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Mystified, BT ’s idea of a concession comes in the form of more costs.
11:37am - 22/07/2013

The Public Accounts Committee meeting on the 17th July to review the findings of the National Audit Office (NAO) findings on the rural broadband programme was very painful to watch.  Even Orwell and Kafka would have felt outdone by the BT double speak.

My posting number 2 on the NAO report covered BT’s diminishing investment, falling from the £1bn capital promised to the House of Lords on June 12th 2012, to an estimated £356m reported in the NAO study  with the latter including capitalised labour.  BT was and is counting operational costs as investment.  BT is to supply PAC more detail on the composition of its remaining capital investment.

My third posting demonstrates a tripling of the indicative subsidy or contingency available per cabinet and path. This does not BT mean will charge this amount but it can raise invoices to that amount.  The posting 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 increase in costs and type of costs discussed in that posting. 

BT emphasised to the Public Account Committee meeting (July 17th) that the BDUK Framework benefitted from concessions given in the competitive bids before the Framework concluded.  This posting for peer review shows that Framework costs continued to rise after the awarding of the North Yorkshire contract and there is no evidence to support the claim that concessions were given.  The opposite can be established from reading BT’s own press releases and examining Figure 8 on page 28 of the NAO report on rural Broadband.

I have adjusted figure 1 from NAO posting 4 to include North Yorkshires costs using information in the public domain and applying the percentages calculated by the NAO.  North Yorkshire is significant as in all other cases the competition such as it was retired from the bidding process leaving BT as the only remaining bidder.

Figure 1 with North Yorkshire.  

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)

North Yorks

700 cabs

£36.4m

UK SLU operator costs from averaging 60 costed projects[1]

The Bit Commons Estimate of BT’s marginal cost

Street cabinet enablement costs

Cabinet System

Installing cabinet , Planning, Plinth Power

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

36%

£28,900

£25,432[2]

£18,720[3]

 

 

 

 

 

£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

£2,080

 

 

 

 

 

 

£3,120

 

 

 

£936[8]

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

20%

£16,056

BET included

£10,400[10]

(BET)

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[11]

£8,840

£11, 818

£709 [12](connectivity)

£2,056 (PM)

Capital Total Costs

77%

£61,814

        £37,787[13]

 

£52,000[14]

£34,714

£12,019

Operational costs

23%

£18, 464

na

 

 

 

Total per average path studied

100%

£80,278

 

 

 

 

Average Public subsidy possible/paid on cabinet/path

 

£47,596

77% of capital

£14,229

37% of capital

£37,800

72% of capital

 

 

Average contribution by BT, may include opex

 

£14,217 (23%)

£23,557

63% may include opex

£14,318

28% may include opex

 

 

 

The bottom two lines do not show the Framework benefitting from competition in North Yorkshire, an argument emphasised  repeatedly by BT at PAC July 17th when claiming they offer value for money.  This was the only argument presented by BT to support statements on value for money.

The numbers from BT’s own press releases show the opposite.  They are evidence of an ever more confident BT continuing to reduce its contribution while simultaneously finding new costs to aborb the budget.  This does not mean BT will invoice for this amount but it has the opportunity to do so if it can generate invoices for these amounts.

Figure 8 in the NAO report and industry meetings held by NICC [15] show the competitive threat offered by Fujitsu was weak.  BT was the only remaining bidder in most cases.   There was no evidence that Talk Talk and Virgin had done anything apart from offer verbal support to Fujitsu.  This was evident in industry meetings which included BT,  on developing of the pan industry ALA OSS stack .  No evident progress in this forum chaired by Fujitsu, or interest in the form of participation by TalkTalk or Virgin meant Fujitsu’s retail partnerships did not develop beyond the initial and minimal show of support.

Figure 8 on p27 of NAO report is not evidence of competition but of bidder exhaustion where bidders drop out due to non-compliance, for example  due to no retail relationships and  longer network build times. This left BT as the only bidder.  The case made by BT to PAC of competition bringing concessions early in the process is not proven.  The opposite is much more likely, which is the longer the competitive dialogue went on, the more evident it became there was no competition giving BT a full year to optimise its commercial position.  The transition and increase  in costs from Northern Ireland  to North Yorkshire and then the Framework is self-evident in the numbers derived from BT’s press releases. 

BT is correct to say the ERDF audits will find nothing wrong.  As they have no benchmarks for costs,  auditors can only approve the presented invoices without doing any efficiency checks.  Claw-back mechanism can only compare one bid with another.  Without BT submitting referencable marginal costs there is no way to pinpoint value for money.

We have come a long way from Iwade Parish Council negotiating  £13,000 for 1 cabinet and its installation in 2010 and the average of £28,900 now accepted by BDUK for the same components for each of 30,000 fibre paths in rural Britain.  The entire fibre path plus cabinet installation costs have risen from £37,787 observed in Northern Ireland to an average of £61,800 identified by the NAO.  The indicative subsidy was £14,200 in NI and NAO report has identified a possible subsidy of £47,596 per cabinet and path.  The numbers widen if we exclude Greater Belfast.   BT’s  contribution has diminished from 63% in Northern Ireland to 23% in the BDUK Framework.

It is not clear what executive powers the Public Accounts Committee possesses, but with this evidence it is not beyond the wit of Parliament to call on Ofcom to change BT’s Undertakings  so BT is obliged to reveal its marginal costs for the rural Broadband programme where £1.2bn in state aid is present.   The alternative is for BT to provide BDUK the reference costs originally requested.  This could be done  anytime during the six months of planning each local authority needs before contracts begin.  If we do not, we have a monopoly access provider Openreach who can charge whatever it thinks it can consistently get away with and then ask for more.



[1] 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.

[2] £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.

[3] This is NAO cabinet+install as 36% of total cabinet/path/core costs.

[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]  20% is what NAO reported for additional solutions – in North Yorks contracting for 2Mbps would include BET in some instances,  but it would be only selectively deployed.

[11] 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.

[12] 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.

[13] 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.

[14] Contract Value £34.6m / 700 cabinets referenced by North Yorkshire CC.

[15] http://www.niccstandards.org.uk/publications/ala.cfm You can track industry progress on creating an alternative operational support system to BT Wholesales EMP at this site.

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