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By: MarkJ - 16 November, 2011 (12:01 PM)
fibre_optic_cable.pnggeo_networks_uk_logo.gifGeo Networks (Geo), a dedicated fibre optic solutions provider and the primary operator behind the FibreSpeed Next Generation Access (NGA) project in North Wales, has made the "reluctant decision" to pullout of the governments Broadband Delivery UK (BDUK) process over economic and competitive concerns.

The government's BDUK office, which has an initial budget of £530m (could rise to £830m by 2017), is tasked with ensuring that 90% of "people in each local authority area" can access a superfast broadband (24Mbps+) ISP service by 2015 (the remaining 10% will only get a minimum speed of 2Mbps).

Geo’s CEO, Chris Smedley, explains:

"The primary reasons for our withdrawal are threefold. Firstly, we feel that the current gap-funded subsidy model being adopted by BDUK and local authorities automatically favours the incumbent, which has the security and knowledge of revenue streams on its current network as the dominant and often only telecoms network owner in these regions.

Secondly, the absence of any opportunity provided in the current procurements either to underwrite any take-up risk or to guarantee public sector revenues – for example under a Public Private Partnership model – removes the ability for us to share this with the public sector.

And finally, the uncertainty around the terms and pricing for PIA, and the heavy restrictions as to what we can use it for means that, in our view, this market is not contestable."

The move comes after BTOpenreach confirmed the commercial launch of its often controversial Physical Infrastructure Access (PIA) product, which allows rival operators to deploy ultrafast fibre optic broadband services through BT's cable ducts and telegraph poles (here). BT claimed this morning to have gained the "confidence to proceed with the commercial launch" of PIA, although Geo isn't happy.

Chris Smedley continued:

"Whilst pricing may have reduced for the current PIA product (still not far enough in our view), the real issue is that it can only be used for providing the final drop from local exchange to a residential broadband consumer’s house. PIA cannot be used for the far more costly task of crossing the long distances in rural areas to get to these remote communities (backhaul) – making the idea of being able to build new fibre connections within them faintly ludicrous.

It cannot be used to connect mobile or wireless infrastructure (a critical way of quickly rolling out competitive services in hard to reach geographies) and it cannot be used to provide leased lines to businesses. Quite simply, our business case does not stack up because of these restrictions.

BT does not suffer from any of these restrictions when it has to assess the business case for deploying new optical fibre cable over its existing infrastructure. Only BT can deploy fibre for backhauling traffic long distances from local exchanges for itself and the wholesale ISP market. Only BT can build a business case including the revenues from the fast growing mobile and wireless data market. Only BT can deploy services for businesses over this fibre.

For what has to be a 10 to 15 year business case, these inadequacies of the current PIA product are fatal to infrastructure competition. To make it worse, despite the strong likelihood it will receive significant public subsidy from the BDUK procurements, BT still refuses to offer a truly open dark fibre product which would allow the rest of the market to use the networks that will have been funded with public money."

Geo believes that the government's goal is now "at risk of complete failure" and they certainly wouldn't be the only operator to raise such concerns, with a number of smaller infrastructure providers mentioning similar fears to us.

A BT Spokesperson said:

"Geo's departure is disappointing but hardly a surprise given fibre deployment requires a high degree of commitment and expertise. It is ironic that Geo are trying to blame BT, Ofcom and BDUK for their withdrawal at the same time that the major players are making such good progress."

Last year a leaked internal note from the UK government's Department for Culture, Media and Sport (DCMS) rubbished FibreSpeed's prospects for BDUK money by pointing to a "lack of competitive tension (as Geo is already the FibreSpeed supplier), the difficulty of applying lessons learned elsewhere (FibreSpeed probably isn’t replicable) and the lack of diversity of lessons learned meant that the other proposals were more attractive as pilots" (here).

UPDATE 17th November 2011

We ran out of time yesterday and so couldn't post BT's official reaction to the news, which has now been added above.
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