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UPDATE Rutland’s Fibre Broadband Rollout Finds £1.07m in Savings to Reinvest

Monday, July 13th, 2015 (1:33 am) - Score 962
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The Broadband Delivery UK office has informed ISPreview.co.uk that the Digital Rutland project, which originally aimed to help BT roll-out “high-speed fibre broadband” (FTTC/P) to 97% of the county by the end of 2013, has found “savings” worth £1.07m that can be reinvested to reach near universal cover.

Rutland, which is home to a population of around 40,000 people in just 18,600+ or so homes and businesses, is a tiny and very landlocked rural county in the East Midlands of England. But until recently it also suffered from fairly poor connectivity, albeit with the exception of some developments by Rutland Telecom (Gigaclear) a few years ago and a bit of work through BT’s commercial deployments.

Happily the completion of the first Digital Rutland contract in April 2014 (here), which occurred a few months later than planned, has significantly improved local connectivity. The improvement is aptly demonstrated by BDUK’s most recent Q1 2015 uptake figures, which revealed that a staggering 39.8% of premises in BDUK/BT upgraded areas have taken the service.

The above figure is important because most BDUK contracts also have a claw-back clause, which means that take-up beyond 20% (this figure may vary between contracts) could trigger a return on some of the original investment and that can then be used to extend coverage or improve service performance.

Chris Townsend, CEO of BDUK, said (earlier this year):

As we are drawing to the end of phase 1, we are already reviewing the success that we have achieved to date. We are looking at the additional savings that we are making, because as we are working with BT – I mentioned earlier that we have the smart contract management process in place – we are monitoring all BT’s expenditure and we are already receiving significant savings from the first deployment of phase 1, through the smart contract management.

We are already deploying those additional funds to extend phase 1 further into deeper rural areas. That is going on with each of the local bodies—we are planning that. Once we finish that further deployment, we are hoping to go seamlessly into phase 2 so that there is not a break between them.”

ISPreview has been trying to get some clarification of what these “significant savings” are for the best part of the last 6 months (e.g. claw-back, cheaper deployment costs?), although progress has been slow and that’s partly because we’ve had to wait for Phase 1 BDUK contracts like Rutland’s to fully complete and then be reviewed.

A Quick Look at Known Savings

Elsewhere we’ve already seen how the entirely separate £132m Superfast Cornwall scheme was able to find efficiency improvements in the deployment process, such as by using lightweight overhead fibre optic cables slung between telegraph poles instead of digging up roads, and as a result it became possible to lift the original coverage target from 80% to 95%.

Similarly a report published by the National Audit Office earlier this year predicted that the overall BDUK programme could deliver total savings of approximately £72m 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” (here).

Meanwhile BT’s data to September 2014 states that the operator “spent 38% less in capital costs than its financial model had assumed it would and it had covered slightly more premises than predicted“. Mind you part of this might be because BTOpenreach could have deployed less of their more expensive pure fibre optic FTTP (330Mbps) service and more FTTC (up to 80Mbps), the latter of which is both quicker and significantly cheaper to roll-out.

But all of this must be balanced against the fact that so far most of BDUK’s work has focused on the cheaper / easier areas, with costs likely to rise sharply as the scheme moves out into more challenging or remote rural areas; hence why it’s important to wait until a contract completes before passing judgement.

Back to Rutland..

The good news is that we’re now starting to see details of the final cost “savings” for Phase 1 BDUK projects and Rutland is one of the first to give us any final, if still somewhat limited, information. The original contract was funded by £800,000 from BT and £2.3m from Rutland County Council, including £820k from BDUK and much of this has since been used to benefit around 10,000 local premises.

According to BDUK, the first contract has now resulted in savings of £1.07m and that’s huge next to the original commitment. A spokesperson for BDUK clarified that this was not so much as a result of claw-back – it may take some time for the full benefits of that to be realised – but rather “a combination of savings through project efficiency measures and the deployment of cheaper technologies in areas that didn’t require more expensive methods to deliver superfast speeds” (this may partly allude to the use of FTTC instead of FTTP again).

The plan is now to reinvest these savings into a Phase 2 BDUK contract (Superfast Extension Programme), which is aiming to extend the availability of Superfast Broadband (24Mbps+) to at least 95% of Rutland by the end of 2017; BDUK has also allocated up to another £180,000 of additional funding to this.

Admittedly the original phase 1 contract stated 97% coverage, but that appears to be merely reflecting the raw “fibre broadband” footprint (includes sub-24Mbps speeds) and not specifically 24Mbps+ coverage. Indeed the recent Phase 2 Public Consultation (here) clarified that Phase 1, when combined with existing commercial deployments, had only pushed 24Mbps+ speeds out to about 90% of Rutland’s premises.

But the fact that we now know how much has been saved through Phase 1 means that a contract signing event for Phase 2 is likely to be close, which is interesting since despite being one of the first BDUK Phase 1 schemes to complete it looks as if Rutland will also be one of the very last to sign a Phase 2 deal.

We should point out that the savings found for Rutland may not apply to other counties (the picture will vary). Phase 2 is currently hoping to target upgrades for the villages of Barnsdale, Belmesthorpe, Braunston, Brooke, Burley, Egleton, Essendine, Hambleton, Little Casterton, Lyddington, Ryhall, Stoke Dry, Tickencote, Tinwell and Thorpe by Water.

However on the flip side of this there is concern about the way that BT has been handing back some areas that were previously designated for deployment as part of a separate commercial roll-out. For example, the village of Braunston-in-Rutland was originally due to be upgraded at a cost of around £15k, but BTOpenreach recently re-estimated a cost of £45k and ruled it unviable.

Braunston is now likely to be upgraded as part of the future BDUK Phase 2 project and overall around 1,000 premises (inc. other villages) in Rutland are said to have fallen into a similar category, although it’s unclear what total financial impact this might have.

UPDATE 14th July 2015

We have secured a few extra details from BDUK. To date the Rutland project has delivered 9,416 NGA enabled premises, with 8,551 of those achieving speeds above 24Mbps. Sadly the figures for BT’s final contribution are still said to be “classified as commercial in confidence“, which is despite the fact that the original commitment of £800k was put into the public domain.

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Mark Jackson
By Mark Jackson
Mark is a professional technology writer, IT consultant and computer engineer from Dorset (England), he is also the founder of ISPreview since 1999 and enjoys analysing the latest telecoms and broadband developments. Find me on Twitter, , Facebook and Linkedin.
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40 Responses
  1. These are not savings. It is BDUK catching up with the inflated costs and these will exist in all the projects. The MP for Lincolnshire stated they were £7m less than expected.

    So how many cabinets were installed and who paid what? Simply, 10,000premises/200 premises passed suggests 50 cabinets. £1.07m less than the £2.3m suggests a subsidy of £24,600 each. This is higher that the total average cost identified by the NAO, which would be unusual for Rutland.

    BT were supposed to contribute £800,000 of which £50 per premise would be expected to be capital of £500k, or in this case the first £10,000 per cabinet if the gap funding model was working.

    Three questions then, where is BT’s capital contribution?
    Do we have call inflated costs ‘savings’?
    Given the budgets were for BT mixed economy solutions including FTTP, where are they?

    • FibreFred

      So BT are purposefully inflating costs? That’s quite a accusation hopefully you have some proof of this?

    • @FibreFred Yes, it is in the text, Para 3.7 in the second NAO report, excess modelled costs of 38%, where BT previously denied having contingencies in the Framework prices at two PAC sessions in 2013 and 2014. BT MDs have separately stated there are economies of scale to 90%+.

      This is less important that the c£500-£700m that will drop into the investment fund, and whether it will get spent delivering FTTP clusers or fibre to the pole, or whether those monies do not get spent where originally intended.

      As important is BT’s capital contribution. Where is it?

    • TheManStan

      But, you know why these are inflated… they’re based on individual project costs. Which was the basis of all the individual bids. Subsequently, the projects benefited from the overall number of bids won. But, this didn’t affect the original bid costs as they had to be on a basis of only that single bid being won.

      For someone who understands most things fairly well, you are totally obtuse on this matter.

      And it’s simple economics…

    • @TheMANStan – that arguement was not relied upon at the 2013 and 2014 PAC sessions. BT assured Parliament that costs in the FRamework bids were the same as the commercial rollout and there was no contingency. Clearly not.

      More important is the location of BT’s capital contribution. It cannot be in the numbers presented here. It must emerge to comply with the state aid measure.

    • New_Londoner

      “Given the budgets were for BT mixed economy solutions including FTTP, where are they?”

      Presumably FTTC has been substituted for FTTP wherever possible to keep costs down, consistent with the emphasis in the contracts on value for money. If this allows more coverage for the same budget, or money to returned to us taxpayers, then that is a great outcome.

      If only other government contracts could manage to do this! Too many go over budget or fall well behind schedule, let’s hope the NAO applies lessons from BDUK into other public sector projects.

    • @New_Londoner It is good three PAC sessions and two NAO reports have caught up with some of the nonsense BT Group was attempting to impose, although we still have proxy costs being used in Wales.

      We now need the new state aid measure to secure BT’s capital contribution and ensure gap funding is actually applied. There is no evidence of that in these numbers.

      What we will have lost and this includes not just the UK economy but BT shareholders is a more complete plan to transform the network, and be best in Europe.

      More NAO scrutiny, PAC EFRA and CMS select committee will reveal the full picture, but restoring the ambition will require a review of Ofcom market defintions at the minimum.

    • TheManStan

      BDUK and commercial costs the same, sort of, the cost of deployment model (Q166 from PAC 2013) which they used is the same as the commercial. A carefully worded reply, cost of deployment need not include all tangible CAPEX or an fixed tangible CAPEX cost, which PAC never requested clarification of. Which anyone could reasonably expect the tangibles to be variable based on volume purchased. And these model costs still would not account for efficiency savings from improved deployment methods post bid…

    • @TheMANstan, we are not talking small amounts here, it is nearly half and this is before the BT capital contribution.

      If we take off a BT capital contribution of £50 a premise passed and using an average of 200 premises (Rutland might be 231), we will be still a little above the NI 2010 subsidies of £12.5k for each of the first 1268 cabinets, which might be expected if we allow for Belfast and Derry installs, but 70% of cabinets were in rural.

      Is BT Group planning to tell its shareholders the £400-£500m ‘savings’ across all BDUK projects (+BT’s capital contribution if extracted) will now be spent with INCA members as BT has not resourced for installing FTTP clusters?

    • TheManStan

      Yes, but the smaller the area the more a significant change in costs is magnified. It would only take a few areas of deployment being significantly cheaper to affect overall costs. In this instance very conceivably the decisions not to pursue FTTP so heavily, which likely was originally programmed, will have made the drastic change…

    • TheManStan – it is a handover point worth of cabinets, so the costs not surprisingly are similar to the total average costs identified by the NAO findings in January.

      If BT wish to publicly put forward FTTP as a reason for the inflated cots, that can be easily disproved in this particular case.

      What is important is whether BT can re-state its ambition for rural connectivity or lose what will be substantial funds, greater still possibily if there is any ambiguity on the BT capital contribution required by the state aid conditions.

    • TheManStan

      I don’t think the decision was based on entirely on cost, but on a combination meeting timelines and coverage goals… if FTTP had been retained do you think timelines and coverage goals as they stand would have been met?

    • @TheManstan – knocking cabinets in had been mastered by 2012 (salute), so meeting the target was always going to be met. Even the progress on FTTP in Cornwall showed it was possible (another salute) but BT needed to tool up with a pretty significant number of apprentices in 2012. But no plan emerged, instead we got the use of confidentiality agreements and proxy costs divorced from what was already well known from BT’s own press releases and presentations.

      Rather than that £400-£500m now ending up in some unknown investment fund, there would have been plenty of scope to add more, perhaps in the fixed line access cost settlement but it was there povided the resource was available.

      There is some success in the programme but much more to be had.

    • TheManStan

      Yes, it is possible but with how much of the fibre trained personnel pool?
      If you try and train people on the job expect productivity to drop, the alternative is pull them from the active workforce, but who will train them? The engineers capable of training and having experience, which again pulls people from the field.
      BTOR simply doesn’t have enough of it’s engineering pool trained up for nationwide roll-out of fibre…

    • @The Man Stan, it looks like the full BDUK programme should be a £8.5m a week of effort, but the 200 cabs a week cost £5m a week with FTE of 4.5k to 5k being charged including contractors, although the billing looks to be £7m a week, with uSC premiums, loans and places like Wales which is paying the proxy costs.

      Although BT will meet the service level, it will not meet the expectation given the budget available.

      The resource issue must have been visible in 2012, as the monies were gathered to meet the ambition of best in Europe.

    • TheFacts

      @TMS – in many places contractors reshell cabs, install FTTC cabs, tie cables, fibre duct, fibre and joint fibre.

      Are enough contractors available?

      @NGA – what’s the typical contractor cost?

    • themanstan

      Expectations and contractual requirements are 2 very different things, from the evidence I see BTOR is aiming to achieve contractual goals and time scales…

    • @themanstan – it looks that way, but it creates a problem. Of the £1.7bn Gov + £353m BT capital, -30,000+ cabs, ho and fibre paths, including submarine cables will take the first £900m, which will meet any service level you like but leave many many gaps to be disputed.
      Handing money back to some illusive investment fund while disputing BT’s capital contribution seems to be the default plan as there is no resource to keep projects moving. BT Group will wish to contract at even higher rates for the harder to reach areas even though this is state aid. Events at CDS look odd playing this matter out.
      BT also risks being sued by excluded communities who will point to the representations made by BT (investment and costs) and make the case they were excluded from any planning processs because of those representations.
      OR probably need another 1,500-2,000 boots on the ground training the next generation of fibre engineers. BT will be forgiven for being late but not if you fail to try.

    • TheFacts

      @NGA – How do you calculate the number of engineers required by OR? As I said above, contractors are used extensively.

      A community could not sue BT, they are contracted to a county.

    • TheManStan

      Agree, if BTOR meets the contractual requirements there will no grounds for any court case against BT. The only issue they could take up would be with the local authority, for not putting in contingency deployment plans into the contract…

    • TheManStan

      As for BT contributions as per a bus route subsidy where operating costs are included, BT has operating costs included.. however transparency on how this is modelled is lacking and the point at which take-up equates to commercially viable results in dropping these costs…

    • @TheMANStan, given the representations relied upon with respect to capital and costs, which look to be fundamentally at odds with what is now emerging, there is a possible case under Conspiracy to Defraud for excluded communities to pursue. It is unlikely but it is possible. The LA will have a defence of necessity as they had to rely on BT’s representations on these matters.
      The tactic of mixing operational costs is unlikely to hold in any potential fraud case. Creating unnecessary complexity as a means to avoid capital payments is seen for what it is, a complex financial instruement designed to avoid payment, when presented as evidence in a court.
      BT’s capital contribution needs to be very transparent so this less than ideal consequence can be avoided.

    • TheManStan

      There is no case… a model is an estimation system, with varying levels of confidence. Error is a natural part of any modelled system, due diligence on the part of the LA on the other hand could be identified…

    • TheFacts

      @NGA – Surely BDUK and the councils are managing these projects and they, along with expensive consultants, will fully understand the technology, the rollout and the finances.

      Please provide some examples of where this is not happening and why. Or just one.

    • @The Facts – There is I think 22 types of dishonesty to be assessed, and this would be done initially on BT representations to PAC versus what the NAO reported. It is not about an estimating tool, it is the representations made and relied upon in public statements vesus the actuality. This is hypothetical and abstract at present. It remains to be seen if it emerges in practical usable form.

    • themanstan

      That does not matter… I recognise the sentiments you have, but for the purposes of a court of law they will have no bearing whatsoever…

      Representation and public statements, which were clearly made based on models which was stated implicitly, are still estimates. Any lawyer worth their salt will be able to effectively argue and win this simple point… there is no misrepresentation when someone says we estimate it will cost this… and it comes in costing less…

      Listen to yourself. Trying to sue an entity for meeting contractual targets and coming in under budget.

    • TheFacts

      @NGA – please list some of the 22.

    • TheFacts

      An excluded community should be sueing the LA who are responsible for the rollout if anyone. Where was any committment for them to be served in a less than 100% project?

    • @TheFacts and @TheManstan final comments and feel free to dismiss as this is an early warning, which does no further if tangibke and verifiable evidence of BT’s £353m capital contribution emerges. Search for document LC228 for some defintions.

      I was expected to see perhaps £500k capital of the £800k funding promised to Rutland to be referenced in the reconciliation process. It is no where to be seen.

      Note the case (CtoD) would not be against BT Plc, but in this case probably aginst the named relationship directors and their cohorts in BT Group, including in the early part of the proceedings the officials required to sign the confidentiality agreements. They all need their own legal representation. The £3bn commercial, the £1bn match, the 15 year payback, the claims of no contingency in the bids, the pomised reduction in prices due to competition are all claims that can be tested for truthfulness and assessed in the context of the state aid principles, and the findings of the NAO.

      The research needed is on defining precise ‘crime’ so the ‘victim’ can present the case, given UK law does not support class actions.

    • TheManStan

      My final comment too, read and think.
      And that is the crux, your trying to find a crime that isn’t there…
      PAC and NAO have all the details yet there has been no mention of any criminality… they have access to fully qualified auditors, accountants and legal representation. Yet… nothing has happened, even a minor whiff a possibility would have resulted a convenient leak to the media… Yet nothing has happened…Do you really believe you’ve uncovered something that many, many people who would dearly love (particularly PAC who benefit from parliamentary privilege) to imply naughtiness on the part of BT.

    • @TheManStan – Do Warn your colleagues. PAC and NAO evidence is damming but they are not part of the CPS and would not compile evidence for CPS, but are a source of evidence.
      £353m is a big amount but only 50 prem football matches. That capital contribution should be auditable in BT’s accounts and should not be open to question or doubt.

    • TheManStan

      What colleagues?

    • TheManStan

      FYI, I doubt that NFP Cancer Research Scientists are going to be quaking in their boots at your assertions!

    • TheFacts

      @NGA – You seem reluctant to explain the role of BDUK, the counties and their consultants is setting up the contracts for all this.

    • @The Facts The Communications Act 2003 makes clear BT’s dominant position in the final third. Sure the complexities of state aid, and the nature of the Framework was not ideal but it was made to work, but any shortcoming is overshadowed by BT Groups decision to make the representations it did in a contract involving state aid.
      NAO and BDUK value for money team have got from proxy costs as evidenced in Wales to actuals which is a big step and releases a lot of money to go further.
      That leaves BT capital contribution which is outstanding. £353m capital contribution is not visible or verifiable. It needs to become so.
      There is also a more ambitious plan outstanding with the resourcing to implement that plan.

    • TheFacts

      This shows the huge incompetence of BDUK and LAs to set up and manage engineering contracts.

  2. gerarda

    I don’t think the 39.8% uptake is staggering. It was always likely to be higher in areas of very poor connectivity than ones in which a decent ADSL service was available.

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