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UPDATE3 Public Accounts Committee Savages BT Over State Aid Broadband

Thursday, July 18th, 2013 (8:29 am) - Score 1,615

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.

Leave a Comment
43 Responses
  1. Avatar Slow Somerset says:

    It is about time BT were made to come clean about the costs and where they are not going to go as they are using Public Money.

    1. Avatar Bob says:

      It could backfire on BT eventually as they are locked into their cooper legacy network and are supporting ADSL & FTTC as well as the old voice network

      With the take up of FTTC increasing fast it starts to look more interesting for the completion to move in. They will not have a legacy network and could potentially go pure Fibre, Costly to roll out initially but longer term a lot cheaper

      If you have a demand lead FTTP rollout by cabinet it starts to look quite attractive particularly for VM who are good at marketing their Triple play bundles, The scope for VM to keep upselling is becoming very limited. Now that VM are owned Liberty Global cash is not so much a problem

    2. Avatar Clive says:

      The day we get anything more than hot air out of our government and actual factual figures out of BT will probably be the day the planet we live on implodes.

      Our government likes to do nothing more than cheap point score as it has done for years (ALL parties) and BT’s maths is about as useful as the posts that defend that organisation (IE completely useless).

      Its too little too late now, unless we all get lucky and there is some kind of uprising miracle like what happened with the banks and our government actually do attempt (though likely not succeed as usual) to get some of our wasted millions back from BT.

    3. Avatar FibreFred says:

      Bob the competition have had years to rollout FTTP, especially in the current climate I can’t see anyone coming in now, what happened to the Open Network Consortium, I assume its totally dead now?

    4. Avatar JNeuhoff says:

      @FibreFred: You really look like a BT spokesman. Are you sure you don’t work for BT? Especially in view of your love for BT’s copper VDSL?

    5. Avatar FibreFred says:

      I don’t love anything, this tech is in use around the world and its cost effective so I can see its merits. It isn’t a BT thing, its being / has been deployed in many countries

    6. Avatar Mark says:

      He isn’t a BT employee, they are not kind enough to hire lonely individuals with no life. 🙁

  2. Avatar Bob2002 says:

    Link to the video, there are two sessions, a few hours in total –

    http://www.parliamentlive.tv/Main/Player.aspx?meetingId=13646

    1. Avatar JNeuhoff says:

      We can’t even view this video stream because it uses a proprietary format (MS Silverlight). Looks the government really loves proprietary monopoly companies such as Microsoft and BT.

    2. Avatar Bob2002 says:

      @JNeuhoff – Have you tried the Windows Media Player link below the embedded Silverlight video?

  3. Avatar DTMark says:

    Bit puzzled. I haven’t watched the entire session, but how much of a savaging did for instance Jeremy Hunt, Ed Vaizey and BDUK receive?

    It’s all well and good to have a pop at BT.

    But the fact that they were handed all the contracts was not their decision.

    It starts there.

    1. Mark Jackson Mark Jackson says:

      Well that’s mostly what the NAO report did two weeks ago and as soon as BT sat down the PAC suddenly developed a flair for the dramatic. It is worth watching the whole session just for the entertainment value of later stages, although it’s still mostly politicians trying to look like they’re showing concern.

    2. Avatar FibreFred says:

      DTMark,

      Have you seen the second session, they are saying that increasing competition wasn’t an objective for BDUK

      That surprises me

    3. Avatar DTMark says:

      Thought I’d look up the original BDUK aims. But they seem to have disappeared. Fortunately a quick search on this site brings them back up like a beanburger.

      BDUK’s goals include facilitating the delivery of universal broadband and stimulating private sector investment to deliver the best super-fast broadband network in Europe by 2015. To achieve these objectives the Department for Culture, Media and Sport have agreed 3 business aims:

      1.Create a level playing field between incumbents and new providers
      2.Open up access to infrastructure to facilitate super-fast broadband in many areas
      3.Facilitate the introduction of super-fast broadband in remote areas at the same time as in more populated areas

      These were completely abandoned.

      Then you have OFCOM who are supposed to be involved with engendering “competition” which is meaningless in a vertical monopoly anyway because it does not drive improvement or change. So all it largely involves itself with is price controls, which do not drive improvement or change.

      Then you have the government with “fibre taxes” which disincentivise those looking to drive improvement or change.

      It’s the comprehensive lack of joined-up thinking which staggers me the most.

  4. Avatar Simon says:

    The minefield of public spending is mired by the fear of making the wrong decision and having an intimidating Monopoly who have the contacts and ability to write winning bids. What Chance do the small innovative players have when the BDUK insist on minimum turnover and long protracted bid processes where the goal post change? I have seen in my role with Fluidata fantastic projects losing against BT and the local community still waiting for the roll-out to begin. Check out this blog from Piers Daniels where he shares his thoughts and ecperiences http://www.piersdaniell.com/

  5. Avatar FibreFred says:

    Wow! Just wow! 😀

  6. Avatar JNeuhoff says:

    It’s a bit late now lamenting over giving BT such a large amount of taxpayer’s money in exchange for nothing. It was just plain stupid without getting any shares or control over this in return. This country will now suffer many years to come from the lack of lack of proper broadband, copper will now be around for many more decades to come. And with an ever growing digital divide forcing many businesses to move.

    1. Avatar Clive says:

      Our only hope in years to come now is For a REAL LLU solution to happen that offers us all Super Slow FTTC (BT and government can call it meaningless Super Fast i’ll call it Super Slow thanks).

      That or Virgin Media with the Liberty Global takeover/partnership upgrades its Network to offer speeds in the hundreds of Mbps.

  7. Avatar FibreFred says:

    Apart from obviously wanting to get the boot in as she’s no love for BT why was Dido there? I can see why the others were as they have something to offer, did TalkTalk have a super fast next generation plan they were going to rollout themselves but couldn’t get a look in?

    1. Avatar PhilT says:

      I wondered if Dido was going to sing, rather than just whine that aggressive retail pricing for FTTC from BT Wholesale based providers is shafting her dream of charging a £10/month premium over ADSL. Or did I mix her up with someone else.

  8. Avatar DTMark says:

    Piers: “Who would have thought we would be in the position where government money is being used to help maintain a monopoly and stifle choice”

    I thought that from the very beginning. And I’m sure I said so, on very many occasions. It’s like watching a prophecy being fulfilled. For heaven’s sake, I’m not even in this industry.

    BT is a private company. It is responsible to its shareholders. Therefore, it is operating in the correct mode of behaviour.

    The failure of BDUK to understand this dynamic and its effects right from the outset, and still now, is the key reason for all the problems cited.

    Companies cannot be “private” and at the same time, operate as some sort of “community spirited enablers”. It is BT’s *duty* to attempt to shaft their competitors wherever and whenever possible.

    1. Avatar Bob says:

      The problem is the government and local councils have not a clue as to how to review contracts. Most private companies with these large contracts would expect the bidders to have an open book policy so they know what the bidders costs are

      They also would not place a 100% of the work with one company

  9. Avatar dragoneast says:

    Just wondering again. The Government has an experienced telecoms regulator in Ofcom who seem to have been completely by-passed with the BDUK project. Why? Is there anything (again) of politicians being dismissive of those who know what they’re doing because of all the usual slogans they come out with; so “we can do it better” and hey ho their attempts at doing it faster and better end in the usual fiasco?

    So the slanging match continues. And as always those that get what they want keep mum, and those who don’t scream blue murder.

    1. Avatar Bob says:

      It is not a regulation issue though

    2. Avatar dragoneast says:

      But is handing out mobile licences a “regulation” issue in your sense Bob?

  10. Avatar Bob says:

    Contracts 100% gone to BT. Program over 2 years late, No clarity of BT costs

    BT’s bids for the cost of street cabinets are on average 12% higher than the actual costs of similar work carried out in Northern Ireland. Average project management costs are also more than double the Northern Ireland scheme. Opaque data and limited benchmarks for comparison mean the Department has no idea if BT is being reasonable or adding in big mark ups.

    1. Avatar Clive says:

      “…No clarity of BT costs”

      Indeed, there has not been for some time. Unfortunately it does not stop some people still insisting on amounts BT have spent. However due to this and NAO we at least now know what BT quote as investing, spending and cost’s without any evidence is obviously a complete work of fiction.

    2. Avatar PhilT says:

      “No clarity of BT costs” – do the local authorities not know how much they are going to be billed and what they are getting for their money ?

      If not, why are they allowed to spend anything more than petty cash.

    3. Avatar TheFacts says:

      The counties see the 1000’s of invoices.

    4. Avatar Neil McRae says:

      what caused the 2 year delay?!- and BT committed to hit the target date the government has set out.

      I think some of you need to get your maps out and have a look at the terrain that BDUK covers….

  11. Avatar Bob says:

    It is unclear as well as what the BDUK process of clawback is. AS more users go onto the BDUK funded cabinet one would expect that BDUK funding would be reduced, A sensible approach would be to review the cabinet quarterly

    1. Avatar Clive says:

      I would go a step further and any infrastructure which is state funded becomes state controlled. Id doubt BT would be in such a hurry to grab the cash then 😉

    2. Avatar TheFacts says:

      ‘any infrastructure which is state funded becomes state controlled’. The state might as well set it up as well. Like they did in telecomms 30 years ago.

    3. Avatar Ant says:

      ‘any infrastructure which is state funded becomes state controlled’. The state might as well set it up as well. Like they did in telecomms 30 years ago.

      They are already paying BT to set it up, that is what the BDUK funds. The deployment for certain areas.

  12. Avatar Clive says:

    Yep already set up by the state in certain areas. Unless they are just giving money away for free.

  13. Avatar FibreFred says:

    I’m sure Mr Williams is paid well, but I’m not sure how much I’d want to sit there and take that, mocking, borderline bullying some of it looked better suited to a school playground to be honest.

    Do we know when they will decide a way forward are the remaining contracts stalled now?

    No doubt they’ll spend another load of cash trying to fix what was wrong

    1. Avatar Bob2002 says:

      I’d agree it was sometimes bordering on insulting(regarding Williams) but was fairly normal behaviour for a PAC grilling.

  14. Avatar Flakey says:

    Margaret Hodge, one of Liebours biggest tax evaders (google her family’s company Stemcor and see how much tax they paid) telling BT to be “transparent” about its affairs. You couldnt make this crap up.

    1. Avatar FibreFred says:

      I found her conduct quite appalling to be honest, loves the sound of her own voice and if she doesn’t hear what she wants to hear she bullies and forces the point, same on both sessions.

      Please don’t say that’s what she’s there for, she’s there to oversee government expenditure not to belittle and make people look foolish. She could have at least tried to get a grasp of what she was actually berating people about and stopped referring to fixed wireless whatever its called (flaps a hand in the air)

      The bottom line was the BDUK and the government were a shambles on this delivery but they managed to make it look like other parties were to blame but.. I guess that’s what politicians do on a day to day basis.

  15. Avatar Bob says:

    The real problem comes back to lack of any real competition out side of the cabled areas

    To get real competition the local loop needs to be separated from the main BT Group. This could be by selling it off of making Openreach a separate BT Company

    Competitors also need a degree of protection from predatory BT action. This could be say barring B T from moving into an area for say 3 years

    It is very easy with the current set up for BT to crush a small player who has invested in an area BT showed no interest in until competitor moves in. WE have seen this happen many times

    1. Avatar FibreFred says:

      Not this old chestnut again.

      Who would buy it?
      Would it actually make any difference?
      Barring BT from areas for 3yrs? How is that fair competition and good for the customer? Its only good for whichever altnet has moved in which will no doubt go bust after 5yrs

      It won’t happen, no government would force BT to sell its Openreach arm and its not for sale.

    2. Avatar FibreFred says:

      Plus Openreach don’t own the network they just maintain it, so you’d just be selling off a company that was created to give fair and equal access which is does to already

    3. Avatar FibreFred says:

      … which is does already I meant

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