£185,495 identified as likely loss from Aylesbury Vale Broadband venture
Delivering Fibre to the Premises is the gold standard for broadband but not everyone succeeds at it and all too often it is the usual business problems that catch people out and reading the draft report by BDO LLP into Aylesbury Vale Broadband (AVB) there are lots of lessons to be learnt for small commercial broadband operators and any future council ventures into this area.
For those who pay council tax in the Aylesbury Vale District Council area the identification of a net loss £185,495 on the venture will not be good news, the loss has been dampened by the sale to Gigaclear for £1.2 million, i.e. actual investment in AVB totalled £1,435,495. There is some caution to be used around this figure as it is not a final figure as there are potential warranty liabilities i.e. it may be Gigaclear identify issues with the network such that it will see the amount they pay reduced (the final £200,000 from Gigaclear is expected later in 2018), already some issues have been found as Gigaclear connects people and survey's the network e.g. bad splicing.
One of the things that seems to jump out is that over optimistic projections and reporting of customer numbers was fairly common, e.g. the report identifies a statment to councillors in October 2016 saying AVB "already (had) confirmed customer orders from approx. 600 households, representing income of around £24,500 per month", the reality was very different since a board report for October 2016 cited 83 customer connections and 552 deposits paid and the September 2016 revenue was £4,900. This sort of overstatement is not uncommon in industry when issuing PR fluff, hence why it is important to listen to the language and have others looking into claims.
The project did at the time of the sale have some 234 customers from around 2,000 premises passed in eight villages, so if the loss does not increase it will have cost the council £92 to bring FTTP to each of the premises. Based on the total investment it works out at a cost of £717 per premises passed, but some parts of the report suggest that there are reasons to expect the reality would be higher (Council Officer time is citied, particularly during the sale period and the budget was so small that some basic management functions were not being carried out fuly). One thing that impacted on the revenue generated was the number of premises getting a reduction in their bill for having the fibre cross their property to reach other premises i.e. an analysis by BDO LLP on November 2016 reports has 42 customers identified (9 on superfast lite, 33 on superfast and none on the ultrafast service) based on revenue generated but 88 customers are signed up, i.e. the majority actually had a discounted service.
Other questions arise during the decision making process as the roll-out moved through its different phases, notionally there was meant to be a 30% expression of interest (via cheque deposit) in a village for the roll-out to commence but some villages saw the roll-out start below that level. Apparently this is because for some villages the take-up trigger was based on a subset of the premises involved, but the confusion arose because reports would talk of villages rather than the actual area being measured.
There are 22 recommendations in the report, which include items like robustly evaluating pilots for commercial ventures before increasing investment, undertake more market research and a good number around how to select people for boards of any future commercial ventures.
The original BDUK process which is often criticised since it was not until the phase two contracts that others started to get a piece of the action was very much setup in a way that ensured little or no risk to the local authorities and Government, ie. the risk for not delivery the targets was and is down to the contract winner. This explains why there is so much talk of cost saving in addition to the clawback mechanism on the BDUK contracts, i.e. BT will have planned on a pessimistic model since there was no going back cap in hand if they had spent all the funds to deliver full fibre to the first 20,000 out of a contract requiring superfast to be delivered to 40,000 premises, hence why almost every project focused on the low hanging fruit areas first utilising VDSL2, with FTTP only coming at the end of the projects.