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Read, digest NAO BDUK report and then watch PAC take on BT and BDUK
Wednesday 28 January 2015 10:41:05 by Andrew Ferguson

The latest National Audit Report entitled 'The Superfast (Rural) Broadband Programme: update' has been published and with all 44 projects underway it is able to give much better view on the progress on the projects.

The Public Accounts Committee is meeting on Wednesday 28th January, where the NAO report and other BDUK related matters will be discussed, you can watch it live and see what new questions are asked of BT.

The latest report could be seen as a blow for those who are campaigning against the involvement of BT in the BDUK process, since the NAO appears to identify savings made in the projects brought about by the synergies of the BDUK and counties having to manage just one supplier, and additionally BT appears to have over estimated its costs.

Phase 1 actual cost data

3.6 The contracts between BT and local bodies require BT to bear the risk of overspends, so these contracts effectively set BT’s maximum claim amount for each project. It therefore made good financial sense for BT to include some contingency in its bids. BT told the Committee in July 2013 that it typically included 5% to 8% contingency in project bids.

3.7 BDUK’s analysis of the cost information it has received suggests that so far actual phase 1 costs are significantly lower than BT’s financial model. As at September 2014, BT’s total reported capital spend on phase 1 of the Programme was £142 million (38%) under the estimated price, including work in progress not yet invoiced. BDUK estimates that this £142 million variance reported so far is likely to be reduced by between £30 and £50 million. This is partly because of timing issues, as BT’s financial model profiled average unit costs, rather than profiling projected specific unit costs. There are also some possible further costs not yet charged by BT. But even if all of these costs materialise, BT would still have spent approximately £92 million (25%) less than its contracted forecast cost.

Extract from NAO January 2015 report

The price of each fibre cabinet has been adjusted the calculation in July 2013 suggested an average price of £28,900, which by September 2014 had dropped to £21,000. Though with no indications of which cabinet size has been analysed and how many are semi-urban or deep rural, the NAO cautions that costs may rise as projects push away from the easier areas. Deployment of FTTP as part of the projects has been acknowledged for the first time we believe, but reports that FTTC is being used more than FTTP than some of the original plans with the note that in terms of value for money this may be a good thing.

At the end of the day, when producing models which an awful lot of the previous BDUK/BT arguments have revolved around it is difficult to get them right when a broadband project on this scale has not been done in the UK before. Most telling is that an Atkins report on a small sample of the roll-out in Suffolk suggested that 'BT had charged Suffolk nearly 20% less than would hypothetically be charged by another efficient supplier'.

Compared to previous reports generally much more positive, but there is little analysis of the speeds delivered something which the BT critics like to highlight. In defence of the NAO their report is reporting on the numbers who can get 24 Mbps or faster, so should be applying a speed filter to the coverage data they have access to for premises covered. Our own analysis shows that of those able to get a fibre based solution, 4.5% are getting speeds below 30 Mbps, so when the UK hits the 90% superfast target around 94.5% will be on a fibre based solution with a good number of those still getting better speeds than they got from existing ADSL/ADSL2+ services.

Comments

Posted by TheEulerID about 1 year ago
Hopefully the PAC will be used for rather more than MPs grandstanding. In previous committees some had clearly not done their homework.
Posted by ValueforMoney about 1 year ago
The £28.900 only represented 36% of the total cost or 62% of the subsidy.
So is £21,000 the total or 62% of the subsidy?
The key bit is BT promised PAC the BDUK framework price represented their best commercial price, so far they have identified 38% inflation in the model.
Posted by andrew (Favicon staff member) about 1 year ago
@valueformoney read the report, we can only report on what the NAO publish and no mention of it being 62% of the subsidy.

Plus remember they are quoting an average.
Posted by Blackmamba about 1 year ago
Hi Broadband Watchers
In Surrey as most of the BDUK are open for service and would have been paid for (28 days )the remaining customer spread will be on fibre nodes or direct fibre I think this will kick in this Q1 2015 I expect the clawback money will be used for the areas where the customers are under 15 meg who are on existing FTTC.
Posted by ValueforMoney about 1 year ago
Blackmamba - Have Surrey paid the milestone or the circa £21k per cab now emerging? £21k- still more to come out.
Posted by herdwick about 1 year ago
BDUK managed to find themselves with one supplier, so the commercial price they got was going to be more than if they were in a competitive bid. I wonder how much of the difference arises from bidding for multiple counties rather than one national scheme - management would likely be higher as each project would need to stand alone in the bid but with winning them all there are big savings to be had.
Posted by Blackmamba about 1 year ago
Hi Value
I do not know what milestones have been achieved + or - the only information I can state is Surrey is conserned they will not reach their (15 Mag target Post Code for Surrey Rate Payers aprox 84K)
Posted by TheEulerID about 1 year ago
@herdwick7

There's a written BT response to a previous PAC meeting where they do indeed claim that the structuring of BDUK into many local projects led to higher bid costs as each had to stand individually. Now that it's close to a single national process, savings have been made (especially on project management).
Posted by ValueforMoney about 1 year ago
NAO shows project 26% complete and cost £142m less than in BT's best price as per their evidence. That's £142m out of £312m (26% of £1.2bn) - 45% over egged and there is more to come.
Efficiencies of scale - as in network is homogenous through to 90% so that scale of monies will be available for a more ambitious plan.
Posted by andrew (Favicon staff member) about 1 year ago
It is interesting, and raises an important question, if 2 or 3 bidders had won various projects how much more would have been spent, both by lack of scale and also more work for BDUK and NAO in terms of tracking what is going on?
Posted by ValueforMoney about 1 year ago
@ andrew hypothetical question where only BT has a network and a wholesale offer in the intervention area?
More interesting, is where is the money sitting and whether a more ambitious plan can now be planned.
Estimate of £500m should fund plenty of apprentices learning to install FTTP.
The cheapness is the challenge to BT, given the scale of their common costs.
Posted by Gadget about 1 year ago
@VFM - if it were a straight line projection your calculation would be true, however as noted in the article " the NAO cautions that costs may rise as projects push away from the easier areas".
Posted by chilting about 1 year ago
It is the lack of consistency between the BDUK projects around the country that needs to be highlighted. Surrey is doing a good job but here in West Sussex the picture is not so good. They are using the 2Mbps mark as a register of success. Anything over the minimum considered to be overbuilding. My postcode RH20 2JX is on the boundry between fibre at 3.5Mbps and ADSL at 1.75Mbps but because there is supposed to be another provider we are unlikely to get any improvement. I haven't worked out if the other provider is Satellite, Talk Talk Wholesale or Kijoma.
Posted by ValueforMoney about 1 year ago
@Gadget some maybe but BT's network has reaonable consistency architecturally to past 90% - components will be consistently similar.
Posted by andrew (Favicon staff member) about 1 year ago
@chilting Given its the same BDUK and same BT, then perhaps time to question some of the councils.

Back in the mists of time we did some projections on what might be possible using just FTTC.
Posted by Spud2003 about 1 year ago
Drinking game ... having a sip of tea every time someone confuses megabytes and megabits.
Posted by ian72 about 1 year ago
@chilting - the only one on your list that could be "existing provider" would be Kijoma but Kijoma on their site are complaining West Sussex didn't include them and therefore that is unlikely. However, the provider you already have is BT FTTC - it just isn't at superfast. That is likely to be later in projects as BT need to look at alternate solutions for those a long way from cab - same in most counties I believe for long lines?
Posted by TheEulerID about 1 year ago
There seems to be a lot of buck passing from MPs to Sue Owen (a civil servant) over capital investment priorities of HS2 vs broadband.
Those investment priorities are ultimately made by politicians.

(For that matter, the coverage vs rural prioritisation is primarily political).
Posted by ValueforMoney about 1 year ago
So the £21k actual est 1.6m premises and c8,000 cabs is the total and better compared to the £46k subsidy ( which includes £28.9k for the installed cab).
So BT is sitting on a great deal of cash but at least their is a record.
£21k gets us closer to £15k paid in NI.
Posted by TheEulerID about 1 year ago
@VFM

You misunderstand how it works. BT aren't handed cash based on a fixed schedule of payments for certain targets. BT get paid against invoices (of actual expenditure) using each project's contracted gap funding formula. The milestones mean that even that money isn't paid until it hits the relevant target.

The surplus remains with the BDUK projects, not in BT's bank account.
Posted by TheEulerID about 1 year ago
@VFM

This is confirmed by the NAO report and at PAC. What it means is that any underspend (against actuals) remains with the BDUK project. However, if there is overspend against the model, then it's BT that has to make up the difference.

So the basic principle is that the projects are defined with a cap on total public finance contribution, but they government body retains any savings made against the model.
Posted by TheEulerID about 1 year ago
@VFM

Also, this is what the latest NAO report says about the BDUK "milestone-to-cash" process.

"The Major Projects Authority carried out a project assessment review in autumn 2014. It concluded that “The‘Milestone-to-Cash’ process should be disseminated across Whitehall, as appropriate, as an exemplar of best practice”"

Patricia Hodge showed no sign of having read the NAO report at all.

Posted by chilting about 1 year ago
@ian22
Yes, I thought that Kijoma was the second supplier but as you say they are not taking orders. The point is that WSCC say they are unlikely to be able to improve my broadband because of EU rules on overbuilding when more than one supplier is a provider on my postcode area.
Posted by chilting about 1 year ago
@ian22
The capital for the next stage of the WSCC BDUK will be used to bring all residents of West Sussex the 2Mbps minimum. Not for improvements to lines that already have more than 2Mbps or are capable of receiving more than 2Mbps on FTTC.
Posted by chilting about 1 year ago
@andrew
WSCC seem content just to give their rural residents the minimum 2Mbps. The few FTTP projects they are undertaking are only in areas beyond the reach of FTTC and sub 2Mbps ADSL. Lots of small villages and hamlets will get no benefit at all from FTTC but can, in most cases, get slightly more than 2Mbps on ADSL
Posted by ValueforMoney about 1 year ago
@The EulerID so the catch up is gathering pace, which I applaud but there is more to come.

Unfortunately we shareholders will pay a heavy price for this folly by BT group.

Every Ofcom report will use the 38% excess model costs as evidence of BT management tactics.

Wait for VULA price controls in 2017? BT need to start making clear their capital contribution.

£100k a cab? £2.5bn and £1bn matched funding all need explaining to shareholders.
Posted by Blackmamba about 1 year ago
Hi Chil
I can see your problem but do you realise that they have not added any new exchanges to the main list since September and a few are round your area are not on this list but the Cabs are standing the reason could be the above report remember BT is playing the market big time
Posted by ValueforMoney about 1 year ago
@EularID just look at BT q2 accounts £96m in state aid, that cannot be actuals, 40k premises x12weekks x £200 per premise past = £96m
Actuals in that report show it should be just under £50m for a quarter.
Posted by ValueforMoney about 1 year ago
Blackmamba - I hope the good officers in SCC make clear what they have been paying. It must be the milestone payments with the excess costs as the 38% would permit them to be planning much more.
Unfortunately BT may now have transferred resource elsewhere.
Posted by TheEulerID about 1 year ago
@VFM

Looking at the NAO report (figure 6), the quarterly "premises passed" figure looks more like 650-700K than the 480K you calculate (and there are 13 weeks in a quarter, not 12).

That £94m would then equate to more like £140 per premises passed. Of course, it's all a bit rough as there are inevitably lags in payments and the graph is not very detailed.

If we look at the overall BDUK public funding (£1.8bn) and the total properties (superfast & USC), then it's approx £375/property.
Posted by Blackmamba about 1 year ago
Hi Value.
The SCC officers and Openreach are being watched very closely on cost and deployment and as they reach the target of 99% above 15 meg down the Black Bamba will be well pleased date left open.
Posted by TheEulerID about 1 year ago
@VFM

As far as £100K per cabinet goes, then where that figure comes from I've no idea. A bit of back-of-the-envelope calculation indicates it's more like £40-45k (including all the exchange back haul).

When/if Ofcom get round to regulating the wholesale rental charge (rather than just the margin), they will undoubtedly look at the net investment by BT in looking at ROI.
Posted by TheEulerID about 1 year ago
nb. The 2008 BSG report estimated that FTTC deployment (single operator) would cost about £4.6bn. They assumed a total of 114k cabinets (90k existing and 24k extra for EO lines and remote locations).
That is approx £40k per cabinet, all in (including any network re-arrangement for the new cabinets - which sounds a bit optimistic).
Posted by ValueforMoney about 1 year ago
@rulers 100k was ex CEO Olivia Garfield throughout autumn 2013 including radio interviews - part of this 38% inflation.
Thanks for Bsg detail. 40k now looking very high. Replace with 25k.
Posted by ValueforMoney about 1 year ago
@Euler id bsg was min of £5·1bn. Will check.
It is good news, BT investment unlikely to exceed £2bn gov invests £1·7bn.
Posted by TheEulerID about 1 year ago
Bear in mind that £40K is the full figure, not gap funded (which is what the NAO report is about at £21k). Any that's factoring in all the other stuff spend on the broadband infrastructure like backhaul, exchange termination equipment, fibre & ducting, software project management, power installation and so on. I doubt very much the actual FTTC cabinets are more than £10-15K depending on size and population of line cards etc.
Posted by ValueforMoney about 1 year ago
@Euler id ok but NAO not verified BT matched funding in this report and no one including bt auditors have verified £2·5bn.
Posted by ValueforMoney about 1 year ago
@Euler Id thanks your challenges are good.
Posted by ian72 about 1 year ago
@chilting I think you'll find WSCC are doing the same as pretty much everyone else. The target is for about 90% (or a bit more) on "superfast". Your cab is enabled and meets the 2Mb min but as long as the project hits 90% for the county then there are potentially 10% (maybe you) that will not get superfast speeds. The project is not 100% coverage and unfortunately some people will fall into the gap.
Posted by ian72 about 1 year ago
cont if it was about an alternative provider then they wouldn't have enabled the cab at all. It is about physics, costs and statistical coverage. It may be that they will come along later to up the speeds (possibly through the second phases if WSCC have funding for that) in which case you might see improvements later in the project.
Posted by phil_w_lee about 1 year ago
@TheEulerID The big issue I (and quite like the PAC) have with the over-estimate of the cost to upgrade a cabinet is that it would have pushed many semi-rural exchanges from the commercially viable (so no subsidy given) to the not commercially viable (so subsidised by BDUK) group.
That in turn meant that BT managed to get subsidies for many exchanges that they shouldn't have.
Posted by phil_w_lee about 1 year ago
[cont.] It was recognisable from the start, as many exchanges which BT found perfectly viable to install ever higher speeds of ADSL to suddenly became "not commercailly viable" as soon as there was a potential subsidy on the table for upgrading to FTTC.
Further research should be carried out to find out which exchanges fell into this category, and the full subsidy recovered, with interest.
Posted by andrew (Favicon staff member) about 1 year ago
Now if only the same degree of cost recovery was talked about on other publically funded IT projects

Then we might have money to do FTTH in final 5%
Posted by mikejp about 1 year ago
"Now if only the same degree of cost recovery was talked about on other publically funded IT projects", quite agree, Andrew, but what is this website called?
Posted by andrew (Favicon staff member) about 1 year ago
Was refering to the wider PAC rather than peoples comments here
Posted by WWWombat about 1 year ago
@phil
This is a gap-funding subsidy.

If the costs end up below the commercial threshold, there is no gap, there's nothing invoiceable, and nothing to recover...

Remember that the subsidy is, effectively per-cabinet, not per-exchange.
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