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Digital Scotland Confirm GBP17.8m Clawback Boost for Rural Broadband

Tuesday, August 11th, 2015 (12:32 pm) by Mark Jackson (Score 561)
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The £410m Digital Scotland project has become the latest to confirm a £17.8 million clawback (gain share) reinvestment boost, which will be used to extend the reach of high-speed broadband services into poorly served areas.

At present the state aid supported project is predominantly working with BT and aims to roll-out its new connectivity to 85% of Scottish premises by the end of March 2016 and 95% by the end of 2017. So far an additional 370,000 homes and businesses have already benefitted under the scheme and at completion this should hit around 750,000.

But one important aspect of the related contract relates to the clawback mechanism, which essentially requires BT to return part of the investment (currently worth up to £129m across the United Kingdom) when take-up of the new service passes beyond the 20% mark. We now know that Scotland’s share of this is £17.8 million.

John Swinney, Deputy First Minister, said:

Today my Cabinet colleagues and I are visiting Ullapool, which is exactly the kind of place that will benefit hugely from this improvement to our digital infrastructure. Improved connectivity is a major priority for the Scottish Government, and a boost like this will allow the continued roll-out of this technology to an even greater number of rural areas.

We are working with BT to ensure that our investment in the DSSB programme extends coverage as far as possible; while, at the same time, getting clarity on which areas won’t be reached. This will allow these communities to work with Community Broadband Scotland to explore alternative solutions in parallel with DSSB roll-out.

We are now seeing huge strides forward in transforming the future of connectivity for Scotland’s rural communities and businesses, many of which would never have seen these kinds of connections through the commercial market.

This is another major step towards creating an infrastructure capable of supporting world class connectivity across Scotland by 2020.”

Brendan Dick, BT Scotland Director, added:

The fibre broadband roll-out is a real success story, and we’re delighted to be able to share that success with Scottish Government and Highlands and Islands Enterprise by making £17.8 million available to help connect some of the hardest to reach homes and businesses.

The open network which we’re rolling out brings real choice to communities and this is helping to drive take-up which is key to the programme’s future.”

The last March 2015 data that we have for Scotland noted how take-up in related Digital Scotland areas for the Highlands and Islands was 11.6%, while in the “Rest of Scotland” area it stood at just 10.6%. Clearly uptake must have rocketed since then or perhaps they’re merely confirming the figure as part of a future expectation.

Crucially Scotland has yet to reveal its plans for extending coverage beyond the current targets. On top of that today’s press release also adds some confusion by saying that the current 95% coverage goal will be reached “by the end of 2017“, although in the editors notes this is actually said to be “March 2018“.

Also in the editors notes is a claim that Digital Scotland’s “Superfast Broadband take up performance is currently out stripping all other UK contracts and is now on a clear path to achieve at least 30% take up“. Mind you the last March 2015 take-up data suggests that quite a few English Local Authorities were well ahead of Scotland (here).

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23 Responses
  1. Phil Coates

    Does anyone know if the potential for clawback money has been built into Phase 2 plans or not?

    We’ve had Phase 2 rollout plans released a couple of months ago in Staffordshire.

    Presumably at some stage Staffordshire will declare its clawback share – does this mean that areas excluded because of finances may now get something from Phase 2 or is it all for subsequent phases (if there are any).

    • MikeW

      I think this money stays, notionally, within phase 1. That might not make much practical difference in most places, but I think it has the effect that the money stays with BT rather than going off to any altnet that the LA has approved for phase 2.

      I recall seeing that new model costs were agreed with Suffolk (lower costs), as the first phase 2 county – and that other LA’s have been able to use the new cost model in subsequent agreements. I don’t recall it mentioning clawback … but I think the framework counties are still using the same contract, so presumably clawback remains an integral feature.

  2. Stephen

    I live in Aberdeenshire & on my way to work almost every day I see the Engineers working in the cabinets so I can well believe that there is a healthy take up at the moment.
    I just wish I was one of those lucky ones able to purchase fibre!!

  3. Craski

    I’d love to know the details of how the percentage take-up is calculated and more importantly verified.

    e.g. BT claim my serving FTTC cabinet “passes” 250 properties. Only 60 are actually close enough to get VDSL, the rest are on long lines. If 25 people take a VDSL based service from their ISP, do BT consider that a 10% take-up or 42% take-up?

    Is it not in BT interest to claim low take-up thereby reducing amount of money paid back via claw-back mechanism. I’d like to think these figures are independently verified!

    • MikeW

      Good question.

      Are you saying that only 60 can get VDSL at all? Or that only 60 can get superfast speeds?

    • Craski

      @MikeW
      Out of the 250 properties connected to the FTTC cabinet, only 60 are less than 2km from the cabinet (direct line distance as the crow flies). The average direct line distance of the rest of the lines is >4km, with the maximum distance being around 9km.

      The local council seemed “surprised” when I informed them but they didnt confirm either way if BT were paid for enabling 60 or 250 lines. Similar questions regarding method for calculating take-up and verification of that calculation remain unanswered.

    • MikeW

      Your new question is easier to answer… the decision on “value for money” (in subsidy per property) by improving cabinet X (rather than cabinet Y) is made only using the number of premises on each that will get above the superfast threshold. If the cabinet is still considered to be cost-effective (compared to other cabinets in the county), even for just 60 properties, then it gets included in the programme.

      For a cabinet to get upgraded commercially, it seemed to need to have around 300 lines or more. Most phase-1 BDUK programmes seem to average out at 200 lines per cabinet, but there have been plenty of cabinets with less than 100 lines that have been included.

      However, calculating take-up (for clawback, for instance) is harder to judge, as Openreach will be getting increased revenue from *any* upgraded line, whether it runs above or below the superfast threshold. Such properties obviously add to the contribution, but are perhaps only considered tangentially. I haven’t seen a definitive answer on this kind of issue.

      Validating take-up shouldn’t be a hard thing to do. Validating the calculation of speeds is more controversial – and the Welsh project has said that they perform validation of speeds by checking a sampled proportion.

    • MikeW

      As for your comment on distances, you need to take care to dismiss things *purely* based on distance alone.

      The reason is that VDSL2 can work at a greatly extended range if the line is made of fatter copper; In some places, especially the more remote rural ones, BT will have installed lower gauge (thicker) copper – perhaps 0.9mm instead of 0.5mm, which allows for triple the normal range.

      You mention that one line is 9km long (presumably that is just the distance to the cabinet, not the exchange); Such a distance should not work for even plain voice calls, suggesting that line, at least, has thicker copper.

      I’ve heard of one line at Plusnet that worked with FTTC (just) at a distance of 4km.

      Conversely, some places get thinner cables, so the range is decreased. I think my line suffers from this, and runs on 0.4mm copper.

      In the end, the electrical attenuation figure is a much better guide than the raw length.

      Can I ask what exchange and cabinet number? It’d be interesting to see what the checker says.

    • Craski

      @MikeW

      Fair comment about the cable gauge!
      Exchange is NSALF, cabinet 1.

    • MikeW

      @Craski

      I’ve had my scripts churn over the postcodes for your cabinet, and then use these postcodes to check BT’s estimates for all the addresses. What I get back gives me results for 263 addresses, for which 124 are given FTTC estimates and 139 are given ADSL2+ estimates.

      Obviously I can’t vouch for whether these estimates are actually valid.

      I’ve pulled together a summary of the “clean” speed estimates on the cabinets, and the number of properties that have been given that same estimate:

      +--------------------------+----------+
      | clean_speeds | premises |
      +--------------------------+----------+
      | clean[2.3/0.8-4.2/1.2] | 6 |
      | clean[5/0.8-9.2/1.2] | 2 |
      | clean[9.2/0.8-15.5/1.2] | 1 |
      | clean[10/0.8-16.5/1.2] | 2 |
      | clean[13.5/0.8-20.3/1.3] | 3 |
      | clean[13.9/0.8-21.1/1.7] | 2 |
      | clean[17.6/2.5-25/4.3] | 1 |
      | clean[18/3.1-26.7/5] | 9 |
      | clean[20.7/4.3-30/6.4] | 3 |
      | clean[22.4/5-32.4/7] | 1 |
      | clean[35/7.2-51.6/11.9] | 4 |
      | clean[40/9.9-60/16.2] | 1 |
      | clean[54.9/16.2-74/20] | 7 |
      | clean[66/20-80/20] | 2 |
      | clean[73.4/20-80/20] | 16 |
      | clean[75.1/20-80/20] | 9 |
      | clean[76.9/20-80/20] | 13 |
      | clean[80/20-80/20] | 42 |
      +--------------------------+----------+

      Those figures suggests there are somewhere between 90 and 108 lines that could get superfast speeds.

      There are an additional 70 properties within the same set of postcodes that are wired to other FTTC cabinets (2, 3, 4, 8, 9), and get FTTC estimates.

    • Craski

      @MikeW

      Nice work and very interesting.
      Yes, there are quite a few overlaps with cabinets and postcodes (not unusual in a rural area I would assume).
      Are the 124 given FTTC estimates all on Cabinet 1?

    • MikeW

      Yes, that 124 were all on cab 1.

      I let the script run on overnight, so I have numbers for the other cabs; with this slightly different way of querying things, it found another 4 properties on cab 1…

      Premises with FTTC estimates:

      +-----------------------------------------+------+
      | servedby | FTTC |
      +-----------------------------------------+------+
      | on Exchange ALFORD, served by Cabinet 1 | 128 |
      | on Exchange ALFORD, served by Cabinet 2 | 161 |
      | on Exchange ALFORD, served by Cabinet 3 | 413 |
      | on Exchange ALFORD, served by Cabinet 4 | 183 |
      | on Exchange ALFORD, served by Cabinet 5 | 103 |
      | on Exchange ALFORD, served by Cabinet 8 | 390 |
      | on Exchange ALFORD, served by Cabinet 9 | 270 |
      +-----------------------------------------+------+

      And premises with only ADSL/2+ estimates:

      +-----------------------------------------+------+
      | servedby | ADSL |
      +-----------------------------------------+------+
      | on Exchange ALFORD, served by Cabinet 1 | 140 |
      | on Exchange ALFORD, served by Cabinet 2 | 105 |
      | on Exchange ALFORD, served by Cabinet 3 | 4 |
      | on Exchange ALFORD, served by Cabinet 4 | 3 |
      | on Exchange ALFORD, served by Cabinet 5 | 1 |
      | on Exchange ALFORD, served by Cabinet 6 | 123 |
      | on Exchange ALFORD, served by Cabinet 8 | 26 |
      | on Exchange ALFORD, served by Cabinet 9 | 17 |
      +-----------------------------------------+------+

      There’s nothing for cab 7, which I suspect means it is planned to take over EO-lines.
      Cab 6 looks to be down for FTTP.

      So cab 1 is definitely the worst one for coverage of all lines.

    • MikeW

      BTW … Elsewhere you’ve been asking the question of whether the statistics count all lines connected to an FTTC-upgraded cabinet, or whether they count just the lines capable of getting a VDSL2 service.

      Your experience of cab 1 makes this appear to be an important question, but the nationwide statistics come out nearer the experience of cab 3 (where 400+ lines get an FTTC estimate, and 4 lines do not). With only around 1% of D-sides being longer than 2km … it means that the difference between “all lines” and “VDSL2-capable lines only” amount to around 1%.

      Here’s the graph of the distribution of D-side line lengths:
      http://postimg.org/image/bp372fcnn/

      Note that the source data from the graph started as electrical length (attenuation), and has been converted into physical length (in metres) for the graph using the electrical properties of 0.5mm copper. That means it is possible to have lines physically longer than the 3.2km shown in the graph, but they will be thicker copper.

      Going back to your question: In truth, we don’t quite know whether the statistics bandied about over “fibre coverage” means “all lines” or just “VDSL2-capable lines” only; not for everyone’s figures (MrS over at TBB indicates his figures are for “VDSL2-capable lines” only). It is a very important matter if you are amongst the 1% stuck inbetween, but it won’t have a huge impact on the nationwide statistics.

      Where the statistics are for “superfast broadband”, things can be confusing too. Most statistics from BT or local authorities will be based on speed thresholds of 24Mbps; my council generally assumes that this is possible for distances of 1.2km. Ofcom tends to use 30Mbps as their delimiter – following the same definition of the EU. TBB shows both, so we can see what the percentage difference is there too. However, there are plenty of times where the “superfast” label gets applied, where they really just meant “fibre”.

    • Craski

      @Thanks Mike! Some great info here. Loving the approach to scraping the info … you’ve inspired me to pull together some scripts of my own.

    • Craski

      @MikeW

      With the initial versions of my own scripts I can already see that some of the properties that BT are reporting availability of FTTC on for properties on NSALF cabinet 1 are a very suspect. e.g. within an hour or two of firing up python and getting a basic script to scrap the BT DSL checker I’ve found several addresses at over 4km straight line distance from the cabinet that BT DSL checker is reporting 80/20 clean as being available which I find very hard to believe (these people are local to me so I am going to talk to them and verify). I hear what you are saying regards the effect on the bigger picture but I’m going to dig deeper within my local area and push it further with Digital Scotland and the local council as clearly there are errors and over egging on the coverage figures being touted by BT here.

  4. MikeW

    As I’ve said before, this isn’t proper clawback money … it just works as though clawback has been activated early.

    The money isn’t being doled out because uptake has rocketed suddenly. It is happening because BT have changed their planning assumptions from 20% take-up to 30% takeup (or 28% in commercial areas).

    The effect is subtle.

    • How can it be subtle? £129m is about £8,000 per installed BDUK cabinet? This is a downpayment of the capital should have been paying, but avoided as it inflated its costs in the 2012 Framework, removing the need for any capital contribution.

      This is out of scale for clawback where a 10% increase uptake up is only 20 customers per cabinet or £1,680 wholesale revenue before costs. This cannot trigger this sort of capital contribution.

      I think the state aid re-negotiation has triggered this release of funds. The existing measure went out of date on June 30th.

    • MikeW

      1. Subtlety

      I didn’t say the money was subtle. I said the effect … and obviously I’m talking about the difference between how most reports say things are happening (ie actual takeup has triggered clawback money) versus how BT says things are happening (they’ve adjusted the takeup assumption).

      It is the difference in effect that is subtle.

      I think both processes result in the same amount of money. No difference == very subtle effect on the money, I’m sure you’ll agree.

      The real difference is that BT’s chosen method means the money is handed over now, rather than in 1-2 years time. That’s a little more subtle, right? Happily, it means BT can make plans for it while the existing project teams are still in place, working.

      And I think there’s a consequence to the way this money gets treated … which means BT gets to spend it itself (because it is extra capital investment rather than proper clawback). By not being labelled as clawback (other than by journalists) *really* means it doesn’t go to the LA and potentially on to an alt-net. This effect really is subtle, if it is happening. I think it is.

      2. Capital Downpayments

      I disagree with you about whether this money is a downpayment of capital that ought to have already been happening – of existing capital. That *is* happening, but you just don’t like the visibility of it.

      This is *new* capital, I think. It is being announced in the same way as all the project financials were announced in 2012-13 during contract signing: big announcement, and no subsequent details of actual expenditure … and I’m sure that you’ll be disappointed that this new money will remain just as invisible in the long run.

      You might well be right – that the effect of the cost model in 2012 means that BT temporarily had to use less working capital during the deployment phase of the project. That might happen in some projects, and not others. However, the key thing you keep forgetting is that, even if absolutely true, BT will still have to make its proper capital contribution when the deployment phase finishes, and reconciliation activities happen.

      You do understand this, right?

      As projects are finishing left, right and centre now, BT will be going through this reconciliation process all over the country. If BT haven’t spent their share of the capital in quarters gone by, then it won’t have been in the accounts, right? So any large-scale reconciliation will make for big numbers in the accounts over the next few quarters. Lets see…

      3. Revenue from a 10% increase in take-up

      You think the capital is out-of-scale for a 10% increase in take-up, and calculate £1,680 revenue?

      Unfortunately, you aren’t thinking on a long enough timescale … because BT is working to a 12 year payback time (commercial cabs) or a 15 year timescale for BDUK cabs, not 1 year. That changes the revenue picture. Commercially, 28% takeup means an extra 24 customers, and over 12 years amounts to £24k. Subsidised, 30% takeup means an extra 20 customers, and over 15 years amounts to £25k.

      Of course, we’re not told the period that these new take-up figures apply for … so it might only be for the last 8-10 years instead of the full 12-15 years. The numbers would drop to around £16k then.

      Are those numbers enough to float any boats? They ought to be, because they represent nearly 50% extra revenue.

      4. State Aid Re-Negotiation

      I’m sure there has been some very high-level negotiation going on that has triggered this “repayment”/investment.

      My personal feeling is that it has been more between BT and the government, without the EU being involved. But they could have been, especially if there is some hidden quid-pro-quo going on – perhaps related to ultrafast.

      My feeling over any state aid renewal is that it is all about renewal of approval for future contracts; no company would have signed the original phase 1 contracts if the EU had a future mechanism to come in and take away existing approval, or existing money.

      I believe that state aid expiry in June has no meaning to already-signed contracts.

      And, as I believe that, my question would be: what is there for BT to need to gain from state-aid renewal? Given that all the phase 2 contracts were signed in time (save CDS)? And that phase 3 contracts look to be headed towards FiWi or satellite?

      5. Amount per cabinet

      You reckoned £8k per cabinet.

      Calculating based on 4.2 million lines overall, averaging 200 lines per cabinet, I make that 21,000 new cabinets. That comes out closer to £6k per cabinet.

      Or do you reckon there are only 16,000 new cabinets in phase 1?

    • @mikeW
      1.) Sublety – I do see your point, it is a means to an end. It does get interesting if the same amount was tiggered by each 10% increment.

      2) Capital Downpayment – I think we are mostly aligned, but the lack of BT capital in the planning process for phase 1 meant the bar was set low everywhere. I think BT has many ways to avoid its full contribution including the re-aligning of cost allocations over a 7 year period. So the process favours BT and its capital contribution is negotiable.
      There is insufficient granularity on BT’s capital envelopes to support your view. BT’s capital has a downward trend anyway. Ofcom have agreed some secret reporting for the allocation of these grants within BT’s accounts but no detail is available. We are a little apart on this point.
      3.) Revenue – Believing 12 or 15 years requires us to believe BT spent £3bn on 50,000 commercials cabinets. We can divide the numbers by half and I think we should and re-set the payback periods and discuss another time. State aid and gap funding is intended to pay incrmental costs, not all costs with the hope of getting some back later.
      4.) State aid measure – the interim review was about compliance with the state measure. Is gap fudning working? Is BT’s contribution visible? If not and if to avoid a investigation compromises were needed. I am speculating. But however it happened the £129m was needed and is about a third of the capital which needs to be contributed by BT.
      5.) Intervention area was c5.6m NGA and 500k basic as per Oxera table or c30,000 cabs. If the Phase 1 contracts were 4.2m setting the bar low while having all the money available, then this was part of the problem and questions the need for SEPs and indeed the original target setting.
      200 cabs a week is the BT machine, 15,000 delivered to July, and this should keep going for the next two years. Phase 1 may well be defined as 21,000 cabs but that just proves how sub optimal progamme is, given the budgets available. Rutland is typical, 17,000 is the intervention area, they do 10k, 1m underspend plus clawback to come.
      The principal issue is the lack of resource to perform FTTP in-fill. There are substantial funds within the system to do it but no resource.
      Thanks for the ongoing exchange.

    • TheFacts

      @NGA – no resource where?

    • @The Facts OR resource to do FTT – DP or P in-fill. For that matter, Alt-nets have limited capacity as well. The former should have resulted in more resource being planned in 2012, given the amount of money available, (note every county is reporting underspends (not efficiencies) and this is before BT’s capital contribution.
      BT capacity looks to be 200 completed cabs a week. The 30,000 BDUK cabs will cost less than a £1bn, before BT makes a total contribution of c£350m capital plus clawback.
      This leaves at least £500m + for in-fill activity.
      Note USC premiums will be need to re-used and credits needed for the overbuild of Virginmedia. The latter is problematic but it significant for excluded rural communities.

    • TheFacts

      @NGA – Credits for VM overbuild, where is this documented?

  5. Bill Lewis

    quick question.. If the Phase 1 roll out includes running FTTP for miles to 2 remote properties and at least one signs up, then does that come out as a 50% success rate ?

    FTTC and cabinets seems easier to measure , the cost of implementing FTTP as above must be considerably higher though, so the clawback greater too?

    If neither signs up and the fibre remains dead for years then isn’t there a clawback there too , or is it just something the LA will hide under the carpet as a misguided expenditure?

    bill

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