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

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.

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.