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UPD Public Accounts Committee Still Critical of BT and BDUK Broadband Rollout

Wednesday, January 28th, 2015 (4:20 pm) - Score 1,885

The Public Accounts Committee, which holds some responsibility for examining the Government’s public expenditure, has today hosted a third session in order to examine if any progress has been made on their prior recommendations for the joint state aid supported BT and Broadband Delivery UK rollout of superfast broadband.

Readers might recall that the Committee has already published two somewhat scathing reports into the “rural broadband programme“, as they describe it; one in September 2013 (here) and the second in April 2014 (here). We also strongly recommend that visitors read today’s other summary of the BDUK costs and competition from the National Audit Office (here), which adds some much needed context to all this.

Both of the original reports were critical of how BT had won all of the contracts and warned that BDUK was helping to prop up the incumbent operators “quasi-monopolistic position, which it is exploiting by restricting access to cost and roll-out information.” Certainly the lack of detailed coverage data wasn’t making it easy for some alternative altnet projects to secure state aid approval for their own schemes in the last 5% of the UK (remote rural areas).

But last year’s meeting, in-between moments of political grandstanding, also made a series of three recommendations and warned that a failure to make “significant progress” on them would result a “further hearing to find out why [BDUK] is not improving its approach to protecting public funds“.

PAC Recommendations (April 2014 Report)

Recommendation 1: The Department should work urgently with all local authorities to publish detailed mapping of their implementation plans, enabling searches down to full (7-digit) postcode level. The information should include speed of service, as soon as that is available.

Recommendation 2: The Department should collect, analyse and publish costs data on deployment costs in the current programme, to inform its consideration of bids from suppliers under the next round of funding.

Recommendation 3: Before the next round of funding is released, the Department should work with local authorities to identify opportunities to promote competition and value for money; including considering alternative solutions, joint working and fair capital contributions from suppliers.

Take note that the contracts themselves weren’t solely funded by the public purse and involved a sizeable commercial contribution from BT, which naturally meant some degree of confidentiality agreement in the related contracts.

Meanwhile the issue of coverage data is easily complicated by other factors, not least with the fact that the plan is constantly subject to change. Coverage expectations can shift depending on what problems or opportunities are revealed by Openreach engineers on the ground and the on-going changes in state aid funding allocations. Never the less if all local authorities employed a common sense approach then they’d have been better able to cater for altnets as well as BT, if only.

At the time of the last meeting BT’s Group Strategy Director, Sean Williams, did make clear how “in all cases that we are okay for this [coverage] information, down to seven-digit postcode level, to be published by local bodies if they so choose“. Since then many Local Authorities have improved their maps and coverage data, although quite a few are still coming up sort and only seem able to offer vague coloured maps that aren’t terribly informative or accurate. Detailed cost data is similarly missing.

Elsewhere the BDUK programme has since started the deployment phase of its £10m Innovation Fund, which was setup with 8 pilot projects last year to “test innovative solutions” for delivering superfast broadband (24Mbps+) services to the final 5% of the United Kingdom (full details) and this might help to meet the third recommendation. But has any of this been enough to placate the PAC’s concerns and meet those recommendations? Sort of.

Admittedly it should be said that the PAC can be a very political arena, which often does more to foster the pursuit of advantageous sound bites and pandering to the mass media than constructive criticism. Never the less some of the issues raised are very relevant and it’s important to have such sessions.

Today’s event appeared to be considerably softer on BT, BDUK and the Government than prior meetings and indeed the chair, Margaret Hodge (Labour), opened by saying that there “does seem to have been some progress, which we acknowledge and welcome” (part of this is reflected in today’s NAO report). Never the less there was some strong discussion over a number of points, which we’ve summarised below.

PAC’s Hot Topics (28th Jan 2015)

* Chris Townsend, CEO of BDUK, in responding to a question about the impact of peak-time network congestion on the Universal Service Commitment for speeds of at least 2Mbps (for all) agreed that the designated minimum speed would be available “at any time of day” (we’ll see how that works out). Interestingly Townsend also said the USC would be delivered “by the end of 2015“, although the BDUK website still states “by 2016“.

* Chris Townsend also mentioned Satellite broadband a number of times, pushing it as a partial solution for the final 5% and noting two of the pilots that are offering up to 30Mbps to several hundred premises in Exmoor and Scotland. “We’re very excited about them,” he said. Well at least somebody is.

* Chris Townsend also said that BDUK was “on schedule” to deliver their superfast broadband coverage target of 95% by 2017, thus temporarily putting concerns over a possible slip into 2018 to bed, at least for now (delays always come later).

* Andrew Field, BDUK’s Superfast Broadband Programme Director, was pressed on why upload speeds seemed to be overlooked in the contract, which is an especially big concern for businesses. In response he said, “We haven’t got a definition for upload speed .. but demand is more for download“. BDUK was then asked if it could look more deeply at this side of things and there appeared to be some agreement.

* Margaret Hodge and other members of the committee questioned if “there is still cherry picking going on?” (i.e. picking the easier low hanging fruit, while leaving the most rural areas out). BDUK and BT denied this, although admittedly the focus so far has been on the easier areas. The on-going negotiations for the Phase 2 and future Phase 3 contracts will result in a much stricter rural focus (many BDUK projects are already running out of easy areas). But, until a clear plan is set for 100% coverage, then this is likely to remain a suspicion.

* Margaret Hodge also suggested, pointing to some of the recent FSB studies, that BT were “deliberately” leaving business areas out of the roll-out in order to protect their lucrative leased lines. Hodge also took aim at BDUK, whom she accused of “not being vigilant enough … nothing much has changed in this area“. In response BDUK said they were “aligned with BT in trying to [reach] as many small businesses as possible“, although Hodge didn’t believe that and suggested that BDUK should do more to monitor business coverage and take-up, which they agreed to do.

* Margaret Hodge also spent some time going over the issue of costs and transparency. “You’ll never satisfy us that you’ve [BDUK] got value for money .. unless we can see the [information],” said Hodge. In reply Sue Owen, DCMS Permanent Secretary, said, “It was probably never possible for us on our own to change that [secure absolute transparency]” and BT’s Sean Williams, Director of Strategy and Policy, noted that the reason this is a problem is because it would “reveal the entire cost structure” of BT outside of just the BDUK work (i.e. commercial confidentiality).

In reply Margaret Hodge said, “The problem [with lack of transparency] is, we don’t know whether you’re telling the truth or not … we haven’t a clue here and we will keep coming back to this [to find if it’s value for money].” Sean Williams then suggested that they do provide enough cost data, across all of the projects, to BDUK and Local Authorities, which is a position that BDUK suggested they support.

In the end this PAC session was positively tame compared to the first one, with only the issue of cost transparency and business coverage resulting in a sense of anger and frustration from leading members of the committee. Margaret Hodge then closed the meeting by saying, “You still have to convince us that there’s value for money“.

It’s interesting to note that BT’s Sean Williams, flanked by a small squad of senior BDUK, Openreach and DCMS figures, didn’t end up having to answer many questions directly and handed others off to his associates. Indeed most of the committees energy ended up being focused upon BDUK and DCMS.

Meanwhile Hodge has suggested that, depending upon the forthcoming General Election result, she would like to return to the issues that have been raised at a future date. We hope they do, not least because the issue of poor quality coverage data and maps (this is an issue with some, but not all, local authorities) appeared to only be touched upon very briefly.

UPDATE 5th Feb 2015

The full written summary from this PAC meeting is now online (here).

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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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47 Responses
  1. Without these investigations it is doubtful where the 38% excess in BT modelling costs would have sufaced given BT has already billed so many using the milestone payments.

    Actuals look to be £104 per premise passed (£170m out of £312m (26% of £1.2bn)approx 1.6m premises passed and approx 8,000 cabinets.

    Bt must be sitting on the £142m identified excesses so far, given it will include the USC premiums, and total aid in Q2 alone was £96m reported in their accounts.

    Milestone payments for average cabinet/fibre/ho was £46k in the BDUK Framework, now at £21k so while good progress there is plenty more to save.

    • Avatar Steve Jones

      @NGA

      Milestone payments are not a fixed schedule of payments against targets. Milestone payments are made against the invoiced actual costs using the contracted gap funding model for each particular BDUK project. That gap funding payment is not made until the milestone is hit; it does not mean that BT are paid whatever the model showed. Any surplus over the modeled cost is retained by the project (and deficit covered by BT). That is clear from the NAO report and submissions made by the civil servants.

      Indeed, the NAO reports notes that the milestone-to-cash process has been recommended as best practice for major projects.

      It was interesting to watch PAC. Partly because of individual hobby horses (like a pointed remark that all the witnesses had better job security and pay than the MPs on the committee). Partly because there was buck-passing from the elected MPs to civil servants. For instance, the decision of where to set priorities (like coverage vs more rural or domestic vs SME) is ultimately a political decision. Similarly, it’s hardly for a civil servant to make the case for investment in broadband vs HS2. No doubt they can provide supporting information and bring to politicians’ attention the value, but this stuff tends to come down to government policy.

      It also seems to have escaped the politician’s attention that a project which is intended to hit (say) 95% coverage given the funding available will inevitably leave 5% potentially unhappy. If the target had been changes to the more rural and less cost effective areas, then those 5% may have been happy, but perhaps three times that percentage would be unhappy. That’s a political priority decision.

      Finally, it’s unclear that Margaret Hodge (or, indeed, any of the MPs) had actually read the latest NAO report, let alone taken on board the main points. Margaret Hodge still doesn’t seem to understand that all the actual costs (network equipment, contractor bills and so on) are all available to BDUK and the NAO. Of course, there’s always an issue over invoicing internal manpower but less so with contractor and supplier costs. What isn’t being done is to make those costs into the public domain.

      It also looks like Patricia Hodge doesn’t trust the audit processes in the relevant government departments either.

    • Steve you need to read, Suffolk, North Yorkshire reports – it is not as you say.

    • @Steve BT could not claim £96m in state aid in a quarter unless they were charging £200 a premise passed.
      40,000 passed a week x 12 weeks x £200 per home passed = £96m
      Actuals at £104 – would be close £50m
      Have BT’s quarterly accounts been incorrectly stated?

    • Avatar Steve Jones

      I see nothing in the NY or Suffolk reports that states there’s a fixed cache payment level for any given milestone. There is talk of contractual payments for milestones, but that’s not the same thing at all.

      In any event, if BT were being paid a fixed amount for each milestone, then how on earth would BDUK receive any benefit from reduced costs? Would they be going back to BT to reclaim the cash and put it back in project’s bank account?

      The NAO reports appear definitive. If there’s a reduced cost (below the modeled one) for each milestone, then it’s the BDUK project that gains and it’s that project which gets to decide what to do with it (e.g. by extending the scope of the project). I simply don’t see how that can be compatible with BT being paid fixed cash sums for given coverage milestones.

      Reading the NY report is interesting. It seems that Openreach are struggling for resource on the network rearrangement required to deal with EO lines. There simply aren’t enough trained staff. Recruiting more people to do the work would, of course, create a cost problem for the future once the work “bulge” caused by BDUK is past.

      It’s also interesting in the availability of a cost effective technology for P2 is a problem. FTTP seems to be around £1,700 per property, and to go that way would limit coverage. FTTRN has (predictably) hit a problem with cost of power provision, and they are looking at a distributed system (VM so that – they have power cabinets which distribute at low tension to nodes; however, their cabinets are relatively close, and that model might not work with FTTRN nodes in rural areas which will be further apart than VM cabinets in an urban environment).

    • Avatar TheFacts

      Why would recruiting people cause a problem for rearrangement? They use contractors.

    • @Stece There is every chance that if 26% of the project is done, then 26% of the £1.2bn is sitting in BT’s accounts – £312m, while £170m costs were actually incurred leaving £142m to fund – £142m/£7m – 20 football matches at least while the process catches up with them.
      This is cnonjecture but based on Suffolk, North Yorkshire never making a reference to a dime saved in phase 1.
      In fact no OMR for Phase 2 made any reference to savings to help extend phase 1.No extra properties covered. They do refer to BT reducing its commercial footprint.

    • Avatar Steve Jones

      @NGA

      Which is why it’s not wise to extrapolate costs per premises for the (relatively early) figures. The more expensive stuff is to come in phase 1.

      From BT accounts, the following has been received in the form of BDUK grants (so up until end September 2014)

      I can’t find actual figures for 2012/13 grant figures, but presumably any such were relatively modest.

      2013/14 Q1 – £12m
      2013/14 Q2 – £15m
      2013/14 Q3 – £42m
      2013/14 Q4 – £55m
      2014/15 Q1 – £73m
      2014/15 Q2 – £94m

      So that amounts to £291m as of the end of Sept 2014, which is only about one-sixth of the total public funding for BDUK. If I were to project the approx £31m per month of the most recent run rate, then that implies perhaps £410m has been paid over to date (rather less than 25% of the public money available).

    • Avatar nga for all

      @Steve thanks needs more work to determine how the payments match up. this will include Cornwall.

    • Avatar fastman2

      network rearrangement is complex and time consuming — contracotr do the civils

  2. Avatar Patrick Cosgrove

    Satellite, satellite, bloody satellite, just like in the EFRA inquiry. If Chris Townsend is excited about satellite, he must lead a very sheltered life. It’s expensive, slow, and a very poor second best. This will lose votes for rural MPS, and quite rightly so.

    • Avatar Steve Jones

      Chris Townsend is a civil servant, not a politician. As far as satellite goes, then I assume it’s going to have to be solution which is priced comparably to that for ADSL and with similar service targets, like contention (although clearly nothing can be done abut latency). From context, this is not handing this over to the current operators of satellite retail services, but a service particularly for BDUK with the supplier having to bear any excessive costs.

      Of course this can’t be anything but a temporary solution, but until somebody comes up with an innovative solution (or a pile of cash to run fibre to farmhouses, remote hamlets etc) then I guess this will be the stopgap. It’s unclear just how many properties will be served that way.

    • At least you can go back and ask where is the excess 38% capital or 45% of the orginal estimate now going to be spent.
      They will have economies of scale through to 90% so those excess costs will keep appearing.

    • Avatar MikeW

      If you think Chris is excited about satellite, you should see the guy in charge of the Australian NBN Co’s satellite division. He gets to launch 2 satellites specifically for NBN, with 125Gbps capacity, and run 10 ground stations.

      That’s targetting 220k users over there with 25Mbps speeds; over here, they look to be leaving around 300k users on 2-20Mbps speeds.

    • Avatar Steve Jones

      @MikeW

      The current NBN budget for network build includes $29.5bn (£15.3bn) of public money, so it’s not surprising that has a few toys. Also, that over a population of just over 23.1 million, so on a per-head basis, BDUK would require a budget of about £45bn to match it.

      The budget was reduced after the network was redesigned to include more hybrid FTTN/FTTB content. Of course, Australia has particular issues with lower population density, but in many cases it’s more like the suburban sprawl of US cities. Those remote little settlements in the Outback were never going to get fixed links.

      Rather usefully, the NBN produces a weekly update report, but it’s clear they have a way to go. As of 22 january 2015, they had “passed” 792,000 properties. As they seem to be progressing at a rate of about 400k premises per year, and my guesstimate is they must have 6 million or more to do, then there’s another 15 years to go at this rate. That rather points to an issue over major network builds. Even if you have the money, it takes a whole lot of resources which will be in limited supply. You simply can’t generate a massive workforce overnight, do all the work in a few years, and then have it neatly disappear at the end.

      So those who would wish to for the UK to have a national fibre network, bear this in mind. It’s a lot slower process than using FTTC as it requires a whole lot of resource and disruption.

      http://www.nbnco.com.au/content/dam/nbnco2/documents/nbnco-rollout-metrics-22012015.pdf

  3. Avatar New_Londoner

    It would be helpful if the politicians read the NAO report before the hearing. Also the Chair seemed unable to keep the questions to the actual topic, her’s included, nor could she be bothered to listen to answers to her questions, talking over the panel to try and drown them out – why bother asking the questions?

    Despite this, their blatant attempts at grandstanding often failed due to their lack of any meaningful subject matter knowledge. Perhaps the new committee that U.S. selected after the election will pay attention to its real task of holding the government to account, rather than looking for cheap headlines, unlike the current bunch, who seem unwilling or incapable of doing this.

    • Avatar Gadget

      It did seem to me that one panellist came close to saying “for the amount of money on the table you can either start with the cheapest lines to do and get around 5% left at the end to write and complain, or you could start at the most expensive and have many more lines left without a higher speed after the money has run out writing to complain”.

    • Avatar Steve Jones

      It would be very unhelpful if the MPs actually read and understood the report. Then they’d be unable to make point at odds with reality without knowingly misleading observers.

      I still want to know what Margaret Hodge means be complete transparency. Is she asking for the invoiced actuals to be put in the public domain?

      (I have a horrible feeling that I may have referring to her as Patricia Hodge. Which means I owe the actress an apology).

    • Avatar nga for all

      LOL indeed. But it looks like the numbers are looking more. Taking 38% out of bt modelled costs will repoint the monies where they were i deed. Let’s Openreach can respond with a resource plan.

    • Avatar gerarda

      @gadget

      That appears to be the issue though I suspect the volume of complaining from not and slow spots left out or delayed time after time will could be higher than than if the medium speed areas had been left to last.

      However whether the politicians and BDUK know that is debatable as Ofcom have consistently overstated the availability of ADSL.

  4. Avatar DTMark

    I’m not really sure how you could qualify whether the project is value for money or not.

    What is evident is that nobody knew how much it would cost to reach the targets from the start.

    It’s also evident that the targets were simply, well, targets, not contracts, not plans.

    The correct analysis of “public value for money” would be to assess whether any public money needed to be spent whatsoever to roll out high speed broadband in this country, so analysing different approaches that could have been taken, as opposed to just the one which was taken in isolation.

    • Avatar nga for all

      @dtmark ex ceo garfield is recorded in presentations and on radio of the £100k cab. You do not lie to parliament about 5 to 8% contingencies when you have inflated cost by 38%. Costs could have been reset post survey.

    • Avatar Steve Jones

      Not having access to the actual words and context of what Ms Garfield actually said, I’ve no idea what that £100k refers to. Is it an example of an exceptional site? Is it what a cabinet is expected to cost over its lifetime (so capex and opex)? A figure of £100K makes absolutely no sense as an average capex figure for cabinet as it’s wholly incompatible with BT’s commercial rollout and known capex figures. It’s not supported by BT’s receipts from BDUK grants, nor by NAO numbers.

      Whatever she said, it clearly has not bearing on what the cost of the cabinets have been to the public purse under BDUK so it’s wholly irrelevant. The NAO has come up with a figure of about £21k.

      I would not read too much into the 38% cost reduction at this stage. It’s known (from the NAO report) that the model assumed a more even roll-out of the mix of areas and technologies whilst the actual rollout has concentrated on coverage first. This probably means that some of that saving will disappear as more expensive areas are enabled.

      Nb. the latest NAO report had an (admittedly small scale) study which reported that the cost of infrastructure in a limited area under BDUK was 20% less than what was estimated for an efficient operator.

    • Avatar Andy

      @ nga for all – Unless I’m missing something, the capital spend for Phase 1 has not been fully accounted for yet. So I think it’s premature for you to act as judge/jury. Also, do upgrades/technology changes come into that costing?

    • @Andy – your right of course, but the NAO has not in this report commented on BT’s matched funding, where the USC funding is sitting, thus whether reconciled actuals are paid or whether excess modelled costs have been paid in the milestone payments, or indeed whether prices charged reflect BT best price as promised, or individual county prices.
      Any attempt to charge excess costs where the state is assisting in the purchase of BT revenue earning assets is an attempt to deprive rural users of the services intended for them.
      The 38% is real and can be commented upon.

    • @ Steve – Radio 4 Strikeup Broabband dec 4th 2012
      It (fibre broadband) is expensive to do, you say?

      ‘Like hand crafted carpentry, that’s what fibre is like. It’s (you know) billions of pounds, it is not a few thousands!
      If you want to just fibre an exchange it is a few million pounds. Each individual street cabinet that is fibred is £100,000.’ O Garfield, CEO Openreach

      If you look at the original NAO report table 11 page 33 and using the £28.9k for the 36% of cost it totals £80k each on average which includes BT capital and opex. This is the data given by BT to the NAO.

    • Avatar Andy

      @ NGA for all – It may well be that those were the averaged or forecasted costs during the initial commercial phase. No doubt Openreach have made significant improvements and cost savings as they’ve rolled out FTTC across the country.

    • @andy numbers for commercial rollout were available from 2011/12. This was late 2013.

    • Avatar Steve Jones

      @NGA

      If that’s an accurate quote from Liv Garfield, then I can only put it down to bluster. She does, after all, have an Oxbridge degree in German and French, not maths. It’s pretty well inexplicable. More importantly, it’s irrelevant as it bears no resemblance to BDUK project pricing.

    • Avatar No Clue

      No its perfectly explicable it was just another BT bod making cack up as they went along.

    • @ Steve Unfortunately there is precedence in so far as ERDF auditors did approve £100k a cab for Digital Region.

      But ERDF auditors also approved <£15k in Northern Ireland.

      No objection to BT getting what it needs, but that demands transparency which has not been forthcoming.

      The difficulty with £100k is that she was leading the negotiations and the catch us if you can mentality is still evident.

      Let's hope sensible folk get to be in charge. I was disappointed BT goverance did not demand an internal review after the intial NAO and PAC sessions. BT do not need another BT Global. Now down to £22k this is less likely and of course once you go above 90% the subsidy needs to climb as new duct will be needed.

    • Avatar TheFacts

      What level of transparency for who?

    • @The Facts – The comments on ‘should costs’ and Atkins inability to provide definitive answers suggests BT is being highly selective in what they are providing to BDUK. You can imagine them taking weeks to compile atypical data to skew how say spine costs are shared amongst atypical cabinet numbers.

    • Avatar TheFacts

      What does the contract say they have to provide?

    • Avatar No Clue

      What does the invoicing say they have spent?

    • Avatar TheFacts

      Counties see all the invoices.

    • Avatar No Clue

      That was not the question the question was “What does the invoicing say they have spent?”

    • Avatar TheFacts

      Ask the counties.

    • Avatar No Clue

      NO im asking you as you are the one that likes to claim you know costs.

    • Avatar TheFacts

      You need to ask NGA.

    • Avatar No Clue

      Theres no such thing NGA just stands for Next-generation access. Again ill ask What does the invoicing say they have spent?

      Nice simple question for you, like the ones you like to ask.

    • Avatar GNewton

      @No Clue: “Again ill ask What does the invoicing say they have spent?”

      You will have noticed by now that TheFacs doesn’t even know how to use Google or FoI Act requests. He just keeps asking stupid questions.

    • Avatar TheFacts

      Looks like you should tell us the results of your FoI requests.

    • Avatar GNewton

      @No Clue: See what I said about TheFacts? He hasn’t even know how to use Google, let alone how to find information from other sources like BT, other telecoms, local district, county council? Just one of those trolls, who’s is not willing to do his homework.

      Let’s see what his answer will be to the question: “What does the invoicing say they have spent?”

    • Avatar No Clue

      Its interesting the idiot argues over costs but then has no prove to back up his claims.

    • Avatar TheFacts

      I have not argued about BDUK costs. Again, if FTTP is the ultimate aim for all the UK where is the costed proposal? Link please, not a suggestion to use Google.

    • Avatar No Clue

      You argue about costs in general with BS figures all the time, yet you can not provide any evidence of costs.

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