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BT Results reveal 3.4 million connected to Openreach fibre
Thursday 30 October 2014 09:59:55 by Andrew Ferguson

The last few weeks has seen numerous analysts offering their analysis of the state of the BT Group and we now have the second quarter results for 2014 for the group. The dirty word profit has got bigger with a 13% rise in profits to £690m (adjusted figure before tax) on group revenues of £4,383m which is 2% down on the same quarter last year.

"Our Consumer business continues to perform well thanks to the impact of BT Sport where Premier League audiences are up around 45 per cent on average. Fibre is also driving growth with one in three of our retail broadband customers enjoying super-fast speeds.

Our fibre footprint has increased to more than 21 million premises and will continue to grow. We continue to see strong demand across the market for the faster speeds that fibre offers.

Further improving customer service remains a priority and Openreach is recruiting an additional 500 engineers to help us better serve our customers. We have also launched a range of new cloud-based products and services aimed at the business market.

Gavin Patterson, Chief Executive, BT Group

BT Consumer (aka BT Retail) has been at the centre of many online and offline debates around the spending on sports rights which in the quarter was £83m, but with BT Consumer managing to grab 48% of the net broadband additions in the quarter in the face of a competitive wholesale arena with increasingly attractive offers to consumers it suggests that betting on sports might be helping. BT Consumer added 203,000 fibre based broadband customers in the quarter to give them 73.5% of the connections connected by Openreach since the fibre roll-outs started. The TV sector grew by some 38,000 connections to give 1,045,000 customers on the BT TV platform. BT Sport also attracted a peak audience of 1.25m for the opening match between Manchester United and Swansea City.

Bundling of TV services is the driver of faster broadband in the consumer arena, driven forward by the vast array of devices families own that mean and the news that BT customers will soon be able to add a Netflix subscription to their BT bill will add to the breadth of appeal and may hammer another nail into the coffin of linear TV which in ten years may only exist for live TV events.

Openreach is the arm of the BT Group charged with maintaining the local loop and the ongoing roll-out of FTTC and FTTP continues with GEA-FTTC or GEA-FTTP available to some 21 million premises of which 16% have now ordered a connection and are connected. The last quarter saw some extra 570,000 premises gain the option to order a fibre based service in the 44 BDUK project areas. The revenue within Openreach which should in theory be rising due to demand for fibre based solutions was offset by the effects of regulation. Interestingly the idea that we are all abandoning our landlines for mobile services is not borne out as Openreach added some extra 106,000 lines in the quarter. Overall the UK broadband market is also still growing with 182,000 new connections, and some 344,000 new GEA fibre based services were connected to give a total of 3.4 million.

Fingers crossed as take-up of Openreach fibre based increases we will start to see clawback clauses for the 44 BDUK projects kicking in and maybe featuring in the impact on Openreach revenues. While out best estimate is that we might start to see commercial roll-out of G.FAST in 2018 after various trials, though we expect that a G.FAST roll-out will also feature more FTTP since for some areas the cost difference between the two technologies may be negliable. An awful lot hinges on how well the FTTH roll-out in York by CityFibre goes, if all the PR milestones are met by that project while remaining within budget and then other cities follow, the race to a much larger FTTH/P footprint in the UK will be truly underway. The measured and calculated approach by the BT Group will only change when profits and dividends are at risk. The irony of the start of a full fibre commercial race would be that the work to avoid a digital divide could be undone very quickly.

Comments

Posted by TheEulerID over 2 years ago
If, as I think I remember reading, there are around 56,000 FTTC cabinets in the UK, that's still only an average of about 60 customers on each. I'll hazard a guess that it will need rather more than that before the investment pays off if the average cost to enable a cabinet (including all the infrastructure stuff) is in the £50k ballpark.
Posted by andrew (Favicon staff member) over 2 years ago
I assume you mean live FTTC cabinets?

Clawback clauses in BDUK areas start at 20% takeup.
Posted by TheEulerID over 2 years ago
No I look back on the "Rip-off Britain" newsitem on this site, it says the total number of live cabinets is 57,000.

I suppose if the "break-even" figure is 20%, and there are (say) 20m premises on live FTTC cabinets, then that would come out at around 4m FTTC customers required.

I say 20% as I've only got that oft-repeated numbers as the start of clawback. However, even that might not be high enough, as it's merely the start of clawback and full recovery might need more.
Posted by ValueforMoney over 2 years ago
TheEulerID Your down to £50k which is much less than half of £100k + millions per exchange as per ex Openreach CEO. This is progress.
If BT capex was £1.3bn (c60% capital labour), not £2.5bn serving 19m premises - how many commercial cabinets. 1m early and easily passed BDUK funded points to no more than 5,000 completed. So BT commerical would be closer to £25k which will accounting decisions on costs are allocated. If BT is putting in £350m capital (self certified)for the remaining 30k cabinets, about £11k you may see why people may not understand the £46k subsidy.
Posted by ValueforMoney over 2 years ago
Eular ID - Is not the breakeven built around filling the first 48 or now 66 port ECI card. Capital is spent to get the first one or 2 cards installed and cost recovery is focused on that rather dividing costs over a fully loaded cabinet. It is no more than $16 a port after the first card is installed.
Posted by TheEulerID over 2 years ago
I don't see how anybody could come up with an average of £100K per cabinet. With 57,000 enabled cabinets, that would have come to £5.7bn capex.

Also, you can't extrapolate national figures to hard to reach areas. Infill cabinets will be less expensive than remote ones on un-enabled exchanges.

In addition, you can't assume that all BDUK money is going on FTTC cabinets. We know that the project tail-end will include other technologies which are more expensive per household. Anything requiring substantial cable re-orientation also gets very expensive.
Posted by TheEulerID over 2 years ago
@VFM
I'm am well aware that the marginal cost per line is low once a cabinet is enabled. That's why FTTC economics are so sensitive to the penetration rate. Fall short of the payback point, and you have a financial liability.

This is one reason why FTTC is a lot more of an investment risks than exchange-based DSLAM. The capital costs of the latter are much lower, and only need a modest market share over an entire exchange to reach the payback point (at least on medium/large exchanges).

The other main risk to FTTC is competition from cheap, but "good enough" ADSL2 in many areas.
Posted by andrew (Favicon staff member) over 2 years ago
On one hand we are moaning about spending too much on a FTTC roll-out and on the other hand complaining not enough FTTP roll-out, which is invariably (but not always) more expensive.

Hate to think of the complains about delays/timeline and costs if BDUK had been a FTTP heavy project.
Posted by ValueforMoney over 2 years ago
Euler ID - if you look at the NAO report Table - BT by including their operational costs on top of their self certified capital contributions took it as far as c£84k on average. The Openreach CEO is taped on national radio for the '£100k + millions per exchange' - it is needed to justify the milestone payments.
Posted by ValueforMoney over 2 years ago
Andrew - FTTP brings greater long term cost transformation and service. Where power costs are high it better to do FTTP. LA not getting this choice. Not whining hopefully, but more accurate incise reporting of costs would contribute to a better outcome.
Posted by ValueforMoney over 2 years ago
Euler ID - in rural BT is today on average collecting £46k cash on average per cabinet installed as per BDUK milestone payments and there are extra allowances for power (£2m) reported in places like Suffolf. Where is the risk, given the costs of equipping one cabinet with one card, and where BT controls the rollour.
Posted by TheEulerID over 2 years ago
@VFM

The NAO BDUK report gave an average enablement bid of £28.9k per cabinet over 18 contracts examined. That's inconsistent with £100k per cabinet given the typical public/private split.

If you are looking at a 15 year payback period, then you do have to roll-up all costs (capital and operational) so you might, arguably, get to something in the £100k per cabinet area. However, in BDUK bids, operational elements amount to 23% of the total bid.

This is the NAO report I used.

http://www.nao.org.uk/wp-content/uploads/2013/07/10177-001-Rural-Broadband_HC-535.pdf
Posted by andrew (Favicon staff member) over 2 years ago
I thought the £100k was an example of the cost of some cabs, and its not the physical cab cost that varies but stuff like cost of roadworks, power that are large variables.
Posted by TheEulerID over 2 years ago
@VFM

The NAO BDUK report identifies several supplier risks. For example, if capital costs exceed those contracted, adverse regulatory changes or if market penetration is lower than anticipated. Also the payback period is lengthened to 15 years, so more time for market/technology disruptions.

It would be interesting to see a source for your £46k per cabinet, although it's a feasible number for some areas of the country. It's just not typical nationally.
Posted by ValueforMoney over 2 years ago
Euler The £28.9k in the NAO report represents 36% of the cost of the cab/fibre path + contribution to HO. They did not look at what went before and they were also unhappy in being unable to identify contingencies and premium for risk.
I have to question the notion of a 15 yearback where the state is paying £46k on average per cab/path.
Posted by TheEulerID over 2 years ago
@andrew

That's correct. Some cabinets will be far higher costs than others, especially if the upgrade work at a small exchange is rolled in and allocated to just a few cabinets. The problem is when those numbers are used as somehow nationally typical, or even typical of BDUK projects. I don't think they are.
Posted by ValueforMoney over 2 years ago
EulerID - Two sources at least - re-examine NAO and look for confirmation in the payments by North Yorks which in council papers.
Posted by andrew (Favicon staff member) over 2 years ago
http://www.thinkbroadband.com/news/6581-81-of-central-government-money-spent-per-premise-so-far-by-bduk.html

In Surrey £21.3m of public money looks likely to deliver 600 cabinets and around 6k to 8k FTTP and 30 new handover points.

Posted by Blackmamba over 2 years ago
Hi Broadband Watchers
The total spend for Surrey is £35.2 M on 620 Cabs 84k customers with only a few under 15 meg down minus 20% clawback is a bargin and will be delivered by 2014 Q4.
Posted by ValueforMoney over 2 years ago
@Andrew that central government less local authorities more than double that.
Notes in BT Opereach accounts show £94m aid for the quarter received while reported 540,000 premises past. These are not in sync, but 2,000 cabs for the quarter will not be far off.
Posted by ValueforMoney over 2 years ago
@Blackmamba £21.3m/620 +5k FTTP ready (not connected)at £34k per cab/fibre path came before BDUK was finalised so SCC did better, but no verification of BT investment (not separately identified in their accounts); and it is double that observed earlier in the process.
Good it is nearly done but more is possible. Have 4 tubes with 1 fibre bundle of 12 been provisioned. SCC have paid for a 20% future proofing according to the NAO? What reports have SCC published?
Posted by andrew (Favicon staff member) over 2 years ago
Yes the link I gave was for central funding and I know that.

The Surrey example includes local and central funding.

On the stuck in the ground stuff, do we as public have to pay for a clipboard person to observe and document every fibre tube install and blow? Same fibre tubing used through out as far as I have seen, and not stumbled upon a fibre blowing event at random yet to confirm the number of strands in the bundle that was blown.

It is little wonder some firms do not bid for contracts with public funding, the extra scrutiny and admin required either eats profit or ups the cost.
Posted by Blackmamba over 2 years ago
Hi Broadband Watchers
If Surrey has paid for 20% future Proofing I am sure Lucy will get her money worth. The team has advertised 7 days each week plus shows getting the information out to the customers it is now in their hand to get the 20% clawback money for reinvestment. I have see some of the proofing so get ordering.
Posted by ValueforMoney over 2 years ago
@Andrew No it should be in a white paper and published - simple. Q2 results for Openreach shows £94m aid for the quarter. This is more cash in terms than Openreach spent themselves - £246m of which 60% is capitalised labour.
Posted by ValueforMoney over 2 years ago
@Blackmamba - do confirm counts, or you will be charged again next time.
Posted by Blackmamba over 2 years ago
Hi Value.
I have just received conformation that customers are interested on the FTTP product which is covering aprox 10k customers on the GAC 01428 and are on their 60 day window. I am quite shore that the Cabs that are open for service in the last 6 months are over the 16% ever over 20% clawback.
Posted by gerarda over 2 years ago
"the work to avoid a digital divide could be undone very quickly." What work? The BDUK work is deepening the digital divide. There may be vague promises of doing something about it by 2020 but no plans.
Posted by mdar5 over 2 years ago
Correct @Gerada - it's even dividing up within villages.
One such has a couple of cabs with two ends served by a cabs MUCH further away.
So while some in the village get up to 80Mbps, there are others are only getting estimated 3Mbps (yes three) from FTTC on the BT checker.
It a lottery as to which set of cabs your house was wired up to: the in-village ones or the other pair.
Posted by ValueforMoney over 2 years ago
Blackmamba - Thanks. But what actual invoice checking has SCC done against the milestone payments, and what future proofing is in place in the form of additional tube and fibres?
What savings were identfied given BT contract to absorb the budegt available?
Posted by Blackmamba over 2 years ago
Hi Value.
Please take my word I have seen when extra work that is required from Openreach staff using many !!! words getting a job number so they can log against the Job for costing in Surrey. I feel if all 620 cabs completed in Budget and time and the results 15 meg down with just a few under this figure you have value for money. I do know they are Monitering 70 Cabs for the speeds but time will tell.
Posted by ValueforMoney over 2 years ago
Blackmamba - job number from whom? ..BT Management? speeds are speeds - little you can now except ensure the future proofing is in place and check every invoice and benchmark against others. SCC ambition should not be constrained by resource constraints and profit taking in BT. Note P12 of Openreach Q2 - Capex down 8% state aid £94m operating cash flow up 9%. State aid is only for proven incremental costs, not gouging by BT group. That spare cash will be directed towards a training ground in Cobham.
Posted by Blackmamba over 2 years ago
Hi Value
SCC ambition is to get best value for the money they have and try and achieve the target of 99.7% 0ver 15 meg down in conjunction with Surry,s 450k lines.
This will mean there are aprox 1250 lines under 15 meg pushing the speeds available up the hierarchy to the band 24 meg. This also puts the pressure on BT. These figures were given to me at Dorking in the presents of Bill Murrey.
Posted by Gadget over 2 years ago
VFM - The figures quoted for capex and Operating cash flow were for Openreach overall, on all its operations not just BDUK. Of course there must be checking but I am not aware of any information positive or negative being published by SCC, who should be balancing bills against invoices and other data for their single specific project (which is why BlackMamba made the point about Openreach staff having to get a specific job numbers to book the work against so that it can all be separated and checked by the professional accountants engaged as part of the contract).
Posted by TheEulerID over 2 years ago
@VFM
As has been pointed out, that capex is for all activities. It's also not surprising that capex is declining as the commercial FTTC rollout reaches its end. Another reason is that OR turnover is down due to regulatory changes. As Ofcom force down charges, operating costs have to be reduced, and that includes depreciation (and therefore investment).
Posted by TheEulerID over 2 years ago
That declining revenue is despite OR selling a value added product in the shape of GEA. As Ofcom insist on further cost reductions, that capex is likely to decrease in the future.
Posted by Blackmamba over 2 years ago
Hi Gadget and others
If you look on Elgin the jobs have numbers and when the Openreach crew attend the jobs are costed down to even lifting the lids on the boxes eg 20 min per lid traffic light time ,costs tankers with water even the licence from SCC.
I expect this is all computerised and costed against the Cab that is going to be provided so it is very inportant to get the customers on line.
I would think that all bill will be payed in the 28 day window.
Posted by Blackmamba over 2 years ago
Hi Euler
The declining revenue is due to the ports on the new FTTC are priced the same giving equal pricing to all ISP so it is inportant to get the customers on ASAP and that is the reason for the low 16% take up.
Posted by Dixinormous over 2 years ago
Mr Mamba your last post makes absolutely no sense at all. Would you mind re-writing it in coherent English?
Posted by Blackmamba over 2 years ago
Hi Dix
All the Ports on the new FTTC that have been paid by SCC are charged by Openreach at the same price.
This gives three prices 20/2,40/10,80/20 to all ISP,s . Andrew Saffron please give remarks if this is incorrect.
Posted by ValueforMoney over 2 years ago
@EulerID - Capex has fallen throughout the VDSL rollout including the commercial rollout.
The cost recovery for 2014-2017 for fixed lines based on replacement costs suggests investment in maintaining the network should not falling at these levels. BT's capitalisation of labour is also very high. The need for greater separation as BT invests in sport is needed.
Posted by Blackmamba over 2 years ago
Hi Value
I expect the Capex is falling because Openreach is not working over time also the work has been planned better. The labour costs are going up because of Health and Safety plus running round after ISP not proving the faults. I have an record of over 20 differant Enginners calling on one customer and still the problem has not been cleared.
Posted by fastman over 2 years ago
value - The need for greater separation as BT invests in sport is needed - -- were you a procurement manager in a previous life - i was a former bid manager !!!!!
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