UPDATE3 Public Accounts Committee Savages BT Over State Aid Broadband

Last night’s grilling of BT by the Public Accounts Committee (PAC), which works on behalf of the House of Commons to examine public expenditure, was surely an uncomfortable experience for the telecoms giants Group Strategy Director, Sean Williams, but at the same time it also helped to clarify a few vital points.

According to the recent National Audit Office report (here), the £1.2bn Broadband Delivery UK (BDUK) scheme that initially aimed to help make fixed superfast broadband (25Mbps+) services available to 90% of the UK by the end of 2015 (DCMS now expects it to hit 88%) is 22 months late, lacks competition / transparency (costs etc.) and has allowed BT to get away with underfunding on its contribution.

Rival ISPs have also been highly critical of BDUK for creating a framework where BT has been left as the only viable bidder (they’ve picked up all of the contracts so far) and one that makes it difficult for smaller ISPs / rural altnet schemes to secure RCBF funding due to a reluctance on BT’s part to release related coverage details for the final 5-10% of the UK (here).

At the same time BT has also been accused of using public money to deliberately muscle in the planned coverage for rival networks, which has most recently included at least one part of B4RN’s area in Lancashire (other altnet projects have similar concerns). Suffice to say that the stage last night was clearly set for a barbeque and BT were the proverbial sausage.

Piers Daniell, MD of Business ISP Fluidata, said (blog):

“Ironically most of these businesses are managing to do so with little or no public subsidy as most of that is currently being directed to BT, who without sufficient competition, is clearing up the opportunities for government money. It is therefore surprising that even though we have a number of companies trying to tackle the digital divide their ability to do so is being thwarted by BT trying to maintain market share – even in areas they are not planning to build to.

While I have been aware of this action I didn’t realise it was so prevalent until I went to an industry event last week where a number of small network operators are represented. The problems is the ‘overbuild’ risk, i.e. BT building a network in a particular area when the other network has been built (and only then), seems to be one of protectionalism rather than one of delivering connectivity for all. This process seriously undermines the new network and hence BT are managing to use government subsidy to stifle the very competition and access for all the country desperately needs.

Who would have thought we would be in the position where government money is being used to help maintain a monopoly and stifle choice rather than being used to actually provide services to the last 10% which are ‘uneconomic’ apparently.”

At times the four hour long session, which was streamed live over the internet and parliament TV, seemed more about political point scoring by MP’s than constructive debate. Margaret Hodge MP even accused BT of “blackmailing the public“. Later the operator was criticised for using “bullying tactics” with local councils in order to allegedly damage competition and protect its own interests. But a couple of interesting bits of information did manage to emerge.

Key Points from PAC

* On the matter of coverage in the final 5-10% of the UK. BT initially said that it was up to local councils to make this data available to smaller ISPs (so far that hasn’t worked) but Williams later confirmed that he would have no objection to the full disclosure of such information. Chairwoman Margaret Hodge additionally ordered BT to release the information about this and called for “total transparency on the issue of costs”. It will be interesting to see if this happens.

* On the issue of BT’s alleged underfunding. Readers will recall that BT previously claimed to have set aside around £1bn for match-funding with public money through BDUK. But this contradicts the NAO claim that BT were now only expected to contribute about 23% of “projected funding” (hard to be sure until all the contracts are signed). Last night BT clarified that it expected to spend £700m during the life of the project but this included operational costs (labour etc.) and the MPs were more interested in their capex figure (the raw cost to upgrade physical assets such as buildings and machinery).

Clearly BT wasn’t happy with the “unfounded allegations made here today” and promptly released a press statement that said, “BT is investing billions of pounds to radically improve the UK’s broadband network while ensuring all companies have access to it on an equal basis. We are therefore shocked and mystified by some of the ill-informed comments played back by members of the committee.” BT went on to say that deploying its fibre optic based FTTC/P network was a “complex long-term investment” and that this had been ignored by MP’s in favour of “soundbites“.

As it stands today BDUK is currently being revamped to adopt a more “commercial” focus (we still don’t know what to expect from that) and in fairness missing the first 2015 target by just 2% isn’t too bad for a government run scheme. It’s also worth remembering that the fixed superfast broadband target has recently been raised to 95% of the UK by 2017.

On Monday the government’s culture secretary, Maria Miller MP, also met with BT and a number of local action groups (including some altnet ISPs) to discuss the last 5-10% coverage issue (here). The meeting was described as having been broadly positive and something does appear to be happening, although we’re still waiting to find out what.

Suffice to say that BT took a beating last night, from more or less every single corner, and the question is now whether any of the recent events and highlighting of concern will be used to create a more accessible BDUK process and one that allows RCBF funding to finally be released. But what we don’t need are more delays.

UPDATE 1:09pm

Added a quote from the MD of Fluidata for some context.

UPDATE 19th July 2013

Also worth mentioning is the bit where Nicholas James, CEO of fixed 4G operator UK Broadband (PCCW), steps into the fray to explain some of the faults with the BDUK framework that made it almost impossible for them to join.

James notes that ISPs were required to submit bids for each council and that contracts were awarded ad hoc (as opposed to all at once), which made it difficult for BT’s rivals to develop any investment certainty.

After all a business needs to know that they’re going to win enough contracts to breakeven on a project but if you can’t structure a bid for a larger single area then that’s a big restriction. “The risk being that if you only get one [local authority council area], you cannot amortise the start-up costs. You don’t know how many [bids] you’re going to win,” said James. This was also one of Fujitsu UK’s problems with the process and that helped to stall their own plans for an FTTH network.

UPDATE 19th July 2013 – 12:54pm

BT also denied TalkTalk’s challenge concerning its allegedly limited focus on business parks. TalkTalk’s CEO, Dido Harding, suggested that BT were ignoring business areas with its cheaper fibre FTTC/P services in order to protect their “lucrative leased-line business“.

Williams (BT) denied this by saying that they only “deploy fibre in areas where there’s most likely to be take-up: it’s as simple as that“. A comment like that could of course be taken two ways, such as to say that since businesses might already take a leased-line then they probably don’t need FTTC/P. We suspect businesses would rather have the choice.