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BT See £712m for BDUK as Ultrafast Broadband Hits 2Million Premises

Thursday, November 1st, 2018 (8:09 am) - Score 9,391
BT HQ UK Building Logo

BT Group has released their latest results to the end of September 2018 (Q2 – 18/19 financial), which reveals that the coverage of Openreach’s “ultrafast broadband” (100Mbps+) G.fast network has reached 1290000 UK premises and FTTP covers 682,000 (13,000+ to “full fibre” per week). Plus there’s £712m to boost “fibre” cover.

As usual there have been a number of developments over the past few months, including Openreach’s decision to scale back their roll-out of hybrid fibre G.fast technology from 10 million to 5.7 million UK premises by the end of 2020 (here) and new areas were added to their Fibre-to-the-Premises (FTTP) rollout (here). Separately BT plans to hire another 1,000 customer service staff to improve support (here) and have a new CEO (here).

Meanwhile Openreach has further reduced the price of deploying FTTP for smaller new build home developments (here) and EE recently switched on their first live UK trial of 5G based wireless technology in London (here). EE are also said to be talking about the launch of a new Pay TV product based around the Apple TV 4K set-top-box (here).

The operator has however experienced a little turbulence in Scotland, where they’ve allegedly faced claims of anti-competitive behaviour by one of their rivals (Axione) in the country’s future R100 broadband contract (here). Despite all that the last quarter hasn’t been terribly eventful, at least in comparison to the turbulent period that came before.

Financial Highlights – BT’s Quarterly Change
* BT Group revenue = £5,908m (up from £5,716m)
* BT Group reported profits before tax = £841m (up from £816m)
* BT Group total net debt = -£11,895m (up from -£11,227m)

It’s worth remembering that since the last quarter BT has stopped providing customer figures for their consumer broadband ISP and mobile network, which followed a number of quarterly declines. As such our summary now focuses more on Openreach’s network than the subscriber data of their retail ISP. However it’s noted that 68.4% of BT’s retail broadband ISP base now takes a “superfast broadband” connection (up from 65.6% last quarter), which includes FTTC, FTTP and G.fast combined.

Interestingly though there’s a very important update on their capital expenditure and clawback / gainshare from the government’s Broadband Delivery UK roll-out programme with BT. More take-up in BDUK’s intervention areas means more public investment that can be returned and reinvested by local authorities further down the road to improve “superfast broadband” coverage toward 98% of the UK by 2020 (example).

The good news is that BT have revised their take-up assumptions in BDUK areas from 41% to 61%! In short, this means that up to around £712 million could in theory become available to be returned and reinvested into boosting coverage. This reflects a “life-time view” of the related contracts. We can still recall a time when some very pessimistic early estimates were expecting significantly lower take-up.

BT’s Capex for BDUK

Under the terms of the BDUK programme, we have an obligation to repay or re-invest grant funding depending on factors including the level of customer take-up achieved. Following sign up of the majority of its major and a number of its smaller communications providers to Openreach’s pricing discounts for volume commitments in the quarter, we have reassessed our base-case assumption for take-up in BDUK areas.

Based on the greater certainty provided by the volume commitments we have increased the take-up assumption from 41% to 61% of total premises passed, reflecting a life-time view of the BDUK programme. The gainshare provision increased by £176m in the half year to £712m, primarily driven by the take-up assumption change.

Openreach’s Network Coverage

One good thing about BT’s new reporting format is that they now offer a very useful breakdown of fixed line network coverage and take-up by technology. Being Openreach the totals given below apply to all ISPs on their national UK network combined (e.g. BT, Sky Broadband, TalkTalk, Vodafone etc.).

openreach q2 2018 network coverage and takeup

Take-up of their “full fibre” FTTP network seems to be going well, although it’s interesting to note that G.fast is lagging far behind on just 7,000 connections out of 1.3 million premises passed. In fairness Openreach’s FTTP network and ISPs have been established for significantly longer than G.fast. The latter has only seen ISPs begin to launch related packages since the late spring (2018), which follows a long pilot.

We’d expect to see a bigger movement toward G.fast as the coverage improves and major ISPs like Sky Broadband begin to offer related packages. But until then we remain impressed with how well FTTP is doing on the demand side, even if it has been established for longer and is arguably now more familiar to consumers than G.fast.

Gavin Patterson, Outgoing CEO of BT Group, said:

“We continued to generate positive momentum in the second quarter resulting in encouraging results for the half year. We are successfully delivering against the core pillars of our strategy with improved customer experience metrics, accelerating ultrafast deployment and positive progress towards transforming our operating model.

In Consumer, we continue to see strong sales of our converged product, BT Plus, and have seen good mobile sales following new handset launches. Last month EE demonstrated 5G capability from a live site in Canary Wharf. We have maintained momentum in our enterprise businesses despite legacy product declines.

On 1 October we completed the transfer of 31,000 employees into Openreach, a key part of fulfilling our DCR commitments. Openreach has signed up the majority of its major and a number of its smaller communications providers to its new volume related discounts which should increase average broadband speeds across the UK. We are making positive progress on the key enablers to ensure that we can secure a fair return on our FTTP investment, and are ready to expand the FTTP programme up to and beyond 10 million premises if the conditions are right.

Our strategy is delivering, with benefits evident from the steps we’ve been taking to simplify and strengthen the business and improve efficiency. Despite increasingly competitive fixed, mobile and networking markets and continued declines in legacy products there is no change in our overall outlook for the full year. Based on current trading, we expect EBITDA to be in the upper half of our £7.3 – £7.4 billion range.”

Sadly BT’s report didn’t include any updated figures for EE’s 4G network coverage, which perhaps stems from last quarter’s mistake of publishing a population coverage figure instead of a geographic one (i.e. EE weren’t happy about this as it went against their “Clear on coverage” pledge). Meanwhile Openreach said their FTTC, FTTP and G.fast based “fibre” networks now cover a total of 27,220,000 UK premises.

The network access operator also claims to have “delivered a record service performance” for voice and broadband products in Q2. “We were able to offer a provision first appointment date within 12 days to over 99% of customers, a significant improvement from 85% in Q2 2017/18, whilst missed appointments, where Openreach was at fault, was at an all-time low of 1.7% over the quarter. We remain ahead on all 42 copper and fibre Minimum Service Level (MSL) measures set by Ofcom.”

Openreach has had a good quarter for Ethernet delivery too, not least by reducing the average time to provide service from 43 working days to 34 in the same period.

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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

    Good to see the CD at #712m. Let’s hope it can be used to complete rural. There are 14 English counties that need another round.

    • Avatar CarlT

      It won’t come close to completing rural. We’ve seen costs upwards of 2k per premises already and there’s more difficult stuff to come. Could make a good dent in urban EO, though.

  2. Avatar Joe

    Mark: What the numbers don’t say is of course what % of that gainshare is effectively allocated already.

    • I think I saw an answer to that a few months ago, but can’t recall the exact figure (need to do some digging). But there are caveats attached to using the clawback early, thus some projects (e.g. those wishing to re-use it with a different supplier than BT) may choose to wait longer before committing it to a new deal.

      I’ve seen a couple of other schemes get around this by simply taking out a loan of the same value as the predicted project clawback for their area (i.e. they’ll use the clawback to pay off the loan at the later date, when the original contracts have completed).

      NOTE: This is only BT’s clawback, not any that might be due from other BDUK linked suppliers.

    • Avatar NGA for all

      £130m was assigned for early release before the state aid changed preventing this flexibility . It is not clear how much of this got contracted, but some did not.
      BT have not reported gross state aid receipts this quarter which should be reported, and unlike q4 17/18 they have not reported returns to LA’s.
      q1 18/19 referenced take up assumption of 43%, so this extra £176m and a 61% up take shows this incrmental CD at £8m per 1% extra take up. It had been averaging at c£26m per extra 1% for 20-40% range. 40% or first 20% extra yielded £527m, this extra 21% yields £8.8m per extra 1%. This is missing re-payments to LA’s. But the total sum needs to compared to the state aid receipts of £1.2bn, so as long as LA finish the job, then this starts looking very good for rural. Gets more interesting when BT’s capital contribution is reported upon.
      Biggest problem is this resource bumping into the proposed B-USO. The B_USO could be used by English counties to stop work. I think at least 14 English counties need to request delays in the B-USO while these funds are turned around and converted into coverage.

  3. Avatar Jim

    I was hoping their might be more news on the next G.Fast locations, especially given a bunch of pods have started appearing near me….

    • Avatar A_Builder

      @Jim

      Before getting toooooo excited about Gfast find out the line length to the PCP.

      If it is longer than 150m don’t expect to get 300 IRL.

      You should be able to get an approximation of the line length out of your router if it is say a Draytek (just and example a lot of others will given an approximation)

      I assume you know the PCP you are connected to? TBH the only way you are going to know if you are going to get Gfast is to see if your PCP get a POD screwed onto the side of it.

      I have Gfast at two locations. At one location it works pretty well (short good copper 300/49 for FTP) and the other it is a dog. That is the way of things.

    • Openreach will do another roll-out announcement before the end of 2018, I’m certain of that. Likely sooner rather than later.

    • Avatar Joe

      Tbh being too far from the PCP might be a good thing. OR seem to be using Gfast as a cheap boost for properties nears cabs and fttp for those @ middle distances.

    • Avatar Jamie Simms

      Me too Jim lots of cabinets near me have have had new PCP cabinets installed with the G Fast Pod on the side and engineers have connected the cables up but still nothing in the system to order.

      Does anybody know how long before they start going Live

  4. Avatar A_Builder

    Hmmme

    “Plus there’s £712m to boost fibre cover.”

    Covers a number of sins.

    Is this £712M on FTTP – if so a welcome further dollop of real investment – maybe to be split between rural and EO’s?

    However, if this is wasted on the kaleidoscope of FTTC Gfast then not good use of precious resource.

  5. Avatar Ian Grant

    In 2011 Openreach’s then-GM Kevin McNulty revealed that BT broke even on its Infinity (FTTC) investment in 12 to 14 years with a 20% take-up. (https://br0kent3l3ph0n3.wordpress.com/2011/06/24/why-hunt-needs-to-break-the-broadband-logjam/) If it is now talking of trebling its FTTx take-up estimate, it is probably making money like a bandit. No wonder CityFibre/Vodafone want in on the market.

    • Avatar Joe (the original not the who uses a small j!!)

      Careful. Different deployment stages will have different costs/connection and cross subsidies between them

    • Avatar A_Builder

      I’d be pretty amazed if it took that long to actually break even on FTTC.

      Given that a lot of the DSLAM’s have had to be extended: this is proof definitive of 100% take up rate on the original rollout numbers.

      Also the gain share triggers on BDUCK also prove higher take up’s than that on those cabs too.

      I am relaxed, as shareholder, about BT/OR making plenty of money at current prices provided it is invested in FTTP.

    • Avatar Joe

      “BT/OR making plenty of money ”

      Don’t say that or ofcom will dream up some new price caps!

    • Avatar A_Builder

      @Joe

      Given the very high levels of investment going into FTTP – which is what everyone wants – then I think it unlikely that OFOCM are going to mess with pricing.

      If on the other hand the profits are just trousered to be wasted on more loss making BT ventures then OFOCM is more of less bound to act – which was what was going on before.

      So as long as the profits are invested in the network and there are no price increases then carry on.

      The downwards pressure on price are the likes of CF and Hyper who are much cheaper than OR and so the market is functioning to control prices. So again I suspect OFOCM will be very happy to sit back and let the dust settle.

      Stuff (FTTP) that everyone has achingly wanted to happen for 20 years is now happening at pace. Nobody wants the forehead stamp “I messed this up for everyone”……

    • Avatar Joe

      Certainly ofcom have in the short term agreed to light touch to encourage fttp but not beyond that and ofcom have an instinctive desire to price control. Now that may be justifiable where there market remedy can’t function but once we have widespread FTTP the market ought to be able to do most of the work itself. BTs profit margin shouldn’t be an issue either way as long as rivals have reasonable access to the products or ability to install their own equipment. Ofcom’s job is prevent market distortions not create them.

  6. Avatar Joy Lynch

    I would be happy with a speed that I could download a film on, where are these homes with fantastic speeds? I hope their shareholders get them..

    • Avatar Joe

      Most homes now have high speed (or could get it) I fyou don’t you are now in a very small minority – not much comfort but thats the situation

    • Avatar Fastman

      joy so where are . have you checked to see whether it is actually available at your premises and your service provider does not offer fibre or has not made you aware that fibre is available , what your location

  7. Avatar EndlessWaves

    Not that small Joe, there are still more people with sub-10Mbps connections than make up the entire population of Northern Ireland.

    • Avatar Joe

      We’re at >95.4% >30Mbps. The remainder is small by any reasonable definition.

    • Avatar EndlessWaves

      4.6% of 30 million premises is 1.38 million premises. At an average of 2.3 people per household that’s 3.2 million people.

      The population of Northern Ireland that’s causing such a big issue in the Brexit talks right now is 1.9 million. The number of EU nationals living in the UK that seem to have been an issue in some peoples decision to vote leave is barely larger at 3.8 million.

      Or put it this way. Fast food places, takeaways, restaurants, cafes, coffee shops and other food serving outlets are a visible and common type of property. In total there are around 100,000 in the UK. Every time you see one imagine that every other property in sight has a sub-10Mbps connection. That’s an underestimate of the scale of the problem.

      So the only way it is small is in percentage terms, the scale of the problem is still large and up there with most of the other national concerns. This isn’t just a few Welsh valleys, Scottish islands and other extremely remote places.

    • Avatar Joe

      In % or properties its a small beer compared to the UK as a whole. And one that is fixing itself rather quickly if you look at the %s over the last few years. We’ll reach 98% without too much bother the tricky bit is the last 1%

  8. Avatar Techman

    So areas they deemed as not commercially viable are estimated to have a take up rate of 61%? The irony

    • Avatar Gadget

      Commercially viable means income does not match costs, so a large area by geography with very few customers but costing a substantial amount of money to enable could be unviable even with 100% take-up.

  9. Avatar Ralph Brunjes

    Do you know when and IF we will be getting fibre where I live ?
    We are 7 miles from our nearest town of Wick and our nearest exchange is Lyth about 5 miles from us . We are about in the middle a little place called Kirk, all in the north of Scotland.
    I don’t think we will ever get it even though all the farmers have to use the internet now to run their FARMS.

  10. Avatar Marty

    I hope this will encourage Openreach to extend FTTP beyond the named areas for their FTTP rollout. It’s better to wait in the end for better connectivity (FTTP) than have G.fast straight away.

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