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Will the new state aid measure deliver the transparency needed on UK’s Rural Broadband contracts?
5:55pm - 30/06/2015

On the eve of what ought to be the renewal of the state aid measure (SA33671) by the EU Competition Commission it worth highlighting once more why we need more transparency.  The last three blogs have provided a number of justifications for such a move.  This simple piece of evidence reinforces the need for the state aid measure to be strengthened and enforced.

In this online document www.elexon.co.uk/.../2012/11/SVG147_06A_Charge_Code_Applicatio · PDF  SVG147_06A_Charge_Code_Application  we can read of BT’s application for unmetered power for the BDUK programme.

The document describes the commercial programme as of the April 2013 of some 15m premises passed served by some 30,000 VDSL cabinets, and suggests the final year of commercial will amount to another 4m premises passed and a total of 50,000 cabinets.  The final year to April 2014 of 4m premises passed using 20,000 cabinets suggest BT’s business models could support 200 premises passed without public funding.

It can be shown from BT presentations to City analysts that the maximum they spent in any one year on the commercial rollout of NGA was between £300-£400m.  That provides a range of between £15,000 and £20,000 a cabinet and fibre path or £75-£100 invested per premise passed.

We learn from the second National Audit Office report in January that BDUK were total average costs of less than £25,000.  We can piece together that to April 2015, the 2.5m premises passed were served by 12,500 cabinets, which is roughly an average of 200 customers passed per cabinet installed.  BT reported some £126m in state aid receipts in 2013/14 and some £390m for 2014/15.  This leaves little room for any direct capital contribution from BT, although counties like Surrey who are a pre-BDUK contract have confirmed a BT capital contribution without revealing how much.

While these first 12,500 of the total 30,000 street cabinets may be a little more expensive than BT’s commercial rollout, it does suggest if the gap funding process for state aid was functioning,  then very little public money would be needed for this first tranche of activity,  leaving most of the public money available for the harder to reach areas,  where BT would naturally have least appetite to invest in.

Rather than entering new contracts with new money, the existing contracts could be extended if the state measure was enforced sufficiently to secure BT’s capital contribution. The BT capital, to be of use has to be available to build the network at the time of build, not just as a clawback option to be haggled over later in the process.  Ideally the BT capital would be made available to Counties and devolved administrations in the form of reduced payments so they can plan further and go further within the existing contracts.  This would appear to be available to Surrey a pre-BDUK contract.  It would suggest it should be available to all others.

Increased transparency does not just force the issue with respect to BT’s capital contribution for the rural projects, but will inform policy makers and regulators as to just how cheap the network upgrade is compared to original estimates. A total of £3bn rather than £5bn for FTTC with some FTTP included. The £3bn includes the state aid contribution £1.7bn.  While BT has resource challenges, the underlying rationale for pursuing fibre access upgrades to complete conclusion is more compelling than ever.  There are fewer if no excuses not to complete gaps in service in cities and urban areas.

Let’s hope those charged with reviewing the state aid measure have the wit and cunning to secure a good outcome on our behalf.  There is no particular reason why officials,  be they Whitehall, Local Authority, or Brussels employees should tolerate being bluffed, blagged or bullied on any detail the project needs to be the full success it can be and needs to be. 

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