UK Fibre access role out , representations made and relied upon and the emerging truths!
events 2008-July 2015
Some rural communities may wonder why they are not yet on a list
for receiving a fibre based service. The
following is a public record of representations made between 2008 and 2015 and
subsequent truths found by a number institutional audit functions. The progress to date needs to be
saluted, approximately 15,000 street cabinets
installed and 3m homes passed, but more
progress is likely if a normal level of transparency was applied in exchange
for some £1.7bn of subsidy. This
analysis suggests communities must not give up on their quest to receive an upgrade. The Government and Local Authorities have committed
significant resources and it is only the secrecy under which the contracts are
being managed that is preventing a more ambitious roll out to be delivered.
The dates and references are all a matter of public record
but the comments are my opinion. This piece is part of that public record, written in the hope more can be done with the funds already committed.
BT announced they would invest £1.5bn in Fibre to the cabinet technology (FTTC)
to” pass” some 10 million homes. By
“passing” was meant that they were to invest £1.5bn in bring Fibre Optic Cable
as far as many of a roadside cabinets (FTTC) – which is claimed would be
sufficient investment to meet EU/UK targeted Broadband penetration. It is
important to note that BT reduced its commitment to FTTP during the course of
the programme, despite achieving very
good results in Cornwall.
BT Investment would be subject to pricing freedoms from
Ofcom which meant the pricing of the FTTC service would not be subject to a
The investment was presented as new investment and not a
natural progression of upgrading the access network funded from an adjustment
to the cost recovery regime for the telephone network. This arises from the
peculiarity of being overly bound by Ofcom market definitions which largely
ignore the nature of the civil engineering work needed to repair or upgrade an
In reality, the figures show that BT’s total capital
envelopes did not increase over this period. Allocating available capital budgets (made up
of at least 60% capitalised labour), is as much a decision as to how to
allocate the available labour and contracting resource as it is a decision on the
purchase of new equipment. For instance,
in this period 2011-2015, missed appointments grew to some 60% for wholesale
clients like Sky and Talk Talk as resource was used for installing cabinets. The
figures show that the capital investment for the partial rollout of FTTC was
not new, but a re-allocation of existing capital envelopes.
This investment is still - as of 2015 - being reported and
treated for public relations purposes as incremental investment by BT, Ofcom
and the British Government. This is clearly misleading as the
investment is not only not new but overstated.
UK Broadband Stakeholders Group/Analysis Mason estimated a UK wide fibre to the
cabinet FTTC rollout would cost £5.1bn,
while a full rollout of Fibre connectivity right to all consumers
premises would cost an estimated £28.8bn.
By 2015 the estimates have been reduced to less than £3bn
for FTTC and some £13bn for FTTP, where
the UK Government is subsidising £1.7bn
of the £3bn and BT has announced there is "no need for FTTP",
given other as yet unproven copper based solutions such as G.FAST and
FTTrn. It can be argued that this self
serving and is driven by the comfort of the existing cost recovery regime on
copper, while charging significant
margins on private circuits using dedicated fibre.
The major lesson from the BDUK and LA activity so far is that fibre network upgrades are a very cheap form of
infrastructure compared to any other utility infrastructure like water, gas, or
BT announce a further £1bn commercial investment to extend UK rollout to 2/3 or 19m premises "passed" by
end of 2015.
At this time, BT
still had plans to deploy FTTP as part of its solution, and the £2.5bn now allocated was to include a
proportion of FTTP.
– BT promise House of Lords, Communications Select Committee that BT will
commit additional capital of £1bn to match Government investment in the final
third of premoses.
The offer was
unambiguous and very public. BT had 14
days to change the public record and did not do so.
July 2012 – UK Government agree BDUK procurement Framework
where BT and Fujitsu will bid for £1.2bn
of subsidy for upgrades in service to the final 1/3 or 6m premises in 44 local
July 2012 –Fujitsu announce their withdrawal from
Cumbria and North Yorkshire contracts and indicate the difficulties they are
having in making the case.
- It is suspected that a Local Authority official leaked a BDUK
discussion document showing how BT inflated it subsidy requests from some
£12,000 in bringing fibre to a cabinet in Northern Ireland in 2010 to allowable
cost budgets of more than £40,000 to bring a the same fibre and install the
same cabinet in the BDUK Framework! The
contractor who authored the BDUK discussion document had his contract
This contractor sacking leads to the investigations by the
Public Accounts Committee and the National Audit office. The leaked discussion documents show BT inflating costs in all bids up
until the Framework pricing was agreed.
– EU issue state aid approval in SA 33671.
March 2013 – Fujitsu announce publicly they do not
intend responding to BDUK Framework bids having not bid for any Framework
contract since the state aid measure was approved. They did bid for work in Cumbria and North
Yorkshire before the Framework was finalised. By the time of Framework was completed,
Fujitsu had decided it would make no further bids. The prices BT offered on the Framework could
not be subject to any competitive pressure as claimed by BT as Fujitsu were
planning to build a network from scratch rather than overlaying fibre on an
Olivia Garfield, the then CEO of
BT Openreach, the division in charge of
BT’s access network, publicly stated
each cabinet cost £100,000 and millions per exchange!
While BT has attempted to distance itself from this comment,
the contract for Wales, which Ms
Garfield was directly involved has a total subsidy pot in excess of £205m for
no more than an expected 3,000 cabinets.
It was a clear attempt to talk up costs by an a key executive whose job
would have included reviewing the costs of the commercial programme, where comparative costs of less than £20,000
per cabinet and fibre path would have been readily apparent.
April 2013, The BT application for unmetered power for
BDUK funded cabinets confirmed some key numbers associated with BT’s commercial
programme. It confirms key quantities. It references 30,000 commercial funded
cabinets installed at that date and the commercial programme was to be completed
in April/May 2014 with a total of 50,000 cabinets. Resource
would then switch to the rural programme.
It is important to note that BT’s commercial programme was funding
solutions serving 200 premises and thus shows BT willing to invest up to £100 per
It was reported separately that the final year, April 2014 to April 2015, the programme
constituted increasing coverage from 15m premises to 19m premises "passed",
provided premises are within the 1,000
metres of the installed street cabinet.
This suggests the 4m premises passed were served by 20,000 cabinets or
200 premises per cabinet on average in the final year of the commercial
rollout. This suggests if the gap funding principal of state aid measure was
being applied in the current BDUK programme,
very little subsidy would be needed for major towns and associated
housing estates, leaving more of the
subsidy for very rural areas.
– The first National Audit Office report done in support of the first Public
Account Committee hearing on the Rural Broadband contracts raises significant
concerns with respect to value for money,
transparency and lack of competition.
At those hearings BT confirmed the £2.5bn commercial
investment, the offer of £1bn and
re-assured the committee BT had not inflated its costs, and had allowed no more
than a 5-8% as a contingency.
Broadband Delivery UK (BDUK), the Government department
charged with the procurement process claimed in the first National Audit Office report that they received value for money based on the information provided to them
by BT, while ignoring other industry
data and ignoring the much lower public subsidies paid for the same solutions
in Northern Ireland in 2010 and 2011.
September 2013 Iain Livingstone, the then BT CEO announced
to its analysts, that BT’s commercial project to achieve 2/3 coverage (19m
premises) would finish 18 months ahead of schedule and comfortably under
budget. £2.5bn is not revised, and BT continue to portray the costs as
higher than actually incurred. This continues today where the £2.5bn has
been increased to £3bn, but with no additional roll out claimed.
March 2014 – The second Public Account Committee
hearing, continued to be critical of the lack of transparency, the misuse of confidentiality agreements , the
lack of scrutiny on BT’s costs and the reinforcement of BT’s monopoly.
April 2014. BT
published accounts record £126m in state aid receipts. This is subsidy received by BT from BDUK and
Local Authorities for the rural broadband programme.
This was a very large sum of money when most of the work
consisted of planning by BT resource.
Using the rural broadband project to generate free cash flow is a
feature of the current implementation of the scheme.
November 2014. BDUK
announce progress of 1.5m homes "passed", provided these homes are
within 1,000 metres of the street cabinet. The weekly progress is claimed to be 40,000
premises a week "passed" or approximately 200 completed street
cabinets are activated. To date most of
these are located in towns and housing estates around the centres of population
and are in receipt of 100% subsidy! There is a real concern that BT in claiming a
100% of costs and with BDUK permitting them to do so under the state aid measure,
this will result in BT consuming subsidy
meant for more rural areas, while then
seeking to put forward ever higher costs as areas become more difficult to
Autumn 2014, The first Superfast Extension Projects (SEP)
extending the rural projects were announced. This permits BDUK and local authorities to
extend the scheme by creating a new contract with a newly defined intervention
area not covered in the initial contract.
These contracts go against the
wishes of the Public Accounts Committee as they allow more money to be spent
with BT with no new transparency measures. First indications are that OMR
(Open market Reviews) were being used by BT to announce reductions in their planned commercial footprint. There is a new state aid category being used
called ‘Conditional White’ in the UK to cater for what was previously notified
as a commercial areas. It is not
uncommon to find greater than 15,000 properties being categorised as
‘Conditional White’ for state aid purposes in each local authority area.
This practice breaks another fundamental principle of state
aid which is that aid is not to act as a substitute for private investment. These ‘Conditional White’ areas previously
marked as commercial areas are now being added to the UK scheme at the expense
of more rural areas.
The second National Audit Office report completed for the third Public
Account Committee hearing confirms that BT had inflated project cost models by some
38% in the BDUK Framework. It also stated that BDUK were now not certain they
had BT’s most economic price.
The 38% inflated costs finding is consistent with the
findings in the leaked discussion documents, and contrast with the evidence
used by BDUK in the first National Audit Office report.
The NAO report confirmed a total average cost per cabinet
and fibre path of less than £25,000. This was also confirmed later in the Oxera
report on state aid.
Rather than acknowledging the excess costs in the models and
re-planning the coverage target it is likely the excess modelled costs will be
portrayed as efficiency savings for public relations purposes.
Ofcom publish their conclusions to a consultation on Financial
Regulatory Reporting for BT. In it they
turn down the opportunity to create a public record of the investments in fibre
access and instead opt for secret reports on how BT will allocate an expected
£1.7bn in state aid in its accounts. The
consultation was begun in late 2012.
BT’s actual investment and how subsidies are allocated in
its accounts are to remain secret.
This was one of many attempts to use Ofcoms consultation
process to achieve more transparency. To
date these efforts have been unsuccessful.
BT published accounts make reference to some £390m in state aid receipts in
2014/15. The notes to the accounts make
no reference to a possible future capital contribution needing to be paid for these
assets. This amount is well in excess of
100% of costs for the project conducted to that date. No more than 12,500 had been installed to
pass 2.5million premises. The total
costs would not have exceeded £300m for all work done for BDUK in that period
and this is before the capital contribution from BT.
May 2015 – Oxera reporting on BDUK’s compliance with the
state aid measure fails to report on the total subsidies available to BT and
only reports against the central Government funding of £750m not the total of
£1.7bn. This is very disappointing as it means the bid cost data in the report
cannot be used as it is understated. The report states that BT cannot claim
more than 100% of cost while there is a
clause that suggests BT may make no capital contribution for 36 months. The report confirms some overbuild of Virgin media
and confirms the possible reduction in BT’s planned commercial rollout but
fails to quantify either.
The truth is emerging very slowly, through the various public
hearings and reports and great care is needed in checking what is meant to be
an independent report but are written so the project continues rather while the
poor practices are explained away and forgiven. Silence is indeed consent.
Audit Wales reported that BT is charging a cost per premise "passed",
with the usual distance limitations, not
actual costs, to be reconciled later with the actual cost. This allows BT at
least temporarily to claim more than 100% actual cost and will permit any
future capital liability to be disputed.
June 2015. The
current CEO of BT, Gavin Patterson claimed BT has invested £3bn in 50,000
cabinets and fibre paths to serve 19m homes. This suggests each cabinet and fibre path
costs £60,000 each, while the National Audit office report total
average cost at less than £25,000 each for the BDUK work conducted so far. See
The £3bn number was used by the UK Minister Ed Vaizey at the
House of Commons debate on rural broadband on June 24th.
The arguments above illustrate at the very least the BT
capital contribution to the final third of £353m should be verified and must be
secured by amending the state aid measure.
If this is not secure and this is likely to be the case, then the
prices, the coverage targets and the
reconciliation process in the UK Framework for Broadband assume no direct
contribution from BT at the time the work is taking place.
The table below sums up in purely monetary terms the extent
of the potential fraud intended for the rural economy but are unlikely to reach
Nothing can compensate the lost business opportunities,
frustration of rural communities and loss of hope. The denial of potential is the most galling
and this network upgrade is cheaper than BT can confess too. We should not deny any EU rural economy the
opportunity of providing itself with an infrastructure - particularly as in
this case the funds are already in place.
Table 1 Summary of BT NGA and Government Investment for FTTC element
(illustrating the gap in representations made versus
Street Cabinets installed (est.)
Implied Cabinet and fibre path cost
Investment est. and fair subsidies for
Actual average unit cost per cabinet
Central & Local Government subsidy
BT matched funding
BT matched funding
All this table demonstrates is the gap between what BT
wishes us to believe a cabinet and fibre path costs and the actual costs now
being reported upon by the NAO. The
costs are consistently between one third and one fifth of those in statements
supporting BT’s public policy and commercial goals. The analysis can be extended from FTTC to
FTTP but the resourcing issues for FTTP need to be considered.
By consistently overstating costs and overstating investment
BT is denying the UK economy the full benefits of a resource (fibre access) which
has greater capacity and a lower long term incremental cost. It is doing this to optimise short term cash
flow from the poor administration of the state aid measure, paticularly the enforcement of the gap funding measure, which if enforced would allow the programme to retain its original focus on rural areas.
BT can also add years to the lifespan of their private circuit
products as solutions for overcoming the shortcomings of copper access where a
business is more than 1,000 metres from a cabinet or is not in an area where
FTTC is available. This is a UK wide
issue and impacts the City of London as it does rural areas.
The extent to which any of these matters are with dealt with
in either the new state aid measure (EU), the Digital Communications Market Review
(Ofcom) or the newly formed All Party Parliamentary Committee on Rural
Broadband remains to be seen.