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Audit Wales - The £40,000 subsidy appears!
5:08pm - 28/05/2015

Last week Oxera reported on UK state aid measure for Broadband.  The school report read  ‘effective …in very trying circumstances’.  The school report was paid for by BDUK the party being judged.  The key new piece of information was that BT contributions would be subject to a three year wait and a negotiated reconciliation process.

The Welsh Audit report is also at least 5 months late and started in April 2014.

The chief criticism I would have is that the report does not develop the work already available to it from the NAO activity in England and Scotland but starts afresh.   There may be good reason but useful new information emerges.

This report says ‘reasonable’ progress is being made.  I do not know whether this is the equivalent of identifying an ability to ride a bicycle as a leadership skill but delivering improvements to 345,000 premises is real progress.  Audit Wales could have added that this includes  about 1,700 cabinets and in paying £81,000,000 so far the subsidies based on  per premise passed are in  excess of £42,000 per cabinet.  This number crosses many thresholds and breaks many promises.  BT at PAC (1) would not acknowledge any number above £28k,  even though the £1.2bn contracted for phase 1 of 28,000 cabinets  points to this number – fag packet serendipity.  In 2012 if you dared make the calculation, and someone leaked your work  you would be called outrageous and ridiculous and sacked,  yet here it is – published if you know where to look.   Here we see the benefits of switching to BDUK’s milestones to cash process,  you escape this nonsense of costs divorced from the underlying cost of delivery.   The  NAO and BDUK deserve some credit,  perhaps lots of credit, for getting blood(actual costs)  from BT’s stone.  However the old process could exist for the first 8 contracts not in the milestones to cash process and this accounts for I think 1.5m premises of the 5.4m contracted.  But  there will a reconciliation process so it might be ok,  but not if your in the final 10-15%.  You will need to wait while the nature of BT capital is dicovered over and BT has exhausted its ability to generate an invoice.

This report  saves Oxera having to re-write their report of last week which said BT’s bid price was £10,000 less per cabinet (c£32k) and the actual cost before BT contribution was running at less than £25,000 for each of the first 12,500 cabinets before BT’s contribution.  The Welsh are paying circa £42,000 per cabinet using the same state aid measure.  So much for insuring BT is not payed more than 100%.  This is the reverse of gap funding,  the more populated  the area the more subsidy you get paid,  reducing the probability of the money reaching those most in need.  But there is a reconciliation process and BT have promised £26m or £35 per premise passed. 

Once you accept Welsh audit have confirmed  the Welsh Government are paying more than 100% of cost and this is somehow ‘reasonable’ and is the opposite to how ‘gap funding’ was intended to work,  the information on BT’s capital is useful.  £26m  or £35 per premise passed is an intriguing number. 

BT claim to have spent £2.5bn to provide coverage 19m premises.  This is £130 per premise.  I think the £35 per premise is a more honest number.  My own humble calculations show BT could not have spent more than £50 per premise on the commercial rollout suggesting BT cost per cabinet would be £20k per cabinet and fibre path.  The £35 per premise across an average of 400 premises takes this total to £14,000 which is entirely possible,  but it suggests  BT commercial investment drops below £1bn to £700m,  which is getting a bit skinny,  but it is still a useful reference point as this deal featured the then CEO of Openreach who claimed on the BBC in 2013 that each cabinet cost £100k each,  so the £40k subsidy although double the current cost is a comparative bargain in what would have been trying circumstances.

Finally,  Audit Wales highlight the contractual requirement for 40% FTTP.  Certainly the budgets permit such an ambition but Audit Wales confirms the contractual requirement but lacks the any means to enforce it and suggests BT has no means or intent to deliver it.  So much for best in Euope.

I do not have access to the coded language of Audit Wales!  If you see the word ‘reasonable’ what is the code?   Do you get another email telling you to add ‘T’,  or,  are you asked to find a scrabble word of 5 letters beginning with L and ending in R!   I would probably need to read the Welsh language version to determine the code.  The latter would be more fun than having to write the report let alone act upon it.

My apologies to Audit Wales but many  thanks for confirming the per premise passed fee,  the existence of which is something BT has denied repeatedly and contradicts evidence relied upon and documented in Hansard.

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