Audit Report Exposes Troubled Aylesbury Vale Broadband Rollout

As promised the Aylesbury Vale District Council in Buckinghamshire, specifically their Audit Committee, has published the draft outcome of their inquiry into the controversial Aylesbury Vale Broadband (AVB) network that was sold to UK ISP Gigaclear after running into challenges with their rural FTTH rollout.

Last year, prior to the Gigaclear sale, we wrote a long article about some of the problems that AVB had experienced (here), such as concerns around the potential overbuild of rival networks (e.g. Gigaclear and wireless ISPs like Village Networks), service performance, deployment delays, long-term financial viability, the departure of a key Managing Director (Andrew Mills) and the status of subscriber deposits.

Some of those issues were eventually resolved but at the time it was also clear that AVB had already been “exploring expressions of interest” in the company from other providers. In December 2017 a deal was finally reached that resulted in the sale of AVB’s network assets to Gigaclear (here), which in turn pledged to support and continue the local rollout.

Despite all this the council’s leadership continued to hail AVB as a “success” that it claimed “achieved in delivering high-speed broadband to rural villages in the Vale that otherwise had no realistic likelihood of being connected by other providers,” said Councillor Janet Blake. Needless to say that key opposition councillors disagreed.

The council’s Lib Dem Leader, Anders Christensen, claimed that AVB had “run out of money … only connected around a third of the people who gave deposits to get the service [and] didn’t hit any of the targets in the pilot phase that warranted the extra £1.3m being invested in it.”

In response a limited review was setup (here), which was undertaken by the Council’s externalised internal audit team (BDO), albeit hobbled by the fact that “information considered confidential and commercially sensitive to AVB (either by its Directors or its Board)” would not be disclosed. Today we’ve got the outcome.

The Review’s Findings

The review confirms that AVDC, which acted as a 95% shareholder (most of AVBs directors worked for the council), ultimately invested a total of £1.44 million (publicly funded commercial loan) into AVB. As a result the Fibre-to-the-Premises (FTTP/H) network connected 234 homes and passed (i.e. the network passed their home but did not connect to the property) circa 2,000 households across 8 villages.

In fairness, those figures aren’t unusual for such a young deployment and you’d generally expect take-up to grow naturally over time. Many of the entirely separate state aid supported Broadband Delivery UK deployments also required a couple of years before they saw take-up creep above the 20%+ mark and they’ve since continued to increase (today related projects are around 40-50% and a few have gone beyond). The report recognises this.

Despite that, in cash terms, the Council was found to have made a net loss of £185,495 on its investment in AVB. Crucially it’s noted this does not consider the future liabilities set out in warranties attached to the sale, the extensive time that council officers spent working on AVB and the sale or the hypothetical impact of what might have happened had the money been invested elsewhere (e.g. into a BDUK scheme with match funding and possible future reinvestment via clawback).

In terms of those future liabilities, Gigaclear undertook due diligence of the historic AVB network as part of the sale process and they’ve recently commissioned a third party audit of the whole network based on some “problems encountered with connecting customers since taking operational control of the network.” Gigaclear still has one last payment of £250k to make at the end of 2018 and this could yet be impacted.

“Given the concerns about the quality of the network Gigaclear has purchased from AVB, the Council should note a contingent liability in its 2017/18 accounts, and then, through working with Gigaclear during its ongoing third party audit, move to quantify any financial impact of this risk in its accounts as soon as possible,” said the report. “In summary, the Council cannot make a final calculation of its return on investment from AVB until the timeframe when conditions of the sale apply have expired.”

The report then proceeds to highlight some of the other problems that AVB experienced, such as the fact that the earlier pilot was not evaluated as thoroughly as it could have been. “It would have been prudent for AVB (and in turn the Council) to wait until it had gathered more evidence about the take-up and costs of a FTTP network before it agreed to further funding,” said the report.

The council was also found to have made the questionable assumption that AVB would face “minimal competition” in the local market and thus the “unanticipated arrival of competition from Gigaclear [was] a major driver behind the sale.” As we’ve previously reported, the two operators did clash in some areas and the report states that this could have potentially been “foreseen” due to the ISP’s roll-out progress and past statements.

The review also found that “the external consultancy advice which had been used to justify the proposed [AVB] pilot did not support a wholly FTTP network, on the basis that it was ‘prohibitively expensive’.” Instead the external advice that the Council received recommended a combination of Fixed Wireless and Sub-Loop Unbundling (SLU) as the most appropriate model for AVB’s pilot.

“The research undertaken by the Council was arguably insufficient to justify the significant investment the Council made in AVB FTTP,” said the report. The full report, which is linked below, touches on many other areas that are worth summarising but we can only spend so much time on these sorts of things.

Hopefully lessons will be learnt and such mistakes will not be repeated in the future, although this is perhaps wishful thinking since many politicians have proven themselves to be quite adapt at ignoring lessons from history. A further update is expected after AVDC meets to discuss the audit report on 12th June.

The AVB Review (PDF)
http://democracy.aylesburyvaledc.gov.uk/../BDO_AVB%20Review_Draft%20Report_v0.1%20AC%2012%20June.pdf