain why the investment in exchanges and 'other overheads' should be excluded? Surely if excluding these costs the BT commercial project should either have cost less or covered more than the planned coverage level?

In reply to a post by MrSaffron:

But its simple a cabinet costs £29k it was said today so must be true

Thank you for this extremely constructive addition to the thread.

Now if you could take a minute, Dr Broadband, to discuss the actual subject matter given the figures all come from BT, not the PAC, that'd be great.

Thanks.

It make sense to me. If BT installed it as a part of the commercial rollout it is commercial and needs no subsidy so should not be included in the BDUK cost model as it is Gap funding.

True enough, but there is more than the initial capital funding to consider.

BT will also be looking at the expected ROI compared to the commercially viable areas, to recover what they do spend and to make a profit.

I'm totally against any government money going into faster broadband.

However, my thoughts are, this ain't no gravy train. Nobody else is at the party. Big players like Virgin, Fujitsu and any mad council with empire building ambitions. Clearly the Openreach solution is long term payback that nobody else is willing to punt on.

Only Openreach have the players on board that punters want to buy from. Give the money to altnet and they will not have the retailers and will prolly go bust or walk before the investment payback.

Continued delays and dithering by BDUK quangos will mean that Openreach will have the countries most experienced and cost effective fibre rollout workforce without work and on the bench pretty soon as the commercial rollout is nearing completion.This will hit Openreach costs.

Edited by deleted (Wed 17-Jul-13 21:55:32)

The small niche players I would expect to be looking to cover the areas BD UK does not . What is needed is a second wholesale supplier in the non cabled areas

In reply to a post by RobertoS:

True enough, but there is more than the initial capital funding to consider.

BT will also be looking at the expected ROI compared to the commercially viable areas, to recover what they do spend and to make a profit.

Err that's what the gap is, Bob?

Those are some good points, costs dropping because Openreach are better at deploying.

However again this does beg the question why that economy isn't going into more coverage rather than BT paying less per home passed.

I'd rather see government money go into nationwide faster broadband than HS2(for instance).

I entirely agree that there will be efficiency gains, surely however these shouldn't be reaped by BT in lower unit costs?

If paying for that hardware as part of the commercial deployment gave a feasible ROI per home passed shouldn't BT be paying the same costs as part of a government programme?

Obviously BT have done what any other company would do, so nothing on them, it's just somewhat curious.

Does the BDUK funding include ongoing revenue gaps then? I assumed it was merely for the capital outlay that was not regarded by BT as recoverable on a commercial model.

To serve the people not covered by BDUK will cost the country more money than we are already spending providing health, education and rubbish collection badly to them. Small niche players serving this market should be left to go bankrupt without the aid of taxpayers.

There is already a host of wholesale providers throughout the land. Within five miles of my none LLU, FTTC or BT ADSL2 house is fibre tubes dug in by BT, Cable and Wireless, Viatel, Scottish and Southern, Virgin. Level 3, NTL, Global Crossing and Vodafone.

How if they aren't taking account of return on investment do BT decide what's commercially viable, Bob?

If it were not about ongoing revenue gaps why wouldn't BT enable 100 home passed cabinets if they're near the fibre spine and power?

Please note that I'm not discussing total amounts of spend but amount per home passed.

In reply to a post by partial:

There is already a host of wholesale providers throughout the land. Within five miles of my none LLU, FTTC or BT ADSL2 house is fibre tubes dug in by BT, Cable and Wireless, Viatel, Scottish and Southern, Virgin. Level 3, NTL, Global Crossing and Vodafone.

Virgin and ntl?

I get what you're saying though, most people are an awful lot closer to fibre than they think, just a question of getting at the stuff to distribute it.

The costs though are not dropping BT are just passing more costs on to the taxpayers

That may or may not be the case, I was just highlighting the apparent discrepancy.

It is GAP funding I don't see what you do not understand. If some equipment in the exchanges and backhaul etc was rolled out as a part of the commercial rollout those costs are not a part of the GAP. Any cost recovery will be by means of the normal monthly ISP charge you pay for that element of the costs it does not need public subsidy

If equipment etc is common to the commercial rollout and the BDUK rollout ie exchange equipment and backhaul it makes no difference to the fact that it is commercial. BT cannot claim the same equipment is Commercial for the commercial rollout but needs subsidy for the BDUK rollout. It is either commercial or it is not. It should not come into the BDUK costs

Would have to rewind to find out who said the £29k but that was a figure used in the PAC today

To be honest that was about as in depth as they got, we did learn that power meters add to the cost of cabs compared to Northern Ireland

Post deleted by MHC

If you want to compare the "per property" cost in the BT funded and that in the subsidised rollout then the central infrastructure should be removed as they will be common across all.

A simple version:

£1m on infrastructure.
£2m to provide say 100,000 connections.

So, that is £30 per connection.

The subsidised contract to roll out another 100,000 costs say £3m - or also £30 per connection. That is the first thought and it looks as though there is no difference which is what the figure look like first off.

You can then look at it two ways: If you exclude the initial infrastructure cost, the first set actually had an incremental cost of £20 and for the second it increases to £30.

Or if you amortise the initial cost over the two sets they come in at £25 and £35

to clarify you mean are BT been over subsidised for these areas?

so 2.5billion is £37,878,787 per 1%.
the 700 million is £29,166,666 per 1%.
The total per 1% figure including the CapEx is £44,166,666

This is surprising, even without any subsidy the figure is barely diff to the first 66%.an extra 20% or so.

Edited by Chrysalis (Thu 18-Jul-13 06:22:25)

There are two basic scenarios, a) Where the exchange has been already enabled for FTTC commercially but not all the cabinets and B) where the exchange has not been enabled commercially
One would assume that BDUK then funds the costs involved but that they review quarterly the take up and BT refund some of the subsidy as the take up increases until the cabinet reaches a commercial level. The other option is BT refund the subsidy at the point the cabinet reaches a commercial level of usage. The actual amount being adjusted to reflect that BT had some commercial benefit as usage climbed

In reply to a post by Ignitionnet:

Is it just me or is BDUK failing as a 'gap funding' model if BT are actually going to be spending less per home passed, and noticeably less at that, than on their commercial rollout?

BDUK succeeds if the modest amount of money it has achieves the 90%+ superfast target. Judge by results ?

I'm not sure there are even 5 facts in public circulation let alone enough to draw any financial conclusions from. Nobody on the PAC would have a hope of working it out, as their understanding of capital expenditure appears to be in line with that of taxation.

As in the clawback clauses

In reply to a post by Bob_s2:

There were initially 9 bidders of which all eight competitors dropped out., A clear indication of a lack of a level playing field

Two successful bidders won the BDUK Framework contract at a national level and signed up to it. One of them failed to win any business from local councils and subsequently stopped bidding.

More than one qualifying bid was received for the non-framework projects like "Connecting Cambridgeshire".

As with any race, there's only one winner per project.

In reply to a post by Spud2003:

I'd rather see government money go into nationwide faster broadband than HS2(for instance).

i still have no clue how HS2 would be financed, if indeed it is known.

In reply to a post by Bob_s2:

The small niche players I would expect to be looking to cover the areas BD UK does not .

Like they filled in the notspots between 2003 and 2013. Oh, wait.......

In reply to a post by yarwell:

In reply to a post by Spud2003:

I'd rather see government money go into nationwide faster broadband than HS2(for instance).

i still have no clue how HS2 would be financed, if indeed it is known.

White Elephant fund.