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Contingencies galore! Post no 4 on the NAO report on rural Broadband
6:04pm - 11/07/2013

This is the final of 4 postings discussing the findings of the National Audit Office report on the UK’s rural Broadband programme published July 5th 2013.

The first post summarises the NAO findings on why Value for Money had not been confirmed. In essence BT only supplied enough cost data to score 8 out of 20 in a BDUK scoring on cost transparency.  This was enough for BT to get on the BDUK Framework but insufficient to know what taxpayers are getting for their money.

The second posting looks at the change in composition of BT promised £1bn capital investment in rural connectivity.  BT is now including operational costs as part of its contribution.

The third posting demonstrates a three times increase in the indicative subsidy or contingency available per cabinet and path. It compares the UK programme and the completed Northern Ireland programme.  The scale of the subsidy or contingency is accounted for by the drop in capital investment offered outlined in posting number 2 and the possible increase in costs and type of costs discussed in this posting.

This posting compares the available costs per path /cabinet between the BT subsidised programmes and those being funded in other ways.  Again this analysis is for peer review as it is only using data available in the public domain.

Figure.  Street cabinet enablement costs account for 36% of total costs of path

Capital Costs to achieve 90%

NAO Finding

Table 11 P.33 of NAO report

Average derived from NAO Table 11 and clause 3.14 P.33

Northern Ireland

1265 cabinets for

£48m (£51M)

UK SLU operator serving rural areas[1]

UK SLU operator costs from averaging 60 costed projects[2]

The Bit Commons Estimate of BT’s incremental costs

Street cabinet enablement costs

Cabinet System

Installing cabinet , Planning, Plynth Power

Fibre Path to Handover Point (PIA & ECC’s)

36%

£28,900

£25,432[3]

 

 

£10,000

 

£2,000

 

£5,000

 

 

 

 

£12,000[4]

 

£2,550

 

  £5,227

 

 

£5,000[5]

 

£1,750[6]

 

£1,568[7]

Costs associated with connecting a premise to a cabinet

Tie Cabling and some ECC

4%

£3,211

Included above or in retail connection fee

 

 

 

£3,000

 

 

 

£3,120

 

 

 

£936[8]

[9]Other technical solutions (predominantly enabling fibre direct to premise)

20%

£16,056

BET included

£0

Cab equipped to support FTTP

Searching for what this might be.

Other capital costs (mainly project management and improvements to BT’s backhaul infrastructure/core network

17%

£13,647

£12,355[10]

£5,000

£11, 818

£709 [11](connectivity)

£2,056 (PM)

Capital Total Costs

77%

£61,814

        £37,787[12]

 

£25,000

£34,714

£12,019

Operational costs

23%

£18, 464

na

 

 

 

Total per average path studied

100%

£80,278

 

 

 

 

 

The absolute number is less important than the proportions .  The main differences are;

Cabinet Enablement Costs – Contingency £8-£12k per path

The average of £28,900 identified by the NAO in the BDUK Framework contracts must include large allowances for power, and it must assume major engineering work at each location.  You would normally expect any cost above the average, as identified by the SLU operators to be treated and managed as exceptional items. You would allocate this contingency on perhaps 10% of routes but not all of them.  Local Authorities should have the option for instance to use wireless solutions where these exceptional costs begin to emerge. 

For this category of small independent operators have itemised their average costs at £17-£20,000 for very remote locations,  most in what could be considered the final 10%.

The Bit Commons estimate for a cabinet system,  regarded as optimistic in the findings retains its view that BT’s average incremental  cost will be substantially less than £18,000 a path given BT owns the access network and has a world class  supply management organisation and processes. This should not be considered a controversial or indeed an optimistic opinion  however continued challenge is healthy given the amount of money and the number of paths.

Other Technical solutions FTTP preparation - £16k contingency per path on average

BT Fibre on Demand has been announced nationally.  It is dependent on the fibre paths and handover points established when rolling out FTTC. The Bit Commons in discussion with fibre suppliers have unable to identify incremental components that might cost this amount.

It would be perfectly logical to do one solution or another but not both.  This could be viewed as a candidate for part of the contingency that the NAO were seeking to calculate

Other Capital Costs  - Possible contingency per path  £6k

The NAO on page 36 of their report the rural broadband programme – clause 3.16 states that the UK numbers were twice those in Northern Ireland.  This does not emerge in the above table.

This is by far most subjective calculation as BT may or may not have network in place,  so some allowance is needed,  but this can be easily loaded.  It is worth noting that the hundreds of millions of public money spent on connecting schools went to ready or repair many of the same paths,  so it unlikely a very big allowance is needed where this work has occurred.

Contractually tying the money up  may be an objective in itself,  and then billing a much smaller sum as the costs are incurred.  BT’s 2013 accounts show a receipt for £15m in state aid.  I am assuming this is for Cornwall.  This contract is declared more than 50% complete but the £15m is less than a quarter of the state aid budget available.

The implications for UK plc,  is that the monies,  if the correct levels of transparency was possible, would mean a  greater coverage target could be set and  the process of replacing copper access could be started in each local authority area.  It could also mean the extra £300m available post 2015 could further develop pro-competitive measures for FTTP transition activity in urban areas.

This analysis just reinforces the conviction that Public Accounts Committee must support BDUK’s original goal of gaining access to BT’s costs.  Committing £1.2bn of public money where a company can only score 8 out of 20 in the assessment on cost transparency leads to the sort of contingencies outlined above.

The hard way to do this would be for Parliament,  acting the advice of the Public Accounts Committee to unite and pass a motion demanding Ofcom to amend BT’s Undertakings so where state aid is present BT must reveal the relevant costs to the appropriate authorities.  There is an easier way and that is for BT to use the existing six months planning period for each county to calculate an actual verifiable cost for each county project.  This would provide more certainty to all involved including BT Shareholders concerned by possible state aid challenges arising from the lack of transparency.   Six months planning should remove the need for most contingencies and allow a more ambitious costed plan to emerge.

11/7/2013



[1] These numbers have been supplied to The Bit Commons by a Sub Loop Unbundling operator.

[2] These numbers have been supplied to The Commons by a Sub Loop Unbundling specialist who assists rural communities in the final 10% to get connectivity. These costs are an average of some 60 detailed costings.

[3] £25,432 is 12% less than £28,900 to illustrate what BDUK believe DETI paid for a cabinet system following an analysis of BT’s invoices. – see finding on P35 of NAO report.

[4] This number has been discussed and confirmed with many suppliers of VDSL equipment providers for low cabinet volumes.

[5] This number reflects BT purchasing power and can be supported from data in the public domain by the value of the insurance policy for street cabinets, duct and fibre held in stores managed by KN Network Services when installing several hundred cabinets in Northern Ireland. Case study available.

[6] I have made an estimate for the use of the polybase plinth that BT has announced it is using. Power is a highly variable cost but it will average. More detail is available if you download the The Bit Commons FTTC estimator tool from the website, or the presentation on the £100k cabinet.

[7] To calculate the incremental cost,  rather than use the BT price list,  I have created a budget at £25 per hour and estimated the number of hours.  This number is open to challenge.

[8] This is an attempt to get to an incremental cost rather the list prices for connecting a PCP to a VDSL cabinet. 

[9] The Bit Commons has discussed this line item with Fibre component suppliers and cannot identify the additional components to which this might refer.

[10] This number is £37,787 minus the BDUK calculated cost for cabinet in Northern Ireland.  It’s proximity to the SLU operators costs are incidental in this case.

[11] It is our understanding that it is Retail Service providers who would pay for these capacity increases as part of their managed service contracts for bandwidth and this is reflected in the prices they pay.  Where these costs do occur,  it is enabling or re-configuring existing resources,  thus any costs should be a contribution rather than assuming a resource may not exist and needs to be newly provisioned.

[12] The £37, 787 is the total amount invested, £47.8m divided by 1265 cabinets installed as per the press releases for the Northern Ireland project.

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Well done for gathering all this information! I am sure it will be very useful to the public accounts committee when they start to unravel the chaos that is digital britain. I don't profess to understand it all, but I do know that councils are being overcharged for cabinets, because we are deploying them and they don't cost anything like BT prices. And we can't buy them in bulk like they do. Even costing in our volunteer labour we wouldn't have to charge as much as that. With our volunteers we do it at a fraction of the price, so it makes sense to use more community altnets to fill the gaps rather than an expensive incumbent? surely? Funding altnets means the government helps more people and businesses, and gets more bang for their buck. It has the added incentive that in any area where an altnet is the incumbent suddenly steps up and starts improving their infrastructure, which proves the point we have made so often: 'Competition is King' and because there is no competition it is leading to mis-use of public money on a patch up copper solution. Just my humble opinion. But well done for getting all this information available for Maria Miller and the politicians and also logged for posterity.
Comment by : 12/07/2013 08:02
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