UPD BDUK Cast Questionable Eye Over BT UK Superfast Broadband Costs

The government’s Broadband Delivery UK (BDUK) office, which handles public funding for the country’s national roll-out of superfast broadband services, looks set to cast a questionable eye over BT’s related “fibre” based (FTTC / P) roll-out costs after an internal discussion paper pointed to several areas of concern.

The paper, which allegedly examines BT’s financial model for delivering faster broadband connectivity into the “final third” of mostly rural parts of the country (i.e. where private sector investment has failed to reach), is vital for helping to define how much public money (state aid) will be required to do the job properly.

It is naturally quite important for the government to establish whether or not public money is being spent correctly and the paper suggests that there may be several problem areas that could require further investigation. According to Ian Grant’s Br0kenTeleph0n3 blog, which saw the aforementioned document, BT is alleged to have “continuously increased its apparent cost by adding new job types and not cutting costs where jobs are already accounted for“.

BDUK’s model requires that any state aid investment is match-funded by BT and local authorities, which has in some cases tripled the total investment. But instead of sharing the financial burden BT’s strategy, according to Grant’s view of the paper, is to try and “recover all its direct costs for a full roll-out“.

Extracts from BDUK’s Discussion Paper

“[BT is] imposing an abstract model to establish a wholesale price and define a cost unrelated to the inputs of an individual roll-out.

Cost inputs and assumptions on cost recovery for element costs are not revealed. Model outputs are driven by a take-up assumption which is unrelated to the actual assets built or needed.

BT is using the opportunity of a framework structure to create a wholesale price – not a cost as understood in calculating state aid.”

Apparently BT’s current model sets the “standard cost” of connecting a house to its Next Generation Access (NGA) network at “£520 for the physical infrastructure plus £84 to connect” +vat (this apparently includes a connection to anything delivering 2Mbps+). It’s annoyingly tricky to compare this with other networks as every telecoms developer adopts a different strategy, hardware, software and engineering approaches; without seeing the document itself we can’t fully assess the true meaning.

A BTOpenreach Spokesperson told ISPreview.co.uk:

“BT is winning competitive BDUK tenders precisely because it is committing extra funds to improve broadband access. These funds are in addition to our commercial investment of £2.5 billion and so it is ludicrous to suggest that we are trying to pass on the full cost of deployment to our public sector partners.”

Crucially this latest document has surfaced at a time when one of BDUK’s two chosen operators for delivering upon the government’s national broadband strategy, Fujitsu UK, has just been classified as “high risk” and thus subject to additional scrutiny (here). On top of that Europe is continuing to delay approval of State Aid for any related Local Broadband Plans (LBP) until its own competition concerns have been addressed (expected to happen this month).

Meanwhile it’s important to stress that discussion papers like this are quite normal as government’s, just like businesses, need to constantly check how their money will and is being spent (note: this doesn’t always prevent mistakes). It’s also equally important for a commercial company like BT to be able to return a profit. Perhaps the real news here is that BDUK aren’t completely blind to the concerns and appear to be testing the operator’s claims, which is a good thing.

It should also be pointed out that BT are still subject to a contractual obligation, which is designed to ensure that all their costs are consistent with the commercial deployment and across all BDUK contracts. Indeed all of BT’s actual costs are also audited during the life of the contract and the operator remains subject to international cost benchmarking.

BT also has some incentive to drive down its costs because of their own £2.5bn investment in the commercial deployment of superfast broadband services, which should benefit the public roll-out.

UPDATE 18th September 2012

Added a comment from BT above and a bit of extra detail.