Geo withdraws from the BDUK game
Geo Networks Ltd has announced the reluctant decision to withdraw from the BDUK Broadband Framework and future Next Generation Access procurements.
The lengthy press release on the Geo website explains the firms reasoning, but while complaining about BT and its ability to exploit a pre-existing fibre backbone, withdrawing from the BDUK process and future NGA procurements is almost handing BT a victory without BT having to work for it.
"The primary reasons for our withdrawal are threefold. Firstly, we feel that the current gap-funded subsidy model being adopted by BDUK and local authorities automatically favours the incumbent, which has the security and knowledge of revenue streams on its current network as the dominant and often only telecoms network owner in these regions. Secondly, the absence of any opportunity provided in the current procurements either to underwrite any take-up risk or to guarantee public sector revenues – for example under a Public Private Partnership model – removes the ability for us to share this with the public sector. And finally, the uncertainty around the terms and pricing for PIA, and the heavy restrictions as to what we can use it for means that, in our view, this market is not contestable.
Whilst pricing may have reduced for the current PIA product (still not far enough in our view), the real issue is that it can only be used for providing the final drop from local exchange to a residential broadband consumer’s house. PIA cannot be used for the far more costly task of crossing the long distances in rural areas to get to these remote communities (backhaul) – making the idea of being able to build new fibre connections within them faintly ludicrous. It cannot be used to connect mobile or wireless infrastructure (a critical way of quickly rolling out competitive services in hard to reach geographies) and it cannot be used to provide leased lines to businesses. Quite simply, our business case does not stack up because of these restrictions."Geo’s Chief Executive Chris Smedley
Geo are behind a Welsh Assembly funded project in North Wales called FibreSpeed that concentrated on linking business parks with fibre to create a fibre backbone independent of BT. The project as of June 2011, had over 100 businesses receiving service at their premises and over 1,000 remotely e.g. via masts. Coverage of North Wales with wireless runs to around 40% of all businesses located in North Wales.
The PIA products were always focussed on the last mile of access to homes and businesses. While BT with its fibre network that links its telephone exchanges has the most widespread fibre connectivity across the UK, there are plenty of other backbone providers that exist, alas they often concentrate on connectivity between regional points of presence.
Coming on the day of positive news from Fujitsu over the PIA products, there will be questions over whether the way that the BDUK scheme is operating in comparison to previous schemes ran by the Welsh Assembly had led to the Geo decision. For smaller telecommunication firms the problem of raising matched investment, which is needed for the majority of BDUK work is a massive stumbling block. While this requirement does go against the smaller operator, it also does guard against firms just using the BDUK funding as a way to prop up a business.
To rule yourself out of future NGA procurements is worrying, as it must bring into question any further expansion of the FibreSpeed project. Though we assume if a BDUK bid winner was to approach Geo with a contract for work, they would accept it if the price is right, they just don't want to enter into bidding wars.
The level of profit available in the final third of the UK has always been marginal, hence why both BT and Virgin Media have given evidence to Parliamentary Committees saying as much. Any service built solely in this final third will have a very long payback term, even with the split funding coming from BDUK and other bodies. Additionally as many people in these areas already have some form of broadband (even if it is slow) the take-up of a service without the guarantee of the big providers coming on board is likely to be low.