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BT Denies Underspend on its GBP2.5bn UK GEA Fibre Broadband Rollout

Tuesday, February 11th, 2014 (3:57 pm) - Score 1,591

BT has denied that its commercial investment of £2.5 billion, which is being used to make their superfast broadband (FTTC/P) network available to around 66% of the United Kingdom by Spring 2014 (19 million premises), will complete with significant underspend worth hundreds of millions.

BT originally planned (2008/9 onwards) to spend £1.5bn on making their up to 80Mbps capable Fibre-to-the-Cabinet (FTTC) and 330Mbps Fibre-to-the-Premises (FTTP) broadband technologies available to 10 million premises (40% coverage) by summer 2012, although this was later given a £1bn boost and the target pushed to 66%.

Since then there have been a number of efficiency improvements in Openreach’s roll-out process and their plans to make the more expensive FTTP service available to 2.5 million of the targeted premises has been abandoned (here); though some FTTP deployments do still happen (including via BDUK funding).

So it would perhaps come as no surprise if the originally predicted investment of £2.5bn ended up with an underspend, which is a good thing (i.e. less money to reach the target); unless you wanted FTTP in your home.

Now a recent investor slide, which has been sent to ISPreview.co.uk by one of our sources, appears to confirm that Openreach’s fibre (GEA – Generic Ethernet Access) roll-out is currently running with a Capital Expenditure (Capex) of £300m to £400m per year (this works out at quite a bit less than £2.5bn by spring 2014) and at least 40% of this is claimed to be capitalised labour.

openreach geo fibre underspend

The slide also notes that, as BT’s commercial deployment draws to a close, its Capex will naturally fall to tens of millions of pounds in 3 – 4 years’ time, which is roughly when the operators separate and semi-publicly funded (Broadband Delivery UK) project is due to conclude.

This situation assumes that BDUK’s greater than 90% coverage target by the end of 2015 / early 2016 has also been achieved (note: BDUK now aims for 95% by 2017), at which point Openreach expects to have up to 5 million FTTC/P connections and revenues of around £350m to £450m.

Crucially though BT didn’t originally state that all of the £2.5bn would be Capex, although quite naturally many would have assumed this to be the case. But a BT spokesperson told ISPreview.co.uk that their total investment actually comprises of capex, opex (operating costs) and £500m of spend which “was built into our original plans“; altogether this gets you to about £2.3bn (a possible £200m underspend but it’s too soon to confirm).

So far BT’s past results have revealed that the operator spent £0.6bn on its commercial fibre roll-out to March 2011 and then a further £0.4bn between March 2011 and March 2012, which was followed by £0.4bn again for March 2012 to March 2013 (opex and capex). BT claims that a fair assumption for the current financial year would then be another £0.4bn on top, plus the £500m of spend.

No project as complex as the one that BT has undertaken will ever complete without some over or underspend, although shareholders tend to prefer the latter and the above is a reasonable outcome (unless like most you expected the £2.5bn to be all capex); assuming that’s what happens and you don’t mind the loss of their original FTTP target. But assuming there is £200m left then the next big question becomes, what will BT do with that and will it have any impact upon the separate BDUK deployment?

At this point it’s noted that BT recently committed £50m to expand their fibre network in 30 UK cities, although the operator was adamant to ISPreview.co.uk that this was “new investment” and not part of their £2.5bn commitment (at least not directly).

However BTOpenreach did advise ISPreview.co.uk that there were “likely to be some additional costs in 14/15“, which would be created as they look to enhance their existing commercial fibre footprint after the official roll-out has completed. A good piece of news, albeit one that BT would need to navigate carefully in order to avoid areas that might also be targeted under the BDUK programme.

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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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11 Responses
  1. Avatar MikeW

    A couple of notes:

    1) The slide comes with the tag “Run Rate May 2013”, which suggests what the rate of spend was about a year ago (though the slide itself was part of the end-of-year results to April 2013).

    Does that tell us whether the rate was higher or lower before or after that date? It suggests to me that it was an instantaneous snapshot; not an average since the beginning of the project; not a peak spending rate; nor a forecast/budget for the next year.

    The question it immediately begs is this: Can this figure alone be used to extrapolate the full programme cost from?

    2) The rest of the slide suggests this is about Openreach alone. BT Wholesale presumably has some spending to do too. BT retail probably has some spend too.

    Does the number reflect just Openreach, or the BT group as a whole?

    • If they are passing c100,000 a week or 200 -250 cabs/fibre paths from Handover points a week then yes. Apart from enablement and EMP what would Wholesale be adding?

    • Avatar MikeW

      The most obvious additional cost, to BTW, is for each exchange – the addition of one (and possibly more) cablelink products to connect the Openreach GEA to the BTW WBC and WBMC backhaul.

      Installation of a cablelink product is enough where the 21CN is already present, but for those head-end exchanges where 21CN is not already present, there is the cost of bringing that in. Accounting-wise, it could be considered as part of the rollout of fibre.

      Indirectly, but still in proportion to takeup, will be increases in the amount of backhaul to get new usage back to the core network, and increases in the scale of the core network. Signing up to fibre-based broadband can double or triple your usage (ours has gone up about 8x in the near 3 years we’ve had FTTC). Again, spending on these increases where they are part of the fibre rollout (rather than normal increases) can be considered to be from the rollout budget.

      Indirectly, and not in proportion, become the back-office systems that must be capable of ordering and maintaining the new set of products.

      BT Retail has the same issue as that last one, but I can’t think of too many proportional costs there.

      However, just like the BDUK budgets include some marketing budget for raising awareness and generating takeup, you will find that BT Retail has budget for the same thing, including raising brand awareness for Infinity. That budget too could be accounted for within the 2.5bn

      For me, it is *obvious* that there are costs to the other arms of BT. And it is equally obvious that a PR department would seek to aggrandize their total spend on the project by including the spend in all arms.

    • @MikeW – all the Handover points costs are in here and your not doing every exchange as its 10-14 per county most done on the commercial rollout as confirmed by ofcom in wba consult updates published in Jan.
      We will also see I hope some of the benefit of the £1bn or so spent on connecting schools, many of the fibre routes should at least be in a reasonable state just to do cabling where needed.
      Openreach Ceo said each cab cost £100k and millions per exchanges this proves how wrong these statements were. Cabs fibre paths including contribution to handover point is c£23k in the commercial rollout if the 55k cab number is correct.

  2. No.1 is answered by the capex and opex for recent years a few paragraphs below the illustration. As for no.2, not sure what spend BT Retail would have as part of Openreach’s £2.5bn roll-out but interested to know?

    • Avatar MikeW

      But where do you get those figures from?

      For example, you list the 2012-13 figure as £0.4bn for both Opex and Capex, but I can’t see anywhere in the results that definitively allocates Capex and Opex to either Openreach alone or BT Group as a whole, nor to the fibre rollout vs other activities.

      In the presentation slides for the end of year (2012/13), you can see that Opex+Capex changing from £16.2bn to £14.9bn, but no breakdown. Within the same slide is a figure of £156mn for capex reduction. In the KPI figures, you can see that Capex reduced by £120mn – but no indication of what that reduction is attributed to.

      Note that I’m not trying to say that BT hasn’t underspent. Only that I don’t think we have sufficiently-trustable figures to work from. On the slide pictured, Capex is listed as between £300mn and £400mn, which is already a 33% margin of error!

      As for the “missing” £0.2bn, remember that the rollout continues into 2015 financial year, so you’d expect some expenditure to as well. Of interest is the “outlook” section, which expects to continue the total group Capex to be broadly the same in the next two years (of which 1 year is nearly up). But with no breakdown, we don’t know how much to attribute to the fibre rollout, and within that portion, how much to attribute to BDUK activities.

    • Openreach supplied them specific to the fibre roll-out, although we already knew the two earlier figures. The article also mentions at the bottom about how any underspend might be used with the on-going post-spring 2014 commercial deployment.

  3. Avatar JNeuhoff

    I an fairness, BT is a commercial comapny, and as such can choose how much money it wants to spend ona commercial rollout of its VDSL services.

    What is totally flawed is the BDUK process which should immediately be scrapped, because it is here that so much taxpayer’s money has been wasted, unlike purely commercial rollouts.

    • Some signfiicant re-configuring maybe. 19m premises -c55k cabinets/path/hop and £1.3bn = £23k each, for commercial rollout while the NAO have identified the equivalent in the BDUK contracts at an average of >£60k each – complete Table 11 Page 33 of their report, using cabinet only cost of £28,800 representing 36% of the cost, which is also identified in the same page.

      This needs PAC to work with Parliament to demand changes in BT Undertakings under the Enterprise Act, so the notion of ‘commercially in confident’ is re-defined where the taxpayer is paying.

  4. So in ordinary accounting Capital expenditure including 50% ish spend on capitalised labour, they expect to spend £1.3 to £1.4bn to achieve 66% – not counting those ELO customers, the rest is PR. Does this pay for 50k or 55k cabs.

    This analysis shows BT will be struggling to show they are investing 23%% in BDUK or the 38% including operational costs, given the BDUK/LA monies £1.2bn is all cash and pays for max 30-35k cabs.

    BDUK/LA could still aim for signficant FTTP, given BT have effectively removed Fibre on Demand.

  5. Avatar Richard

    Are BT likely to underspend on their original commitment to BDUK/taxpayer?
    If BT underspend, will there be lots of premises passed by included in the premises passed figures?
    Is the BDUK method of funding a private organisation flawed?
    Will Westminster continue to claim superior results whilst subscribers continue with inferior broadband?
    Will BDUK polish the turd and call it a diamond ring?
    Will most of the ‘journalists’ keep rehashing the Press Releases sent out by various LGA/Westminster/Regional Govs and allow this to be called ‘successful’

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