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Ofcom and failing to establish a verifiable public record of UK NGA Investment.
10:57am - 02/04/2015

In February 2013, I made an initial response to Ofcom’s initial call for inputs on Financial Regulatory Reporting.  My objective then was to see whether the Financial Regulatory reporting regime could be used to establish a public record of BT’s commercial investment in NGA and the how the government monies of £1.7bn was to be recorded in BT’s accounts.  My goals were to increase transparency for what £1.7bn of public monies purchased and in so doing publicise just how cheap fibre access upgrades are compared to the original estimates used in 2008.

I made 4 recommendations during the consultation process on the basis that it would be of interest to the public and policy makers.  More transparency is likely to lead a deeper fibre access roll-out and better decision making on the pace of a full transition to fibre access, should that become a priority.

Recommendation 4  The following draft table could be completed and audited and published.  It is a suggestion and the format can be modified to meet the needs of all stakeholders.  (I can send those interested the submission which provides a public reference for each of the numbers.)

Year

BT NGA (capital)

Estimate* within BT  capital budget

Public funding of NGA

estimate

Accumulated premises served from a Cabinet

2009/10

£300m

 

 

2010/11

£300m

 

      4m

2011/12

£350m

 

    10m

2012/13

£350m

£100m

    15m

2013/14

£350m

£200m

    19m

2014/15

£80m*

£400m

    23m

2015/16

£80m*

£400m

 

2016/17

£80m*

£400m

 

2017/18

£80m*

£200m

 

Totals

£1.9bn**

£1.7bn

 

 

**It would appear the £1.9bn will now be lower, see the table below.

The numbers are indicative only and were outlined before the NAO report in January 2015,  which confirmed BT had excess modelled cost of 38% in its cost models (seek out clause 3.7) for the 2012 BDUK Framework.  No corrective action to extend targets has occurred since then so Ofcom’s conclusions could have significant bearing on-going efforts by PAC, NAO, EU and indeed BDUK to seek value for money on our behalf.  The alternative to this is some awkward change in BT’s Undertakings to demand greater transparency in the presence of £1.7bn of state aid, which would need to be triggered by an early day motion or 10 minute bill passed in Parliament.  The latter is problematic given MPs are competing to secure the existing rollout plans for their constituencies,  where BT existing resource amounts to delivering c200 street cabinets a week.

On March 30th I got my answer in Chapter 5 of http://stakeholders.ofcom.org.uk/consultations/financial-reporting/statement/.

The good news is that there will be a report and I am grateful to Ofcom for including it. 

5.32 We have also decided to adopt the proposal that we set out in the Directions Consultation. BT must provide three schedules in private which in summary will provide:
• information on the volumes, revenues, costs, MCE and returns of both FTTC and FTTP services;
• detailed FAC cost component information of both FTTC and FTTP services;
• Information on how BT has treated government grants and the impact of this treatment on VULA costs.
5.33 We will be confirming the exact details of these schedules with BT in due course.

However it is private.  I requested a public record of the various contributions to be created,  given BT uses the £2.5bn number in all its public relations,  without ever having to grace us with some proof of those expenditures levels. My request was answered in the following way;

5.26 We also note that stakeholders other than BT consider that it is important to understand the extent to which government grants have contributed to the roll-out of NGA. Nevertheless, a consultation implementing those regulatory reporting requirements arising from the Fixed Access market review is not the appropriate mechanism to consider if, and how greater transparency about government grants can be achieved.

I have thanked Ofcom for the progress made and asked what would be the appropriate mechanism to consider the need for greater transparency if not the published regulated accounts.  I also thought this consultation did not arise from the fixed line access review, but stood as a standalone piece of work.  But , given the substance of the 179 page report, you must respect the effort needed to get all the other changes into a legal framework.

However,  in the absence of a yet to be established formal public record,  the latest NAO numbers (Jan 15) when combined with a physical count of Openreach components also in the public domain provides the following picture.  It’s an estimate and will get a little ropey for the final 5-10% but it is not so wrong that it should be ignored.

The Bit Commons estimate for FTTC rollout costs (Capital) – excludes FTTP.

Openreach

Numbers

NAO average total cost based on BT bills to BDUK (Jan 2015)

Total Homes Passed (est)

Total Capital required

Headline numbers in press.

Exchanges

5,581

 

 

 

 

PCP (cabinets)

85,450

 

 

 

 

EOL re-arranges estimate

3,000

 

 

 

 

Total VDSL cabs

88,450

 

 

 

 

BT Commercial (19m premises)

52,000 VDSL cabs+fibre

£23,000

20m

£1.2bn

£2.5bn*

BDUK subsidies (100% coverage)

36,450 VDSL cabs + fibre

£23,000

6m

£840m***

£2.7bn **

 

*The £2.5bn continues to be used by BT, although guidance to its analysts states £1.3-£1.6bn.  Here I am suggesting the amount is no more than £1.2bn using the NAO evidence.  A significant portion of the difference occurred when BT dropped their plans for c20% FTTP.  Part of the challenge is that the £2.5bn has been used very widely and so correcting it is difficult.

**The £2.7bn is the £1.7bn BDUK/LA budgets and the £1bn matched funding promised by BT.  This is likely to include an unknown quantity of BT’s operational costs.

*** The £840m is an estimated cost for reference use only and excludes any BT subsidy. The £23,000 unit cost for VDSL cabinet, fibre access, fibre spine, core costs and project management was derived from the NAO report January 2015.

It will be argued that the NAO has early cheaper cabinet costs due to geography.  It can be equally argued as Scottish Audit have done that early costs include fibre spine costs,  planning costs, and costs of handover points, and thus average costs are likely to come down.

The implications are many.  Two of the most obvious questions are;  1) Why would any rural hamlet be excluded given the budgets and the costs and 2) Why would we not plan significant amounts of FTTP given the EU500 cost identified in Cornwall by Analysys Mason?

Finally,  if not BT’s Financial regulated accounts, then where and how can an accurate public record be established of the actual investments, public and private for this critical piece of UK infrastructure? These ‘fag’ packet numbers are the best available,   we deserve better.

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