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First post election Broadband debate - Westminster Hall, Wednesday 24th,
12:33pm - 26/06/2015
This was third debate on Rural Broadband in 2015.  It was perhaps a warm up session.  Here are some thoughts. 
http://www.publications.parliament.uk/pa/cm201516/cmhansrd/cm150624/halltext/150624h0001.htm#15062464000001

Money

Matt Warman (Boston and Skegness) reported the Lincolnshire project was £7m under expected spend,  while Neil Parish (Tiverton and Honiton) reported Devon and Somerset have yet to see the colour of BT’s money or matched funding.  If you put Mr Warman’s reported underspend and  Mr Parish’s lack of BT’s contribution together,  you begin to see why the National Audit Office in January 2015  found BT had inflated its cost BDUK models by some 38%,  despite assurances to the contrary given to the Public Accounts Committee in 2013.  BT’s decision to impose discrete commercial confidentiality agreements on each county is just one reason so much scrutiny is needed to ensure the £1.7bn of subsidy and BT’s promised matched funding reaches the UK rural economy.

State Aid compliance

It was good if not a little late for MPs to reference BT’s  anti-competitive behaviour in North Devon and Oxfordshire, where BT was referenced in refusing to accommodate community projects, a key part of the BDUK Framework while others were making clear BT is reducing its planned commercial footprint and waiting for subsidies. 

The All Party Parlaimentary Committee on Rural Broadband

The newly formed All Party Select Committee on Rural Broadband,  meeting on July 7th has an interesting role to co-ordinate how at least three Select Committees interested in Broadband work together to extract the information they need and keep the pressure on BT to support BDUK’s activities and achieve the best outcome for the UK’s rural economy.   Meg Hillier, (Rural South Hackney and Shoreditch) the new chair of the Public Accounts Committee was present yesterday,  as was Richard Bacon, the vice chair. Neil Parish is the new chair of EFRA Select Committee while Jesse Norman is chair of the Culture Media and Sport Select Committee.

Some Possible Actions

Mr Noman’s committee could ask Ofcom to confirm the basic inputs BT is relying upon to justify the Framework and the confidentiality agreements.  We are asked to believe BT has invested £2.5bn and now £3bn to install some 50,000 cabinets to pass 19m premises.   The National Audit Office findings show cabinet and fibre path costs at much less than £25,000 each for areas defined as unviable.  This suggests BT’s commercial investment is at best £1.5bn, not the £3bn BT number used on Wednesday by the Minister.

If the Culture Committee could force Ofcom to come off the fence and do its bit by switching from BT’s public relation numbers to verifiable actuals, it would force Ofcom to re-examine its market definitions for Broadband and switch to the availability of copper access lines and fibre access lines. 

Although BDUK have had a rough ride from BT, the combination of Select Committee and National Audit Office have succeeded in identifying the actual costs,  and these are much cheaper than BT wished to reveal.  If Ofcom’s very able research department followed through on the NAO work it would remove any remaining rationale for not pushing ahead in cities and towns with a more comprehensive fibre access plan.  All that would be asked of BT is to invest what it said it would invest and invest a tiny proportion of the greater than £2bn it recovers to maintain the PSTN network on an annual basis.  This would also assist the request by BT for a sunset date for the PSTN (Phone service) by ensuring the network is capable of supporting a world-class data transport service.

 Mr Norman’s  committee could also ask for the metrics and programme to ensure the 4G coverage obligation will be enforced and in place by 2017.  This effort if pursued by Mr Norman’s committee could be reciprocated and built upon by Meg Hillier’s and Richard Bacon’s Public Accounts Committee (PAC).

PAC could build on their work so far, three hearings and two NAO reports on costs by doing a final session or two if needed on BT’s capital contribution for the rural programme.  Where is it?  How much?  When is it available to invest?  How will this investment  fund work?  Why were the underspends not immediately invested to extend coverage?  How these monies work with the Superfast Extension Protect contracts?  What has been done to minimise overbuild of Virgin?  What proportion of FTTP is being delivered.  The baton can then be passed to the Mr Parish’s  EFRA Select Committee.

The EFRA Select Committee has the most difficult task.  How do you keep BT and Local Authorities interested in the final 5% when they have been paid out so much already and the final 5% is so resource intensive?  The workings of the investment fund is crucial to the final 5%.  These reported underspends are excess modelled costs not underspends.  The status of the premiums for the Universal Service Commitment needs to be tied down, before any additional funds are offered up.  If there are funds, should they go to BT or should communities who want more that satellite or fixed wireless or have the opportunity to provide their own ducts ready for connection?  This does demand the build and benefit scheme offered in BT’s bids emerge and it requires Fibre on Demand to be re-positioned to what it was when BT won the bids.

The Prize

 Make no mistake, those in BT Group who devised the submissions to the BDUK Framework in the months before the 2012 Olympics had only one thing in mind which was to generate free cash flow from the deal.  The £126m reported in state aid in BT accounts in 2012/13 and more than £390m state aid receipts in 2014/15 will go down in BT public contract folklore.  To April 2015 BT delivered 12,500 cabinets (passing 2.5m premises) which would cost no more than £270m in total.  This, in a contract where gap funding is a condition of the state aid measure and where BT would have been expected to contribute some £126m capital for the first 2.5m premises passed.  No such contribution is referenced in their accounts for 2014/15 and neither is any future liability noted.  Perhaps these contributions have been paid but they need confirming.

Communities, excluded from the network upgrades may not have the confidence that Parliament can create conditions where BT’s promised capital is secured.   However, the evidence relied upon by BT at the Public Account Committee hearings in 2013 and 2014 is in marked contrast to the findings of the National Audit Office.  While class actions by communities do not seem possible in English Law, the NFU (National Farmers Union) and the CLA (Country Landowners Association) could for instance attempt to get the available evidence tested for a case of Conspiracy to Defraud.   False representation, failure to disclose information and abuse of position are all now matters of public record.  Whether that record is strong enough for a case is something the legal process would need to test.  Public officials have a defence of ‘necessity’ where they had to assume BT’s investment numbers and bid costs  were true as a pre-condition of signing the commercial confidentiality agreements.  If as the NAO is finding that these representations are unreliable,  then officials must be released to pursue their public duties.

This is tedious detective work for Parliament.  The short term gain, if its carried out will be fibre access services being made available to a further 10,000 to 15,000 rural communities with the products in place to further extend fibre access.  The bigger gain for the economy is understanding how cheap this infrastructure is relative to any other infrastructure project and in that understanding the barriers to provision in all areas can be removed by Ofcom amending market definitions and adjusting the cost recovery regime to further the investment needed.  The latter is a very big prize and is central to being the best in Europe, the original Government objective set in 2010 and something which remains within this programmes capacity to achieve should Parliament find the time for the necessary scrutiny.


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