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BDUK Superfast Broadband Rollout is Ahead of Schedule and Made Savings

Wednesday, January 28th, 2015 (9:27 am) - Score 1,549

The National Audit Office has, in anticipation of today’s Public Accounts Committee event, published a useful report into its views on how effective the joint BT and Broadband Delivery UK scheme has been in terms of its costs, coverage and competition. The report finds that BT’s Phase 1 deployment is running “ahead of schedule” and BDUK predicts total savings of approximately £72m by 2017-18, which could be reinvested.

At present the Government is investing over £1 billion to improve the United Kingdom’s broadband and mobile infrastructure, which is largely being matched by local authorities (current total of around £1.7bn). Meanwhile further funding is also coming from Europe and via commercial investment through BT. At the time of writing the related Broadband Delivery UK programme has the following key targets.

BDUK Aspirations / Targets

• [Phase 1] Provide superfast broadband (24Mbps+) coverage to 90% of the UK by 2016
• [Phase 1] Provide basic broadband (2Mbps) for all by 2016
• [Phase 2] Provide superfast broadband to 95% of the UK by 2017
• [Phase 3] Explore options to get near universal superfast broadband coverage across the UK by 2018 [Final 5%]
• Create 22 ‘SuperConnected Cities’ across the UK by 2015
• Improve mobile coverage in remote areas by 2016

NOTE: BDUK funding for phase 1 was £530m and phase 2 is £250m (phase 3 has yet to be announced, beyond a small batch of £10m pilots)

The NAO’s new analysis (PDF) focuses primarily on the “rural broadband programme” (note: they call it “rural“, but this includes a lot of busy sub-urban style areas, such as large towns etc.) and it should be noted that over the past few years the targets for Phase 1 have shifted. Initially there was talk of the 90% goal being achieved by March 2015, then it got pushed to late 2015, then “early 2016” and now it’s at “by 2016” (i.e. December 2016 at the latest).

The good news is that the Phase 1 rollout is said to be “slightly ahead of schedule” – remember, this is the revised “by 2016” target and so it’s technically still behind the original target – and is currently expected to reach the targeted 90% of premises in April–June 2016. The actual figure anticipated for phase 1 completion is 90.7%, with an extra 4.2 million premises covered (approximately); currently we predict the programme has completed around half this.

The NAO also reports that take-up of superfast broadband through areas upgraded via the BT and BDUK programme (Phase 1) has also been “higher than predicted” and the following chart offers a practical example (albeit with local authority names excluded). This can be contrasted against the data for Local Authorities that we first published last month (here). On the other hand somebody has clearly set some incredibly low targets for take-up (did they really think it would only reach 1-2% by September2014!).

bduk_vs_bt_superfast_broadband_takeup

Take note that the above chart does not show take-up for those projects which are not using BDUK’s “milestone-to-cash” process. Both Rutland and North Yorkshire have take-up rates exceeding 20%, but are not included in this graph. We assume BT’s separate project with the EU in Cornwall is also missing.

Naturally strong take-up, particularly if it takes place within the first 7 years of the contract and goes above the all-important 20% level, could through the related claw-back clause help to return some of the public investment back for reinvestment in further upgrades and coverage. But after these 7 years BT will be able to keep all of the extra wholesale profit.

Furthermore the NAO said that BDUK was predicting that its programme could deliver total savings of approximately £72 million by 2017-18, which are said to have arisen partly due to “economies of scale and synergies from running all 44 contracts, and due to the standardised approach to ‘milestone-to-cash’ reporting“.

At the same time BT’s data to September 2014 states that the operator has “spent 38% less in capital costs than its financial model had assumed it would and it had covered slightly more premises than predicted“. However it’s crucial to note that so far much of the BDUK deployment has focused upon the easier / cheaper areas and thus this balance is likely to look less dramatic towards the end of Phase 1 and into Phase 2, when costs will rise as the more complex rural areas need to be tackled.

bduk_vs_bt_modelled_uk_capital_costs_broadband

It’s for all of these reasons and more that the NAO notes how the lower costs and savings don’t necessarily “assure BDUK that BT priced the contracts economically” and further tests are thus due to be conducted.

NAO Report Extract

BDUK’s analysis of cost data for phase 1 showed that BT’s reported capital costs are so far £142 million lower than in its original bids, including £34 million in project management costs. However, BT has provided some of the cheaper and easier street cabinets so far, so costs are likely to increase as it starts to build the more complex solutions. BDUK’s experience of actual costs in phase 1 has led to BT agreeing to submit lower costs in its financial model for phase 2, which will reduce the amount of public funding required.

To understand whether BT’s contracts were economically priced, BDUK commissioned Atkins to do a small-scale trial cost comparison exercise. In January 2015 this exercise reported that, for specific infrastructure in one location, BT had charged the public sector approximately 20% less than the estimated cost for an alternative supplier.

On the issue of confidentiality, it’s noted that the PAC wanted the phase 2 contracts to be more transparent and yet today’s NAO report unsurprisingly finds that “BDUK has not omitted confidentiality clauses from phase 2 contracts as the Committee had hoped“, although apparently BDUK considers that it still gets “enough assurance from its actual cost comparisons of local authority data.”

The NAO also warned that BDUK did not go far enough to improve competition for BT in the phase 2 contracts. “It did engage with the market and explore several options, but it did not fully develop or cost these options,” said the NAO. Apparently BDUK reasons that it could have done this, but doing so would have delayed the phase 2 roll-outs.

Predictably phase 2 will thus have “limited competition, as BT is now the only participant on the framework” (i.e. virtually ZERO competition might be a better phrase). However it’s noted that 10 local bodies are separately considering keeping a minority of their funding back, which they may use for other procurements outside of the framework.

Overall, the effect of the first 2 phases will be to reinforce BT’s already strong position in the wholesale market for broadband infrastructure (the Wholesale Local Access Market) … although BT must maintain these assets at its own expense,” said the NAO.

Finally the NAO called upon BDUK to ensure that Phase 3, which will tackle the final 5% of the UK, sticks to the potential outlined by its current pilot projects and gives more support to smaller ISPs / altnets. Later this afternoon the PAC will be able to dig into this report and question those involved more deeply.

Leave a Comment
22 Responses
  1. Avatar Steve Jones says:

    Assuming that the capital claimed costs are total figures, and not just those attributed to central BDUK funding, I make that £226.9m for approximately 2.5m enabled premises, or a little over £90 each premises of public money. Of course, if it’s done by take up, then it’s much higher. At 10%, £900 per premises, at 20% £450 per premises. After 20%, claw back kicks in which will reduce it rather faster. It’s clearly in the public and BT interest that take up is promoted quite hard.

    Of course, given the low hanging fruit is being tackled first, then the cost model will change quite rapidly. Dealing with OLO lines is expensive, and clearly not much has been spent on FTTP so far. Presumably some of the savings can be redeployed into FTTP to extend the coverage. However, I’m rather unclear if phase 1 of BDUK will effectively stop when it’s reached the contracted overage levels or if it continues until the public money is exhausted (but that might involve complications over BT’s share of the costs). Alternatively, will any savings be added to the Phase 2 budget.

    In any event, it’s nice to see some real figures even if, as usual, there are many questions still to ask.

    Hopefully the PAC meeting will be streamed on line, although I don’t look forwards to the parts where MPs use it as a platform for grandstanding rather than information gathering and, where necessary, holding those responsible to account for progress.

    1. Avatar NGA for all says:

      c£90 per premise is ok but they have collected and been paid c£200 per premise so that money is sitting in BT’s accounts.

      The OMR’s for SEP are also showing BT reducing its commercial footprint.

    2. Avatar Steve Jones says:

      That’s a misunderstanding. Milestone payments are made against invoiced costs. It’s not based on a prest schedule of payments. If it was, there would be no savings.

    3. Avatar New_Londoner says:

      @NGA
      I doubt the OMR responses do show that. AFAIK all responses are aggregated and anonymised, so how could they show BT’s commercial footprint is reducing? At best they might show the combined commercial footprint of all providers is reducing, but that’s not my experience anyway.

    4. Avatar NGA for all says:

      @New Londoner Look at Suffolk, East Sussex and premise numbers for others, all pretty clear.

    5. Avatar NGA for all says:

      @Steve – Look at North Yorks they have reported paying £179 per premise past. Suffolf a higher amount.
      It would be good to be proven wrong on this.
      However no county woud enter a SEP if 38% savings were begining to emerge.
      Where are the USC monies sitting? Again if USC monies had not been aleasdy paid, No SEP would be needed. Evident from Suffolk and North Yorkshire papers online.

    6. Avatar Steve Jones says:

      What I worked out (on the back of a metaphorical envelope) is an average. The more rural the area, the higher the gap funding per line. Also, the cost per line will increase as the most cost effective areas are don first.

    7. Avatar New_Londoner says:

      @NGA
      Quote “Look at Suffolk, East Sussex and premise numbers for others, all pretty clear.”

      So these all report on OMR returns, break out the responses by network provider? Or do they just show the aggregated responses received without attributing the numbers to individual companies?

    8. Avatar nga for all says:

      @new Londoner fair point, but bt and its exchanges are referenced.

    9. Avatar NGA for all says:

      @New Londoner – The available monies are to fullfill the Government objective of being best in Europe, so stretching available monies as far as possible to secure a deep a rollout as possible is within remit. Why is SEP being progressed?

      The thing BT Goup appear to have missed is the once in a generation opportunity to transform the rural network, with an even greater opportunity at cost transformation. LA would be more liable to invest what were excess modelled costs if they can gain confidence that such excesses have all been removed.

  2. Avatar NGA for all says:

    38% less in capital costs, but the Government has paid the full milestone payments, so the money is sitting in BT’s accounts. This is BT having stated to PAC and the they priced BDUK based on the same basis as the commercial roll out.

    At least more truth is emerging and let’s hope counties can plan more aggressively. The money was and is there to plan more FTTP and subsequent cost transformation.

    1. Avatar New_Londoner says:

      I suspect most councils would opt for more coverage than spending any “spare” budget on FTTP. In any case, they would almost certainly need to agree any such changes with BT as no doubt all the current coverage commitments are contractual.

    2. Avatar NGA for all says:

      @New Londoner If the model was inflated by 38% – and Bt are reporting resource constraints as per EFRA, what exactly was the plan?

    3. Avatar New_Londoner says:

      @NGA
      Firstly you cannot assume the current cost levels will be maintained given many of the counties have left the “hard bits” till the end. Secondly, in my experience clients rarely complain about project underspend, assuming the savings come back to them, as they would in the case of BDUK.

      You do not have to plan to spend up to the budget just because it is there, that is public sector mentality. I’m sure most of us tax payers would rather bank the savings!

    4. Avatar No Clue says:

      Thats the problem which NGA has been mentioning to you in multiple guises in multiple posts
      ” I’m sure most of us tax payers would rather bank the savings!”

      Its BT which has banked the savings so far not the public.

  3. Avatar NGA for all says:

    BT has already stated that economies of scale exist up to 90% so these ‘savings’ will keep emerging, how can 38% extra be put in model where BT assured Parliament the BDUK Framework was based on their commercial rollout?

    The milestone payments were set so high they could not generate the invoices to match.

  4. Avatar Ignitionnet says:

    The discrepancy between modelled and actual costs for FTTP is huge. That’s the big standout of that chart for me.

    1. Avatar Steve Jones says:

      It’s not a model of the costs of FTTP. It’s a model of what has been invoiced so far against FTTP against a linear projection of roll-out over time. In other words if the model is for (say) a projection of 200,000 total FTTP properties and (say) we are 50% of the way through deployment, the model costs would be 100,000 premises passed by FTTP.

      However, we know that FTTP deployments tend to come later as the initial priority is coverage and it takes longer to do. That means there might only be (say) 50,000 premises passed by FTTP at this stage. So I fully expect the amount of capital spent on FTTP to increase markedly as projects mature. Indeed, if money saved in other areas (like project management) was to be used for more FTTP deployment, then the total spent in that area would actually exceed the modeled cost in the final stages. In fact, the implication is that if all capital lines were underspent, then there would be public funds left over.

      What actually matters is if the coverage is being increased with the available funds.

      The NAO report references this (it mentions the mix will change), but it would have been nice to know what the model anticipated in terms of total premises passed by FTTP. Then we might have an idea of how the anticipated cost per premises of FTTP compares with the modeled one. (Although even that isn’t straightforward, as if FTTP is extended to more distance areas then cost per premises will increase).

    2. Avatar Ignitionnet says:

      Wasn’t trying to say that there’s a huge discrepancy in terms of actual versus projected costs, more a reference to how much is left to do.

    3. Avatar Steve Jones says:

      Just to provide the reference :-

      See para 3.8 and the points underneath. Note that it also states that BDUK projects nearing completion are reporting more use of FTTC and less FTTP than modeled. I assume that means there is surplus money going into phase 2 (It’s unclear to me if P1 ends when coverage targets are reached and any surplus cash is rolled into P2 or if it’s used to extend P1 coverage; it might just appear to be a question of labels, but it appears from PAC are renegotiated terms in P2 contracts – that is, they don’t just roll over the P1 cost models into P2).

      http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/public-accounts-committee/rural-broadband-progress-update/written/17767.pdf

    4. Avatar NGA for all says:

      The implications of BT modelling in 38% more costs meant at 26% completion £170m actuas from £312m(26% of £1.2bn) leaving a gap between possible milestone payments of £312m and actual invoices of £170m. Where is the £142m currently sitting.

      If 80-90% of this cost is labour how can it be so wrong?

  5. Avatar No Clue says:

    “Where is the £142m currently sitting.”

    Not in some account that can help the national debt thats for sure.

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