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UK Government Sacks Man Who Questioned BT Superfast Broadband Costs

Tuesday, October 2nd, 2012 (1:44 pm) - Score 1,948

The government’s Department for Culture, Media and Sport (DCMS) has allegedly sacked the author of an internal discussion paper that questioned some of the costs of BT’s financial model for delivering superfast broadband (FTTC) services into the “final third” of mostly rural parts of the UK.

The report itself, which we covered last month, pointed to several areas of concern, such as one where BT is said to have “continuously increased its apparent cost by adding new job types and not cutting costs where jobs are already accounted for“. It later added that the operator was “using the opportunity of a framework structure to create a wholesale price – not a cost as understood in calculating state aid“.

Suffice to say that the suggestion, which is that BT might have allegedly attempted to inflate some of its costs to the detriment of tax-payers, drew an understandably strong denial from BT. A spokesperson for the operator told ISPreview.co.uk last month that, “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“.

BT are subject to a contractual obligation, which is designed to ensure that all their costs are consistent with the commercial deployment and across all Broadband Delivery UK (BDUK) contracts. On top of that their actual costs are audited during the life of the contract and the operator remains subject to international cost benchmarking. Naturally BT, as a commercial company, needs to be able to return a profit but at the same time it’s also incentivised to reduce costs in order to make their £2.5bn investment go further.

According to Ian Grant’s Br0kenTeleph0n3 blog, report author Mike Kiely was let go shortly after his document had been sent to local authorities and subsequently leaked online. The government has a no-comment policy on matters that affect individual members of staff and thus we’re unable to gain a response as to the exact cause of his departure.

Still, whether correct or not, Kiely’s report clearly did raise some concerns and those have today been picked up by the Daily Telegraph, which claims that Margaret Hodge MP (Labour), chair of the Public Accounts Committee (PAC), was “shocked” by the disclosures and planned to examine them further. Hodge has also forwarded her concerns on to the National Audit Office (NAO).

Mrs Hodge said (NAO Letter):

This looks like another example of a lack of transparency by a private company providing a public service potentially allowing the taxpayer to be ripped off. Taxpayers are paying £1 billion for the roll-out of high speed broadband across the UK, an essential service that people cannot do without, and it appears from this document that BT may have exploited its monopoly position.”

The Local Government Association (LGA) and Digital Policy Alliance (DPA) have since joined with Hodge in calling for a proper investigation of the concerns. Certainly where there is any doubt then it’s always wise to take a closer look (hopefully without adding any further delays). It is however notoriously difficult to compare costs between different networks as every telecom developer adopts a different strategy, hardware, software and engineering approaches.

It’s also worth remembering that it does cost more for big operators like BT to deploy new services into rural areas where people traditionally live much further away from their local telephone exchanges and sometimes even street cabinets.

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Mark Jackson
By Mark Jackson
Mark is a professional technology writer, IT consultant and computer engineer from Dorset (England), he also founded ISPreview in 1999 and enjoys analysing the latest telecoms and broadband developments. Find me on Twitter, , Facebook and Linkedin.
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38 Responses
  1. Avatar Bob says:

    There is in my view that BT are exagerating costs and in particular with cabinets. If BT enable one cabinet in an area the costs of enabling the others fall but BT do not show that.

    There is also spin on the BT investment on the non viable areas. This is not extra investment that BT are putting in. What happens is the BDUK program makes up the difference to bring these areas up to a commercial level. What is not cclear is if BDUK will see a return fromthis investment of are BT going to cream it off

    You can sperate out the capital cost of the rollout in non commercial areas where the BDUK program is picking up typically 40% of the costs fromthe revenues of the rollout. As BDUK are subsidising the capital investment by about 40% it ought to be getting about 40% of the profits fromthe revenues. Somehow I suspect they will all go to BT

  2. Avatar New_Londoner says:

    Quote “There is also spin on the BT investment on the non viable areas. This is not extra investment that BT are putting in.”

    I think you’re confused, need to look up about “gap funding”. The way this works is that BDUK fund the difference between the comercially viable cost and the actual cost in order to commission the contract winner to deply in those areas. How is this not extra investment if it was not previously planned nor included in the announced funding?

    As for any profit sharing, that presumably depends on the contract terms. I understand the norm is to provide some sort of “claw back” if the return exceeds a certain level. So I suspect its more likely that our money would be paid back to be used for something else.

    1. Avatar Bob says:

      Well it is certain there will be a return. BT have said these areas are not commercial BDUK funds the difference which makes them commercial. Given BT seem to be expecting typically a 40% subsidy per cabinet . BDUK ought to be getting 40% of the profits. BT are alo getting the benefit of scale so costs should be falling

      Perhaps as well we should be looking at Sponsership for Broadband ie HS Broadband in Essex sponsered by Tesco’s and they get free sponsership ads on C4 or C5

    2. Avatar New_Londoner says:

      Not sure you’ve fully understood the gap funded model after all.

      Like I said, we the tax payers have asked the BDUK bidders to spend their money in areas where they have no plans to do so as it would be unprofitable. To make this attractive to them, we have offered to subsidise their costs to the extent that their investment becomes as economically attractive as the rest of the country.

      So we’re not taking a stake in some sort of joint venture, just making the “final third” as attractive to invest in as the rest of the country, no more. If a deployment generates a much higher than expected level of demand then we may ultimately get some or all of our money back. On the other hand, if demand is much lower than expected then we don’t pay any more, any loss is bourne by the private sector (BT for the contracts announced to date).

      We can’t sell sponsorship of the network because we dont own it, nor IIRC are we even paying the majority of the costs in most cases. Any in many counties remember that BT is separately funding its own commercial deployments alongside the BDUK ones, so we may not even be contributing towards the costs of the majority of coverage in a county, at least in terms of the population covered.

    3. Avatar zemadeiran says:

      zemadeiran is watching (0)(0) you New_Londoner

    4. Avatar New_Londoner says:

      You need to get out more!

  3. Avatar Deduction says:

    Looks to me as always in an attempt to cover things up its just gonna make the poop storm bigger now LOL

  4. Avatar Bob says:

    It looks as if the storm over BT’s charging has blown up. BDUK is now challanging BT’s cost. THey appear to be asking typically a 40% subsidy for a cabinet install. Now in a very small number of cases it may be justified but in most it is not a 10% figure would seemmore reasonable. BT are trying all the usual tricks such as claiming much higher cost to install power which is runbbish. 95% of the cabinets will be within a few metres of power and traffic management and space problems are less lickely

    1. Avatar New_Londoner says:

      Have you actually read the story in the Telegraph?

      Quote from paragraph 1: “The Government is committed to giving £1billion to BT to allow it to roll out broadband to 12 million households in the countryside.”

      A fine bit of journalism it the first sentence which is factually wrong – anyone any proof of this commitment to give “£1bn to BT”?

      Quote from paragraph 2: “…officials at the Culture, Media and Sport department have been told the broadcasting giant …”

      The “broadcasting” giant? Another fantastic bit of research from the roving reporter!

      So as you can see from the first two paragraphs of the article alone, some fine quality investigative journalism behind the article!

      However you appear to have out-scooped the Telegraph as you clearly conducted your own research to reach the conclusions that you have above. I’m sure the National Audit Office would be very grateful to see the data that allows you to state that “a 10% figure would seem more reasonable” (as the level of contribution towards the cost of a cabinet), or that “95% of the cabinets will be within a few metres of power and traffic management and space problems are less lickely [sic]”.

      So how about you outline your data here for our collective education, and forward the source material to the NAO to help them with any investigation?

    2. Avatar New_Londoner says:

      I see that TBB has also covered this issue, but its coverage has included some comparative costings from other EUropean telcos which appear to suggest that BT’s are reasonable. However you’ll know this as you’ve also posted there and seen some responses explaining this to you.


  5. Avatar FibreFred says:

    Is it costing tax payers £1 billion? I though it was half?

    Also Deduction, to answer your question from another news story:-

    “A spokesperson for the operator told ISPreview.co.uk last month that, “these funds are in addition to our commercial investment of £2.5 billion”

    There you go, not part of the 2.5 billion, in addition to

    1. Avatar Deduction says:

      Considering the whole centre of this storm is it is believed they may be overcharging, then any figures they state, may now be nothing more than vastly over quoted/estimated nonsense.

    2. Avatar FibreFred says:

      Well that is the whole question. Is it believed?

      Obviously by the BT haters but I mean by people that can do something about it and don’t have a wild hatred.

    3. Avatar Deduction says:

      Considering they fired the guy who had the nerve to point out they may be diddling the costs and now others in power are also realising it, its nothing to do with BT hate.
      The standard response of “The government has a no-comment policy on matters that affect individual members of staff” speaks volumes (or translated reads, oh damn we have been found out moneys been wasted). Camerloon and chums had plenty of comment about Andrew Mitchells little outburst over where he can peddle his bike. So that statement is nonsense.
      Lets just hope some in power have the nerve to insist things are investigated and dont collapse when they are threatened if they persist they will lose their job.

  6. BDUK £530m
    Local Authorities matching so another £530m
    Contract winner expected to contribute, generally another match, so will be worth £1bn in the end from the commercial investor.

    If BT were to win all contracts, they would then have spent £3.5bn to make superfast available across 90% or more of the UK, if projects deliver. The total from the public purse being £1bn.

    Virgin Media is sitting on debt of £6bn from its roll-out over the decade or so on its 48% coverage, so not a bad set of figures in some ways.

    1. Avatar New_Londoner says:

      Interesting comparison on the cost to get to 90% coverage verses Virgin’s debt. A point well made.

    2. Avatar AR says:

      Its not a good point at all, Virgins debt has been rolling up interest for well over a decade before they even began to start paying it off. They also had to install connections directly to every house, which BT doesn’t have to do at all.

      Terribly misleading comparison.

    3. Avatar New_Londoner says:

      Let’s agree to differ. It at least gives a reference point for the value of what is being delivered, and to what % of the population. Yes interest has affected the Virgin cost, but there again what about inflation?

  7. Avatar zemadeiran says:

    VDSL on the edge is really not a good idea unless the cab lives inside a block/building and I think that we all know this in our hearts…

    VDSL is meant to be a MDU solution and cabinets on the street are really last ditch grasp at maintaining a grip on the last mile which we all know.

    I will use the term “pissing into the wind” so as not to offend New_Londoner by using stronger vocabulary.

    I have nothing against BT/Openreach but I also think that we should move to an open fiber network which isp’s can provide packages on. Imagine how many niche services you can provide as an isp if you do not have to worry about how your service is delivered.

    This for me is very exciting (I do get excited over small things…)

    Which ever way we look at it, we are faced with the stark reality that the UK PLC communications network has to be upgraded completely to fiber with universal access for our generation and the next.

    Yes it is a massive job and there will be many challenges and obstacles to overcome without a doubt but I believe we can do it, all of us no matter how small a part you play.

    I was not born in the UK but I did grow up here and remember watching the clangers, bagpus, danger mouse and the rest. I have within me a British spirit and the ability to take the piss out of myself and others without any malice.

    I know that we can do what needs to be done, all of us.

    CFN Mesh (copyright zemadeiran 2012)

    1. Avatar New_Londoner says:

      Still few/no specifics on the boring bits – how much, who will pay and so on. Look forward to seeing your “CFN Mesh” develop beyond just a name into something that can be explored.

      In the meantime, luckily we don’t all “know” what you state as truth in the first couple of lines, which is just as well as VDSL is working perfectly well for me, giving me very solid bandwidth as it has for some time now.

      No doubt similar sweeping claims would have been made about the absolute limts of the bandwidth that you could squeeze from copper a few years ago, with people like the FTTH Council insisting you really need FTTP to get any sort of reasonable speed into premises. I get why equipment manufacturers make these claims, am baffled why others swallow them despite very clear evidence to the contrary.

    2. Avatar FibreFred says:

      “VDSL on the edge is really not a good idea unless the cab lives inside a block/building and I think that we all know this in our hearts…”

      Errr no we don’t. Many telco’s around the Europe/world would disagree with you there

    3. Avatar zemadeiran says:

      Can I just point out that these many worldwide Telco’s love this interim VDSL tech because they CAN hold onto the copper last mile.

      It is all good and well having a cabinet on the street with a frame in there, but throw in some active equipment and you are inviting problems.

      GPON et all does not suffer from weather, interference or distance related issue’s. What’s not to like?

    4. Avatar FibreFred says:

      What do you mean “hold onto the last copper mile” if its their own infrastructure they’ll still be “holding on” to it even if its fibre.

      GPON is great, its just more expensive that’s all which is why it will no doubt be a gradual shift.

      No it doesn’t suffer those issues although can still suffer from weather, cracks in roads leading to cut fibres etc. But sure.. much better than copper. But its just down to cost, like most things.

  8. Avatar AR says:

    Inflation has a running average over the last 15 odd years at 2%. VMs debt before restructuring this year was running at nearly 10%. Not even in the same ballpark.

    1. Avatar New_Londoner says:

      Interestingly, that £6bn would have “only” been £4bn at 1997 prices. So whilst you’re absolutely right that interest rates would have been higher, even the relatively low inflation rates of late still do make an impact cumulatively.

  9. Avatar Bob says:

    FTTC to the cabinet is not really a good idea.It is cheaper and quicker in the short term but longer term it will be more expensive and it offers very limited average speeds. THe Fujitsu solution was much beter but BT with their continued success in blocking acces to their ducts killed that off

    Having active equipment distrubuted around the strrets in an uncontrolled environment is not a good idea. Fans for example are not the most robust and reliable items they also introduce dirt and dust into the cabinet. VEnts in the cabinet can also become blocked. REliability of the kit in the UK’s highly variable climate may not be good and failures may be far higher than expected gibving higher maintainance costs

    1. Avatar TheFacts says:

      Active kit in the streets seems to work for Virgin Media. Did we ever find out what the Fujitsu solution was in detail.

    2. Avatar FibreFred says:

      So Fujitsu where going to do a full FTTP solution for the same price as what BT are doing FTTC?

      Is that what you are saying? If so why did they pull out?

  10. Avatar David says:

    I hear today that Stephen Hodgson (Head of broadband policy) has left DCMS. Given the furore surrounding BT’s costs and the legitimate application of State Aid from BDUK, the outlook for UK’s broadband policy looks rather bleak. I wonder what the Commission makes of all this, as they consider their response to BDUK’s spending plans. Anybody know who’s in charge of broadband policy now?

    1. Avatar FibreFred says:

      Glad I’m not in a BDUK area as all this squabbling can only lead to more delays for those that were to benefit from the funding

  11. Avatar DTMark says:

    Following various links from this, I find a number of people who seem to know far more than me, saying more or less the same sorts of things that I’ve been saying for years.

    Government/BDUK puts together a totally flawed “plan” devoid of any strategy, flawed because the starting point should have been to question why, in a growth market, nobody is interested in investing, so as to reverse that and harness all the funding that could have come from a stack of players so as to create a vibrant market for services which will be highly important to the country going forward.

    We now end up with a “plan” which will not deliver the aims of the project, which seem to have fallen by the wayside when faced with the limitation of what is practicable to deliver using an overlay onto an archaic phone network.

    Which will leave consumers with no choice at all over the key components which most greatly influence their experience. “You can have any internet connection you like, as long as it comes down a 1940s telephone wire”.

    Leaving local councils largely facing a choice of one in a market which does not exist supposedly to attain objectives which are unattainable in such an environment.

    And, regardless of whether the costs are inflated or not, placing councils in a position where they cannot get the best value for taxpayer’s money, accepting that is what is going to be spent.

    As I have said all along, it is neither necessary, nor desirable, for a Government to hand money directly to any company to improve the dire broadband in this country.

    Indeed doing so simply cuts out all the potential private investment we potentially could have seen and simply entrenches the same position we’ve always had in which there is never any next generation investment (next generation being FTTP). The key message from BDUK to any serious potential investors: put your wallet back in your pocket. We’ll shaft you every time.

    It’s a real shame, as apart from the fact that I’m now being forced to pay potentially inflated sums to the same gloriously inept old phone company, this approach will keep this country in a position of having backward technology for the forseeable future.

    I note that the West Coast Mainline bidding process is now to be repeated because of huge “flaws” in the process.

    And even though I’ve watched “Yes Minister” and “The Thick of it”, and this country has always had amateur governments in living memory, I still find it hard to believe that simple incompetence is to blame.

    1. Avatar Bob says:

      The real problem is that BT has an effective monopoly. If they have no risk of their customers going elsewhere they do not need to rush to invest and can take their time.

      With the BDUK funding they failed to take advantage of the benefits off scale and instead decided to let every little council run its own program , massively increasing costs in doing so. Most council have little knowledge in this area as well so take on loads of expensive consultants to do exactly the same as a hundred other councils were doing.

      The scheme was so biased towards BT it is little wonder that there were few companies even expressing an interest in bidding. This in spite of Broadband being a fast growing market and a general stagnant economy.

      The real block to competition is BT still managing to block access to its ducting.

      In my view what is needed is a second wholesale provider for the UK but to achieve that end it needs fair access to BT’s ducting. The fact that there is not a single commercial user of PIA indicates very clearly there is not fair access. Fujitsu tried to bid on the basis of PIA but BT managed to price them out of using its ducts
      The Fujitsu strategy was also the superior one as they aimed to supplier FTTH wherever it was reasonably cost effective to do so. Instead we now have the BT strategy of leveraging its legacy network which is already creaking and not future proof

      With only one bidder as well it makes it almost impossible to determine whether it is value for money. Some costs can easily be confirmed such the cost of the cabinet. Connecting power etc but it is quite easy in a large company such as BT to juggle all sorts of costs around. It could for example load some of the costs of the Commercial rollout onto the Non commercial rollout and of course it is in its interest to do so

    2. Avatar zemadeiran says:

      Personally I would love to see hundreds of small network providers across the country peering with each other on an open fiber network.

      Just imagine the growth in employment and focus on a local level.

    3. Avatar New_Londoner says:

      @the armchair experts
      As suggested to Bob elsewhere, we clearly have an abundance of financial, technical, logistical and other experts. Clearly the best thing for the outcry is thforgot unite to form a consortium and bid for the BDUK contracts yourselves in order to provide a much needed check and balance. Given the huge experience and expertise that is undoubtedly on offer, no doubt you’ll do tremendously well in business together. What could possibly go wrong?

    4. Avatar DTMark says:

      Experience and expertise count for little when you’re talking about a network as old as the GPO’s/BT’s and a “least effort” programme like FTTC.

      See paragraphs 2 and 8 (!) of my post above.

      God forbid anyone should challenge the BDUK “process” or have a say. After all, we’re just “armchair enthusiasts” whose opinion doesn’t matter; it’s just “Government money”, isn’t it.

  12. Avatar Bob says:

    Interesting to see howw many BT employees posts here trying to justify the abysmal state of the BT HS Rollout although I hesitate to even use the word HS as most will end up with very little speed increase partiularlyon the BDUK rolout where BT’s creaking legacy copper network will be pushed well beyond it’s design limits. Relying on something outside of it’s design limits is normally not a good idea

    BT’s maintaince costs will also gothrow the roof as they will have a huge number of street cabinets scatterd about widely contain active equipment and electo mechanical equipment in an uncontrolled environement and semi exposed to the elements which wil be being used beyond the design limits of is copper legacy network.. WE are already starting to see the impact of this as BT have build up a huge backlog of repairs and is currently resorting to firefighting mode

    1. Avatar New_Londoner says:

      I note you are the other members of the Armchair Experts Consortia keep referring to the “creaking legacy network”. If we follow your logic, presumably we should not even have had the opportunity to use dial-up, let alone any form of broadband?

      Luckily my VDSL modem is unaware of these limitations as it hums along providing me with > 65Mbps download speed. I assume you realise that vitually the entire connection to me, bar the last few metres is optical fibre, including the very high capacity core network? Important you understand this when referring to this mythical “legacy network”.

      What examples can you cite where the “huge number of street cabinets scatterd about widely contain active equipment and electo mechanical equipment in an uncontrolled environement and semi exposed to the elements” has proven to be a problem to date?

      Anyway surely this will all benefit your newly formed consortium when it launches, make it even easier for you and your colleagues to demonstrate your own superior prowess?

    2. Avatar FibreFred says:

      Sounds like the end of the world Bob, I might as well finish work early , we are all doomed anyway

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