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UK Gov Confirm £442m Reinvestment to Boost Superfast Broadband Cover

Thursday, December 22nd, 2016 (12:02 am) - Score 1,804

The Government’s £1.7bn Broadband Delivery UK project, which has been deploying “superfast broadband” (24Mbps+) to 95% of UK premises by 2017/18 and then 97% by 2020, has confirmed that £442m is being returned by BT (Openreach) for reinvestment to help cover another 600,000 premises.

The above total reflects £292 million of public investment that is being returned by BT through clawback / gainshare due to high take-up of “fibre broadband” (FTTC/P) connections in BDUK upgraded areas and £150 million from contract / efficiency savings across all 44 of the local authority broadband projects. The figure is fairly close to BDUK’s preliminary data from June 2016 (here).

The clawback mechanism in related contracts’ requires BT to return part of the public investment when take-up of the new service passes beyond the 20% mark in related areas (total BDUK linked take-up now stands at 30.62%) and, as BT’s latest financial results have already confirmed (here), we’re already well on the way to achieving a figure of 33%.

We should point out that £133m of clawback has already been allocated back into related projects (see below), which will be used to help reach the new coverage expectation (today’s official update confirms that superfast broadband “coverage is on track to reach 97 per cent by 2020“; BDUK Phase 3). The rest should be allocated as new contracts are signed over the coming months.

Overall 1.5 million premises (homes and businesses) out of the 4.5 million premises covered have now signed-up to the service in areas where the Government and local authorities have subsidised its roll-out via BDUK (note: the 4.5m figure also appears to include sub-24Mbps “fibre broadband” areas upgraded by BDUK – see the last Q3 2016 total for some extra context).

Gainshare Allocation by UK Region (Actual)
East Of England £18,900,000
Midlands £22,543,498
North East England £3,450,000
North West England £15,590,000
Northern Ireland £2,000,000
Scotland £17,843,000
South East England £18,405,000
South West England £8,827,000
Wales £12,780,000
Yorkshire and the Humber £13,559,000

Total: £133,807,498

We ran a detailed report on the Q2 2016 take-up figures by each local authority in October 2016 (here) and a new update for Q3 2016 is due soon, although we are today able to share a more recent / general summary of regional take-up rates from the BT and BDUK linked contracts.

Take up rates by region (September 2016)

East of England 34.20%
Midlands 30.52%
North East England 29.55%
North West England 29.32%
Northern Ireland 27.41%
Scotland 26.30%
South East England 35.59%
South West England 29.91%
Wales 28.77%
Yorkshire & the Humber 31.12%
Grand Total:   30.62%

Sadly we’re not told precisely what the £150m in “careful contract management [savings] by the Government, local authorities and BT” actually represents, although BT did deploy less of their more expensive FTTP solution in BDUK areas than some had predicted (they preferred cheaper / slower FTTC), which was partly reflected in this 2015 report from the National Audit Office. In other cases it may have simply cost less to upgrade an area than forecast.

Karen Bradley, Culture Secretary, said:

“Our Broadband Delivery UK programme is giving families and businesses in hard-to-reach areas the fast and reliable internet connections which are increasingly at the heart of modern life.

Strong take-up and robust value-for-money measures mean £440 million will be available for reinvestment where it matters – putting more connections in the ground.

This will benefit around 600,000 extra premises and is a further sign of our commitment to build a country that works for everyone.”

At present around 91% of the United Kingdom are estimated to be within reach of a 24Mbps+ capable broadband connection and it’s worth pointing out that BDUK Phase Two, which aims to push the UK coverage to 95% by the end of 2017, may eventually be able to return even more public funding for reinvestment.

In keeping with that Karen Bradley is encouraging more people to sign-up to superfast broadband. “Broadband speeds aren’t boosted automatically – it needs people to sign up. Increasing take-up is a win-win-win: consumers get a better service, it encourages providers to invest, and when more people sign up in BDUK areas, money is clawed back to pay for more connections,” said Karen.

One small thing to note, before today the Government had previously indicated that the 97-98% coverage expectation could be reached by the earlier date of 2019 and they’ve now shifted this to 2020. Mind you it wasn’t really a solid target, until now.

UPDATE 6:59am

We’ve just had a comment from the Independent Networks Cooperative Association (INCA), which represents alternative network providers.

Malcolm Corbett, INCA, said:

“Efficiency savings and clawback of goverment funding due to higher than expected take up levels in the BT rural broadband contracts are to be welcomed, but the extra funding should be put out to competitive tender. Just this week we have seen the announcement that rural fibre provider Gigaclear has been awarded new contracts in Devon and Somerset to deliver full fibre connections to more than 35,000 underserved rural properties. For the local councils, citizens and businesses the deal is fantastic, Gigaclear will contribute more than 2/3 of the £62.25m project costs.

There is a growing range of alternative fibre and wireless broadband providers offering great value for public investment in new digital infrastructure. If the additional £440m of grant funding clawed back from BT could achieve anything like the same level of private sector match investment we will make serious progress towards the government’s goal of a ‘full fibre and 5G’ digital infrastructure.”

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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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36 Responses
  1. Avatar New_Londoner says:

    The comment from INCA seems to ignore the fact that the gainshare monies were the subject of competitive tender, and of course remain bound by those contract terms. The members of INCA were not hugely interested in bidding when the market was risky unproven, now some of these champions of the free market apparently want to participate. Perhaps they should have joined the bidding when the opportunity was open to them.

    1. Mark Jackson Mark Jackson says:

      Quite a few altnets would have liked to bid on the first BDUK contracts, but the framework imposed some requirements (e.g. £25m turnover) that effectively prevented most smaller players from engaging.

      The only way for smaller providers to have bid would have been to setup an overly complicated consortium, but at the time such altnets typically focused on very specific / niche areas and all had different approaches. A consortium would not have been realistic.

      The only real competition BT had came from a questionable rural FTTH proposal via Virgin/TalkTalk/Fujitsu UK etc. and they withdrew long before all of the first BDUK contracts were signed. In quite a few regions BT ended up with no real competition for the contracts. Of course this is not BT’s fault, it’s a reflection of the Government’s approach and market regulation / structure at the time.

      http://www.ispreview.co.uk/index.php/2013/03/fujitsu-withdraws-from-all-remaining-broadband-delivery-uk-procurements.html

      Thankfully the last year or two has shown some improvement, with various local authorities and BDUK now being more open to alternative networks (e.g. Gigaclear’s various contracts).

    2. Avatar NGA for all says:

      A competitive tender process where the other participant did not have an access network to overlay.
      Alt-net capacity is limited, but they are showing what is possible.
      This was as much about BT’s ambition to step up to use the money well to transform its network. Circa 25,000 cabinets and fibre paths are very welcome and to be applauded but the opportunity and funding remains to so do so much more.
      While the BT gambit of costs has been blown apart, the gambit on BT’s capital contribution looks to be still active. A renewed focus in 2017 is needed on the latter. I am guessing Gigaclear is investing £1m a week. At £292m owed that is £5.5m a week of investment for a year before BT puts a penny in.
      This is less about competition and more about how BT Group at the expense of Openreach and the UK economy decided to abuse its dominant position in the access market to generate free cash flow, the basis of all BT exec bonuses. The mis-representations to Parliament in 2013 and to the CMS Select Committee inquiry into Broadband remain uncorrected, but the cash is in BT’s accounts.

    3. Avatar New_Londoner says:

      @NGA
      Mike, you must know your assertions are baseless and without evidence given you’ve been making them for some considerable time without being able to back them up. If you had any real evidence you’d surely have lodged it with the relevant authorities by now, instead you keep recycling the same comments every few days on websites?

    4. Avatar NGA for all says:

      New-Londoner ..This is £400m of evidence and there is another £300m+ to go before anymore take up. The evidence is filtering through and it will continue to build.

    5. Avatar New_Londoner says:

      @NGA
      Actually this is “evidence” of more efficient project delivery and higher than expected take up, both of which are a welcome innovation for us taxpayers versus typical public sector procurements. It is not “evidence” of anything untoward happening despite your oft repeated claims to the contrary – I note your much touted document of earlier this year has either stalled or been ignored by the authorities.

    6. Avatar NGA for all says:

      New-Londoner I humbly suggest a more ambitious plan B is needed if plan A leaves Parliament and Ofcom calling for BT to be separated with BT needing to plan to hand back funds to give others a chance to overbuild your network in the case of Gigaclear. This is despite a very efficient and capable supply chain.
      Papers are not hard to find if you wish to comment. I send them to your colleagues as a matter of curtesy. They only ever include numbers BT relies upon in its public statements.
      BT still controls most things and will continue to do so but more optical engineering and less financial engineering would open a lot more funding where it is needed. After nearly £1bn of subsidy, few if any SME can order a FTTP-GPON service, if FTTC is inadequate they are forced to order a private circuit.

    7. Avatar AndyH says:

      @ NGA

      The problem you’ve got, is you make wild accusations without a single shred of evidence. On top of that, your understanding of accounting is questionable and I think it’s fairly safe to say you also don’t understand network typology particularly well.

      “After nearly £1bn of subsidy, few if any SME can order a FTTP-GPON service, if FTTC is inadequate they are forced to order a private circuit.”

      Do you actually have any evidence at all of the statement you’ve just made? Have a look at http://www.superfastcornwall.org/assets/file/Industrial%20Estates%20with%20Fibre%20Availability.pdf for example. This is on top of the 3,200 SMEs that will see FTTP available by end of March (most of which are existing FTTC areas I believe).

    8. Avatar NGA for all says:

      @AndyH -The 20% FTTP Cornwall is separate as you know and paid through the nose with subsidy. That statement is absolutely the experience of most SME’s in the UK today and BT is planning to hand money back when the Government wants the problem solved.

    9. Avatar Steve Jones says:

      @NGA

      No, this is not £400m of evidence. It’s £400m of clawback operating as the contract required combined with costs savings through the use of more cost-effective solutions and savings in project management costs (in large part because there are economies of scale as the original invitations required each local BDUK project to be tendered independently).

      What you’ve utterly failed to provide not the slightest shred of evidence for is your assertion that BT has not met its part of the contractual requirements in terms of capital expenditure. You quote prices for cabinets without reference, are unfamiliar with network topologies (such as stating that fibre for FTTC cabinets could be used for FTTP extension).

      When challenged to provide evidence, then none appears. Just a few nods and winks that you know things that we don’t. No references to publicly available documents apart from misinterpretations of NAO documents and flat contradictions of the conclusions the the NAO have produced with respect to things like the benchmarking of costs of deployment.

      You don’t even know what overlaying a network means. Overlaying a network means duplication by another network. What Openreach have been doing is network enhancement. Incidentally, it’s incorrect to claim that other operators didn’t not have the option to exploit the existing Openreach network. They did. Openreach were required to provide all other companies tendering for local BDUK projects with relevant information. Other operators could even have used FTTC rather than pure FTTP. Indeed, if you care to look at the phase 2 Superfast Berkshire project you’ll find that Call Flow did exactly that in parts of Windsor and Maidenhead.

    10. Avatar fastman says:

      there is also little or nu understanding from a technical perspective on how this stuff is actually delivered on the ground either which makes the “assumtions” ever more incredulous

    11. Avatar NGA for all says:

      Steve, AndyH – Your attempting to make a virtue out of what are a sum of identified excesses so far, rather than planning to use the money to effect as complete an upgrade as possible with the funds available. The full effect of these can still be seen in Wales where unit costs are still in operation to optimise cash flow rather than a more complete coverage upgrade.

      I am a fan of the engineering which demonstrates the potential possible, but attempts to game costs and capital are counter productive to the economy, and to BT’s long term well being. The £400m is only the story so far, there is much much more to come. Meeting minimum contractual requirements mean little when the objective is to use the monies available to maximise the rollout and resource accordingly.

    12. Avatar Steve Jones says:

      @NGA

      Yes, we know that clawback will mean there is more to come as the take-up increases above the current 30% level. If it’s the purported £129m per 10% then we might see another £260m over the next 2-3 years if take-up hits 50% which is within the realms of possibility. However, the economies seen in phase 1 are unlikely to be seen again, at least not on that scale, as these have apparently been built into the new plans.

      It is also not BT’s decision on whether this money is to be reinvested. I’m sure they’ll want it to be done, but it is down to the local BDUK projects if this is done. I’m sure BT will have an influence on this, but the news stories about these extensions have very much shown that it’s the local BDUK project that is calling the tune on this along with the local democracy.

      Finally, you keep on about BT not having invested the capex that the contracts required. There is not the slightest evidence of this. What we are seeing is claw-back and past economies and, as I said above, any more money to come will be via the claw-back processes with (just possibly) a small amount of economies on the extension projects.

      nb. it is possible that BT might contribute a bit more to the USO should Ofcom and BT come to some form of agreement on the latter doing this on a voluntary basis. However, Ofcom’s approach to BT in this current round is notably confrontational, so that might not happen.

    13. Avatar NGA for all says:

      @Steve The evidence lies in £900m state aid versus 25k cabinets – £36k each where even BT say phase 1 is £26k, so it is legitimate to pose the question until we can see it reported. BT’s capital numbers to the CMS Select Committee do not match the cabinet numbers installed.
      It would be more honest if the capital deferral was not wholly described as gainshare, but reflect some of the capital owed.

      The capital number as a discrete is important as a any pretence of gaming higher costs for FTTC prevents further investment, including a proper incentive in the WLA 2017 regime for FTTP.

  2. Avatar Patrick Cosgrove says:

    Is there a local area breakdown?

    1. Mark Jackson Mark Jackson says:

      I’d expect that to follow early in the New Year.

  3. Avatar Martin says:

    From the outside looking in, currently 0.92mbps speed, I need more action. with the huge cash flow from standard line rental, must be millions an hour, BT are laughing at the public. just heard an openreach person on radio4 telling us these 93-95% coverage figures with no proof. they never get pushed to make real answers. it is so sad. this country could easily have constructed a fibre to the home network years ago. every house has power lines. a fibre could have been included as it picks no interference. fibre could go in the power ducts and poles. did you know the top wire on the huge pylons is a fibre data line? national grid could do fttp. wow that would good. competition for openreach.

    1. Avatar Gadget says:

      Openreach don’t see the line rental that you pay to your service provider only a small proportion.

      Thinkbroadband do an independent view of coverage which aligns with those claims.

      Yes the top line on the pylon is data, but whilst a national core network costs the volume cost of getting to 30m premises has to be taken into account and is where the bulk of any cost goes.

    2. Avatar Steve Jones says:

      @Martin

      “From the outside looking in, currently 0.92mbps speed, I need more action. with the huge cash flow from standard line rental, must be millions an hour”

      If you could bother to do the slightest research and calculations on your ridiculous assertion then you would not post such numbers. Total Openreach revenue from line rental it about £2.25bn a year (25m lines at £90 per year). There are 8,760 hours in an ordinary (non-leap year). That’s about £257k per hour total revenue. That’s before costs – wages, business rates, national insurance, transport costs, pension contributions and much else.

      EBITDA for OR in total indicates a bit over half of that will be cash flow before any interest charges. So, let’s say £130k per hour before any interest charges on debt (difficult to allocate interest charges as they are carried at group level). Then there are contributions to the pension deficit (again difficult to break out as carried at group level). A reasonable apportionment might get us to £100k per hour. However, in 2015/16 OR had capex of £1,447m, or about £167k per hour, which is a lot more. Dare I also mention that the owners of the business (like pension funds) expect some return from the assets they own?

      Of course, OR has other lines of revenue. It has private circuits, GEA-FTTC/FTTP and accommodation charges for LLU operators and so on. Total revenue in all was about £5.1bn/ However, as even that is £582k per hour for all lines of turnover, then that shows just how daft your claim is.

    3. Avatar GNewton says:

      @Steve Jones: So why then are you still a BT shareholder? It is only a question of time till Openreach will be separated from BT.

    4. Avatar Steve Jones says:

      @Martin

      I’m still a shareholder because

      a) It’s a relatively modest amount, but produces an acceptable yield

      b) It’s a point of principle. These are assets bought by the original shareholders and are private property. There is a duty for the state to respect private property in international and human rights law.

      c) If there was a forced split, then I’d expect Ofcom to still allow a regulated rate of return as they do now, as that is the legal basis on which they have to operate if they are to regulate the company in such an intrusive manner. I would expect to see shareholders hold them to that in the courts if necessary. The same with pension fund trustees.

    5. Avatar GNewton says:

      @Steve Jones: With all due respect, but I think there are much better choices for investments than BT. Also, you are mistaken if you believe that BT is a normal private company. It is not, it is a heavily regulated company. And it is only a question a question of time till Ofcom or the government will have to sort out the BT mess, which of course the government created in the first place. Ofcom will soon something something do about Openreach, whether you like it or not.

  4. Avatar Martin Lane says:

    Yes, I wonder what availability means? In theory FTTC is available on my line but when I apply for it I’m told “Your cabinet is enabled for Superfast fibre however you’re not able to order fibre just yet.

    This might be because the length of the line is too long to get Superfast speeds. We’re actively looking at other options.” It’s been saying this for about a year now. Are they claiming that I’m part of the 93%?

    1. Avatar Doctor Colossus says:

      Same situation here. Cabinet enabled (and oversubscribed), line too long. I wonder if I am counted as part of the premises passed…

    2. Avatar New_Londoner says:

      @Martin, Colossus
      You won’t be included in the stats for Superfast coverage, which reflect the number of premises able to access download speeds of 24/30Mbps. If there enough premises in a similar position locally, you might benefit from additional work in the BDUK programme to insert a new cabinet closer to your home to give you access to much faster speeds.

  5. Avatar Paul Glover says:

    I’m stuck on ADSL over copper and over the last two years had 4 faults on the line, none of it related to the broadband. All been copper issues.

    When OR visited last time the engineer was pretty honest and said they had been trying to get the council to allow them to close the road to replace it all. Thing is if they did why not just run fibre, challenge is it’s a single track road. Country lanes which throw up their own challenges.

    Looked at the OR website yesterday and we have gone back from design to being included in the roll out, when I emailed my council 12 months ago they said it would cost too much money to run the power to the cabinet.

    I wouldn’t mind trying to do a scheme but just not sure there is enough houses to warrant something like that. I’m just sick of crap internet and with everything such as TV becoming more online focused it’s getting under my skin more and more.

    Why don’t they skip FTCC and just go straight for FTTP, yeah the cost will be bigger but surely it would future proof us more? Bit like the council filling in potholes every year, keep doing that and your costs actually end up higher.

    Anyway, I’m going on now….

    1. Avatar Doctor Colossus says:

      +1

    2. Avatar Steve Jones says:

      OK whose the “they” and who is going to pay? By your own admission, it’s never going to pay back so it will require a substantial subsidy.

    3. Avatar fastman says:

      suggest you have a word with your community and see if you community can fund the power cost — that might help the cab get deployed — there are a number that have done that — email ngb@openreach.co.uk with your cab details

  6. Avatar LYNDON says:

    Could I have an update to the meaning of superfast broadband?

    1. Avatar Steve Jones says:

      The original BDUK contractual definition is download speeds of 24mbps or higher and the (later) EU definition is a download speed of 30mbps or higher. Take your pick.

  7. Avatar Dave says:

    Welll all I can take from this is in another years time 1 in 20 still won’t have super fast broadband and by 2020 1 in 40 will still be left with nothing, Except a flakey USO or satellite.

  8. Avatar Mark Rogers says:

    I would assume that I am counted as receiving superfast broadband in all the stats as I have an FTTC connection, however even though I am charged for a 78mb\s connection I currently can only achieve a sub 5mb\s connection.
    Is there a database of ACTUAL connection speeds anywhere?
    If such a thing exists I suspect the 90+% claims would be shown to be way off the mark.

    1. Avatar Steve Jones says:

      You should certainly report that to your ISP. I assume you are not mixing up bytes with bits. 5 mbytes per second is 40 mbps. If you are getting a sync speed of less than 5mbps, then at the very least you should be moved to a lower speed/price product.

      Your line stats (of the modem) would be useful, and if your internal phone wiring isn’t optimal it can have serious affects on sync speed (and Wifi) .

      The TBB forums are good for this sort of analysis. There are many reasons why speed may not be what it should be.

    2. Avatar MikeW says:

      TBB also independently work out the coverage percentage, based on what they see as a combination of distances and speedtests being run. They also calculate superfast coverage to be just over 90%.

      Ofcom produced this graph a couple of years ago…
      https://postimg.org/image/bly6o16cl/

      That shows around 10% of FTTC lines get less than 25-30Mbps. If you are getting less than 5Mbps, you are in the bottom couple of percent.

  9. Avatar Martin says:

    hi Steve, many thanks for putting me right. I am happy to except my exaggerated writings were a bit over the actual figure.
    I am grateful for a rundown of the real figures. very interesting thank you.

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