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BDUK Confirm GBP408m for Expanded Rollout of Superfast Broadband

Thursday, June 16th, 2016 (4:05 pm) - Score 1,652
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The Government’s Broadband Delivery UK programme, which has already helped to make superfast broadband (24Mbps+) services available to 90% of the UK and is now working towards 95-97% within the next few years, has confirmed that £408m of public investment is being returned for future expansion.

We already know that £258 million of this total is due to clawback (gainshare) from the first phase of the BDUK programme, which incidentally saw the Government allocate around £530m of public money (this excludes council, EU and commercial operator contributions) to a BT (Openreach) supported roll-out of their FTTC/P based “fibre broadband” network (i.e. the original 90% target).

The clawback mechanism of related contracts required BT to return part of the public investment when adoption of the new service passes beyond the 20% mark in related areas, which it has done and indeed most local authorities are now on course to hit 30% and release yet more money for reinvestment.

We should point out that about £129m of the £258m stated above was already confirmed last summer (earlier than expected) and some of this has already been reinvested to boost future expansion. By contrast the remaining half was only confirmed a couple of months ago and completes a general total from all of the local BDUK phase 1 projects’ so far. Much of this investment should find its way into the forthcoming BDUK Phase 3 contracts (i.e. many of those aim go beyond the current 95% coverage goal).

However the CEO of BDUK, Chris Townsend, has now also confirmed to the Connected Britain event in London this week that a separate pot of £150 million (underspend) will also be made available for future network expansion. Part of this is perhaps due to BT’s greater focus on deploying cheaper / slower FTTC instead of pure fibre optic FTTP, while other bits stem from general efficiency and operational savings.

It is worth noting that many of the BDUK Phase 2 (i.e. 95% coverage by 2017/18) contracts were signed before the level of clawback and underspend was confirmed, hence why we expect much of the above to go back in via future programme phases. A lot of the new contracts are already entering procurement or consultation and smaller alternative network providers are expected to play a bigger role in the bidding process.

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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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30 Responses
  1. Avatar NGA for all

    I think the £150m was the un-contracted phase 2 monies that was contracted with the state aid ceased.
    The £258m ‘clawback’is some £500 per incremental customer on the platform – 13% of the 4m phase 1 customers.
    This just leaves the BT capital contribution to be reconciled, £485m according to BT in their CMS evidence. That plus the underspends from phase 1 creates an opportunity for a significant amount of FTTP in-fill in the final 10%. The latter if carried through could restore the original ambition. It suggests the USO could be defined around a fibre based product if these monies are spent in the final 10%

    • Avatar NGA for all

      first sentence should read .. £150m was the uncontracted phase 2 monies when the state aid ceased, sorry.

    • Avatar MikeW

      Sound theory.

      However, the BDUK spreadsheet on docs.google.com shows the uncontacted total amounts to about £103m.

      Is there something else that makes you think it is the uncontacted total?

      “creates an opportunity for a significant amount of FTTP in-fill in the final 10%”

      Won’t happen.

      For the reasons given in Tuesday’s story on North Linc’s, the BDUK projects aren’t at liberty to target FTTP until the cost reaches parity in both cost and coverage. Even if they reach 100% coverage and have money to spare, they can’t prefer FTTP.

    • Avatar MikeW

      Darn autocorrect. Uncontracted, of course.

    • Avatar MikeW

      One important distinction…

      £150m of underspend would be from the previous total of public funds – including money sourced from central and local government. Due to timing differences, money sourced from the EU tends to have been spent first.

      The £103m that is currently uncontracted in the BDUK spreadsheet is the central portion only. Central government will demand local matching, so there is another £103m to be expected there.

    • Avatar Steve Jones

      Give that the £150m is tagged as “underspend” in the article, I’ve no idea why it should be assumed that the £150m is uncontracted money from phase 2. A much simpler assumption which fits with that is simply that the Phase 1 spending has been considerably lower than what was in the bids as we know that there has been significant cost reductions on the roll-out.

      Page 5 of this (Jan 2015) NAO report states

      “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.

      https://www.nao.org.uk/wp-content/uploads/2015/01/The-Superfast-Rural-Broadband-Programme-update.pdf

      Admittedly there is a caveat that this is based on the (presumed cheaper to deploy) earlier part of the project, but it seems to me that savings would continue, albeit not at that rate.

      As for the £500 per incremental customer, that’s simply not the case. A lot of the clawback money is down to BT revising it’s take-up assumptions upwards to 30% and returning it early. So it’s certainly not based on a 13% takeup rate (which is surely low anyway). The reason BT has done this is surely on the expectation that this will largely be reinvested to extend the network using the existing contracts and not because they’ve suddenly turned into Father Christmas.

      I have noted several times that with the reported savings to date there must have been more money in the pot for reinvestment, and so it would appear.

    • Avatar Steve Jones

      To confirm that the speculation that the source of the £150m was some sort of uncontracted Phase 2 money is wrong, her is a quote from Chris Townsend which I found fairly quickly (in computerweekly.com)

      “There was an underspend of £150m against Phase 1 contracts, which is also coming back in,” he said. “We hope that amount of money will give us at least one more percentage point [of coverage].”

      That implies that this is made up of savings to the project as a whole (so both central and match funding combined), and not just the central BDUK funds.

    • Avatar NGA for all

      @MikeW Steve so the £150m which is a fraction of the underspend can be added to the uncontracted £103m. The main point is the scale of the funds available to keep going. The earlier briefing from BDUK on the state aid did not reference underspend listed remaining phase 2 contracts.

    • Avatar TheManStan

      I would expect a fair chunk to be capital savings from BT being able to aggregate purchasing for all the contracts.

    • Avatar NGA for all

      @Steve you can get to £500 per incremental customer in the following way. (I actually think the £129m announcement was an error but as long the money is returned and spent on the network it matters little.)
      The 13% – is the difference between 20% and 33% take up now being used. 13% of the 4m BDUK system size 520k customers. £258m claw back divided by the incremental take up equals £496 per customer. That’s where the press releases lead you. It is wonderful in a nutty sort of way. But it is limited to the total state aid paid.

      BT is not father Christmas, but the proxy costs used in Wales (£300 per premise), North Yorks (£276 per premise), Lancs etc need to be returned somehow. It is happening and more rural in-fill can be delivered.

    • Avatar NGA for all

      @MikeW how many more quarters will £25m need to be added to the accrual for take up?
      Already, if BT’s capital contribution is made clear, there will be many projects where Phase 1 costs the public sector nothing, a matter we need to celebrate.
      This must be the case for Rutland. A verified BT capital contribution and a c40% take up means phase 1 returns pay for the final 5-10% and we can define a USO based on Fibre access products.

    • Avatar NGA for all

      @muikeW comment below on FTTP won’t happen in North Lincs. Could you expand below?

    • Avatar MikeW

      “The earlier briefing from BDUK…”

      How much earlier? 2 hours or 4 weeks?

    • Avatar NGA for all

      MikeW 8th and 9th June 2016, slide deck available with the expected contracts.

  2. Avatar Patrick Cosgrove

    Does it have to be spent with BT?

    • Avatar MikeW

      None of it has to be spent with BT.

      However, the £258m (likely to grow by £25m per quarter) is being offered earlier than the terms of the contract requires. If the councils want the money early, then they need to spend it with BT. Otherwise the councils just need to wait.

      If the £150m relates to underspend, then the councils can choose to spend it elsewhere, whenever they feel like it.

      However, both amounts have already been approved (in EU terms) within the phase 1 contracts. It is probably easier for councils to choose BT anyway, even without the bonus of getting the money early. Otherwise they need to go through a new tendering process, following the new eu rules, not just an IMR.

    • Avatar Steve Jones

      I think the period may be seven years from the signing of the contract as, from what I recall, that was the period that it was means to cover and from thence onwards the network was meant to be commercially self-sustaining. So I think any sums returned to the reinvestment fund are not recoverable until that period is up (but they can be spent on extending under the original contract terms).

    • Avatar NGA for all

      @Patrick, Steve
      A combination of lower costs (Thank you, PAC NAO, Audit Wales, Audit Scotland, BDUK -VFM), CMS Select Committee)) and higher take up means waiting 7 years would not be in anyone’s interest. The £258m is only announced because it has to be, it will not be returned in full for quite sometime.
      There is an opportunity to use Ofcom NGA cost modelling exercise to come clean on the capital cost per premise for FTTC, where the proposed cost recovery should be tied to a verifiable capital contribution per premise passed. The good news is that FTTC is so cheap some FTTP investment will need to be included to maintain the VULA price. If this latter exercise was to occur, we would not need to wait 7 years for monies to re-emerge, but your still waiting until 2020 unless you find a way to do it yourself.

    • Avatar Steve Jones

      @NGA

      I don’t think anybody is arguing that the reinvestment money shouldn’t be used for improving superfast, just that the rules appear to be it has to be spent under the original contract terms until the 7 year period is up when (in principle) it can be recovered for other purposes.

      Interesting that you don’t credit OR for any of the savings. Given that OR also have an interest in reducing deployment costs (as it means the same funds will go further to extend the OR network), they had an incentive to do so.

      As for the PAC, then (unlike the NAO who have done a valuable job), they didn’t produce much more than posturing and hot air and anybody who watched the proceedings could see that most were singularly ill-informed, which didn’t stop them taking positions.

  3. Avatar NGA for all

    @mikeW – FTTP won’t happen! It is already happening in places. A demand led – fibre to the DP with the customer paying the connection charge (say£200) for the drop wire would work.
    BT may not have the resources, so it may take until 2020/21, but the original ambition of best in Europe could be recovered if the funds are used well.
    Is there a reference to the North Lincs discussion? If BT cannot do North Lincs, perhaps others should be invited to have a look.

    • Get up to speed please….

      Native WBC FTTP is deployed to the DP usually already and when the customer orders a service (wholesale install cost £99+VAT but often spread over the 18 month contract) the final drop from DP to inside premise is done.

    • Avatar NGA for all

      @Andrew it just is not happening enough, given the funds available for final 10%. We can and will salute where it is available just need to see more of it.
      Perhaps, it needs to become a demand led with connection fees to permit more to be done in the next 4 years.

      Customers 1000 -1200m off a cabinet cannot order WBC FTTP, if they could there postcodes would not be reappearing in white lists for future phases.

  4. Your understanding of what WBC FTTP is and how its delivered and its costs I hope are not symptomatic of your understanding of the financial side since it is clearly wrong.

    • Avatar TheFacts

      All will become clear when the @NGA court case starts.

    • Avatar Steve Jones

      NGA appears to know something that the auditors don’t. One day the truth will be known…

    • Avatar NGA for all

      @The facts – with £258m coming back, the need for any action is reduced. We need a similar focus on the capital contribution and the opportunity for the funds to be spent where intended will remain.

      @Andrew your analysis of FTTC costs and those remaining for FTTP infill will be much appreciated.

    • Avatar NGA for all

      @Andrew what are your indicatives for establishing a WBC FTTC cluster?

    • Avatar NGA for all

      @Steve, I am happy that between April 2015 and June 2015 BT felt the need to up the accrual to £129m following a take up adjustment from 20%-30% and 9 months later on the back of a 3% increase in take up to 33%, the capital deferral is now £258m.
      Provided the CMS Select Committee drills into the 4 sets of written evidence provided by BT, then we may be able to eventually establish the truth about BT’s capital contribution.
      I am suggesting the Ofcom NGA Cost Modelling exercise for VULA pricing presents one further opportunity to establish the level of transparency required. It will also create the incentives for further investment in FTTP.

  5. Avatar fastman

    NGA –nothing changes ever !!!! I see no understanding of CApex vs opex either

  6. Avatar NGA for all

    Fastman – we just need to refer to BT’s own evidence to CMS Select Commmittee on this matter.
    What is not to understand about Opex? THis is from; BT (EWC0116)

    8. Can you confirm by amount the split between CapEx and OpEx for the £2.5 billion spend on superfast broadband rollout? (see Q812)
     BT Group commercial fibre investment capex is £2.1bn and opex is £0.4bn.

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