BT costs fall out could delay BDUK projects further
Tuesday 02 October 2012 17:02:32 by Andrew Ferguson

In a two horse race, where one horses trainer has already said publicly they don't expect to enter all the races it should be no suprise to most people to see BT winning the BDUK/local authority contracs. With the sacking of a someone within the BDUK over the leaking of an internal discussion paper and its subsequent publication on blogs, the topic of BT and BDUK costs has gone more mainstream.

The discussion paper attempted to analyse the costs that BT was attributing to the projects, and how the firm was estimating costs based on how rural or urban an area was. In itself this is not unreasonable as costs such as connecting to mains power supplies will be different for every cabinet install, and costs for re-instating footpaths or other surfaces will vary.

The real shouting match is whether BT is over charging the local authorities with the Daily Telegraph wading into the battle, claiming that the firm is over charging by hundreds of millions of pounds. Which sounds pretty far fetched when the BDUK fund is a total of £530m, and with match funding from local authorities it is likely to reach a total of £1bn. Examples of quotes of £17,000 (generic rural) through to £30,000 (most remote areas) are given for street cabinets, which sounds a very large difference, but without actual installation costs it is hard to judge.

Is BT deliberately hiding installation costs and making them up? If they are it makes very little sense, since if they were able to install for a lower cost they could offer councils even higher coverage figures as more cabinets would be economically viable with the addition of the BDUK funding.

The existing commercial roll-out programme from Openreach gives some potential insight into the costs of cabinet installations. The £2.5 billion programme is meant to serve two-thirds of the UK, with around 10% of using full fibre FTTP we estimate that the cabinet programme accounts for £1.8bn of the project and the number of cabinets to be installed is in the region of 30,000 to 40,000, which gives a very crude estimate of £45,000 to £60,000 per cabinet. This of course includes the costs of building the Handover nodes in the exchanges, which will number around 1,500 to 1,800.

All along the BDUK projects have been touted as reducing the risk for the winning commercial operator and not a traditional council founded broadband project which leaves them liable for cost overruns. To this extent BT is almost matching the BDUK and council funding in areas already announced, which if they do win all the projects gives a nice round total of £2bn, which is pretty close to previous estimates for rolling out FTTC across the UK, which is often quoted as costing £5bn.

If one looks at another data source, that ignores any BT costings, which is a report on the Economics of Next Generation Access by the World Bank for European Competitive Telecommunication Association (ECTA).

This data is for an urban cluster, so distance to central exchange should be shorter than rural areas, and issues like power are simpler to resolve. If we scale the prices to build a cabinet that can support 100 lines we see a price range of €21,800 in Portugal through to €45,700 in Germany. What is very interesting is that while Openreach has opted for a PON architecture, this analysis suggests that while a full fibre solution is 4 or 5 times more expensive than FTTC, the cost increment to full point to point fibre is only around 10% extra.

As things stand while many believe the best way to roll-out superfast broadband to those areas where commercial operators fear to tread, be they rural upland farms, small towns and leafy suburbs or little pockets of residential premises in drab city centres is to create a new totally independent network operator to build a new fibre backhaul network. The time frame that this would require and the level of investment when looking to deal with the varying requirements across all the premises in the final third of the UK would likely drawf the Openreach programme, and may result in the UK being permanently split between areas with a nationalised teleco (with its own natural monopoly) and the commercial sector. BT is far from perfect, but sometimes when you want something doing you have to deal with the devil you know.