BT masks ‘unjustified’ doubling of Final Third broadband bill

BT is trying to disguise its true costs to supply next generation broadband to the Final Third by adding overheads, new job types and not reducing costs where these jobs are already accounted for.

If BT’s proposals are accepted, local authorities could pay almost twice the actual costs, and BT will not have to match public funds with its own.

In addition to direct and planning costs, BT asks for state aid to cover “Availability payments” and bonuses for customer connections. Based on a financial model (see table below) of a 20% take-up from 100,000 homes passed, this would raise the public contribution to BT’s roll-out from £11.4m to £22m.

BDUK’s CEO Robert Sullivan declined to be interviewed on the apparent doubling of roll-out costs, saying he was “not allowed to” speak to the press. However, in response to a question from Br0kenTeleph0n3, he told a Westminister e-Forum conference the reference financial model is critical to setting a comparable starting point for all BDUK-funded procurements. Insuring that local authorities received value for money is an important part of BDUK’s value-add, but it is a complex regulatory issue, he said.

An internal BDUK discussion paper seen by Br0kenTeleph0n3 shows the DCMS agency preparing to question BT’s financial proposals for its fibre to the cabinet roll-out in the Final Third.

The proposals aim to justify BT’s claim for state aid for bringing access to broadband speeds above 2Mbps for download to people living in areas considered commercially unviable under a BDUK procurement framework. The BDUK analysis aims to establish a challenge to the value for money offered by BT’s proposals.

The author of the analysis believes that BT wants to establish a price history and methodology that result in a “wholesale price” rather than show its actual costs to deliver next generation broadband access (NGA). Actual cost is a key component for calculating the amount of state aid required.

BDUK’s comparison of BT bills for early NGA procurements in Northern Ireland, Rutland and North Yorkshire with current proposals shows that BT has continuously increased its apparent cost by adding new job types and not cutting costs where jobs are already accounted for.

The analysis suggests BT is trying to recover all its direct costs for a full roll-out despite assuming only one-fifth of residents will take up the new high speed services.

The BDUK analysis concludes that BT is “imposing an abstract model to establish a wholesale price and define a cost unrelated to the inputs of an individual roll-out.”

BDUK says of BT’s proposals, “Cost inputs and assumptions on cost recovery for element costs are not revealed. Model outputs are driven by a take-up assumption which is unrelated to the actual assets built or needed.

“BT is using the opportunity of a framework structure to create a wholesale price – not a cost as understood in calculating state aid.”

The author believes this is because BT assumes it might have to re-sell this “product” to Fujitsu, the only other supplier accredited to supply networks under the BDUK procurement framework.

Following a Cabinet Office assessment that Fujitsu is a “high risk” supplier, it is now unlikely that Fujitsu will win any of the 45-odd contracts at stake.

BDUK says BT’s stance is unjustified, even though it is understandable given its obligations to wholesale telecommunications services, its right to recover costs, and even though the framework encourages it.

The effect of BT’s proposals is to fix the “standard cost” of adding a house to an NGA service (anything above 2Mbps download speed) at £520 for the physical infrastructure plus £84 to connect, total £604, excluding VAT.

By comparison, rural fibre network operator Gigaclear offers a guaranteed 10Mbps symmetrical installation, bursting to 1Gbps, for £100, which includes 20% VAT. Fitting the equipment is on a DIY basis or contractors will do it for £85 for a 50m “drop” between the curb and the premises.

Community-funded B4RN, which is building a 1Gbps fibre to the home (FTTH) network from scratch in the most broadband-unfriendly part of Lancashire, reckons its average cost per connected house will be less than £1,400.

The author believes the £520 per connected customer at a 20% take-up rate represents all BT’s direct costs for extending 2Mbps coverage from two-thirds to 90% of the population. (BT has already committed to covering two-thirds of the population using its own money.)

The author notes that BT’s financial model does not disclose how many “nodes” (street cabinets) and “hand-off points”. It calls for BT to provide suppliers’ invoices to verify these numbers. These details are essential to establish value for money for the FTCC component for the call-off (actual procurement under the framework), it says. (Click here for more tables BTfttcPriceProposal)

BT Framework abstract model per 100k homes passed – summary

Framework March 2012	Premises passed	Premises connected	Estimated nodes built	Planning	Infrastructure build	Availability payments	Take-up bonus	Total public funds
Total premises	100,000	20,000		781,438	11,411,137	7,607,425	2,200,000	22,000,000
Solution type			Estimated splits
Handover points			15
FTTC	72,691	14,538	400	771,438	5,498,069	5,478,499	1,599,180	13,347,185
FTTP	17,309	3,462			5,498,069	1,304,526	380,820	7,183,415
BETS	6,000	1,200	25	10,000	415,000	618,000	132,000	1,175,000
Satellite	4,000	800				206,400	88,000	294,400