DCMS sacks BDUK whistleblower over BT NGA price leak

Mike Kiely, the author of a document that sought to describe BT’s proposed fees for rolling out fibre to the cabinet broadband in rural areas, was sacked by the department of culture media and sport following the publication of details of the paper on this blog, according to the person who gave me a copy.

Following the blogpost, a DCMS trawl of internal emails revealed that Kiely had sent his discussion document to people in local authorities that are preparing to buy next generation broadband (NGA) services under the BDUK procurement framework. His apparent intention was to give them the ability to question BT’s price proposals, which he believes are inflated. DCMS said it does not comment on matters that affect individual staff.

Reluctant whistleblower

Prices rise, but costs don’t in BT’s divide and conquer NGA strategy.

Kiely is a reluctant whistleblower. He declined to be interviewed for this story, or to explain his
description of BT’s proposed pricing model in detail. Nor is he the person who gave me his document.

There seems little doubt that he acted from principle. He is well-respected by those he dealt with as BDUK’s linkman between communities desperate for better quality broadband and BDUK. His contribution to helping remote communities in Cumbria prepare NGA plans is noted in evidence to the House of Lords’ communications committee investigation into UK broadband.

Kiely’s actions seem related to the increase, surprising in the light of the government’s overall debt, in the total amount of money available for NGA projects, and the lack of competition for it.

The government said initially it was putting in £530m for NGA in rural areas, plus potentially £300m in the next parliament. Robert Ling, the BDUK projects director who, in a unrelated move, quit and left a week before Kiely was sacked, was largely responsible for persuading local councils to match the central government contribution. This, plus extra money from the European Commission and Defra, plus £150m each for “Superconnected Cities” and mobile network infrastructure in rural areas has pushed the total up to around £1.5bn.

BT unprepared

This extra money appears to have caught BT unprepared. Kiely’s document shows that he suspects BT is inventing tasks and charges to soak up as much as possible of the extra money without having to do more than it first planned.

His analysis records that the average price of upgrading a street cabinet and running fibre to it in Phase 4 of Northern Ireland’s roll-out was just over £13,000. This corresponds closely to the price paid by the Kent village of Iwade for a single FTTC cabinet in what BT claimed was a commercially unviable location. Iwade’s final cabinet went live in March 2011, and Iwade parish council finance committee minutes dated 28 March 2012 report, “The long awaited invoice for £12,677 from Openreach B.T. for the installation of a broadband cabinet arrived and was paid in January, 2012.”

That amount is also in the ballpark of estimates provided by Cumbrian MP Rory Stewart to the HoL broadband investigation. Stewart said, “We can drop the amount of money that it is going to cost the taxpayer from hundreds of thousands down to £17,000.”

Meanwhile, an informal BT quotation in March this year estimated the cost of upgrading a remote PCP in the Leeds area at £10,000. This was later withdrawn by Openreach CEO Olivia Garfield who told the prospective customer to give her his phone number. BT would then assess potential speeds availabile via FTTC and FTTP. “I will again ask (one of her staff) to kindly provide you a ball park quote that you would need to raise (either locally or from the council) and a committed take up rate %. We have a number of communities across the country who have managed to make this work, and well done to them,” she wrote.

Prices rise, costs don’t

Up, up and awaaaay! BT piles on the charges, without explaining how they arise or when they are due.

Kiely’s document notes that since the main Northern Ireland roll-out, which finished in July last year, prices for rural cabinets appear to be rising, even though costs are declining.

Stewart went on to say, “Two years ago, my neighbour in Dufton was being quoted £45,000 to get a broadband connection in his home. The model of this parish pump approach has now reached the situation where any community in Cumbria that wanted to ought to be able to get it for a cost of £500 or £600 a home.

“For a relatively small sum of money—£60,000—hundreds of people around Great Asby will be able to get superfast broadband (via FTTC).” This is understood to be for two cabinets in Great Asby, a sum Kiely believes is inflated.

It is hard to establish true costs because BT does not disclose them, and requires interested parties to sign non-disclosure agreements, the HoL committee heard.

This means neighbouring councils are not able to exchange information that could help to harmonise and optimise roll-outs, lowering costs. Separating each procurement allows BT to mask such efficiencies to the outside while taking advantage of them operationally.

It allows BT to hide economies of scale, such as volume discounts, as well as any labour-saving techniques it learns or develops from the experience of rolling out the new cabinets.

There appear to be other costs that BT is trying to build into a “standard model” rather than rely on actual costs. Kiely’s description of BT’s model identifies “Planning costs”, “Availability charges” and “Take-up bonuses”. These can double the taxpayers’ liability for a project.

BT did not respond to a request to explain how these costs arose, what the rates are, or when they fall due. However, @BillBroadband, which is believed to be the Twitter identity of Bill Murphy, the man in charge of BT’s NGA project, said these charges are “standard approach”. He declined to provide further detail. A look at the Openreach website for high speed broadband prices was not illuminating.

Other sources close to NGA procurements question even BT’s basic costs. They say FTTC is an overlay on BT’s existing telephony network, therefore planning costs are negligible, as is the civil engineering needed to install and connect new cabinets because the ducts, the biggest cost of a new deployment, are already in place.

Kiely’s document suggests that BT is keen to develop an abstract model of charges that hide its actual costs and therefore profitability. By releasing it to NGA buyers he was giving them information they could use in negotiations with BT to ensure that taxpayers’ money was used to best effect.

Civic concern

While DCMS evidently regards Kiely’s actions as above and beyond the call of duty, they seem motivated by a spirit of civic concern. In that light, his sacking seems harsh. DCMS should have applauded rather than condemned him.

In any case, this episode may be only a footnote to the NGA story. The European Commission’s DG Competition may still decide that money dispensed under under the BDUK framework does not meet state aid guidelines. That decision is expected within days.

Cumbrian conundrum

Miles Mandelson, chairman of Great Asby Broadband Community Interest Company and vice-chairman of East Cumbria Community Broadband Forum, said in evidence to the House of Lords communications committee, “Three of us who were talking to BT and had proposals…found that BT—for reasons of commercial confidentiality—were not prepared to share with us every detail of the project cost so we did not actually know what the total costs of the project would be.”

This affected their ability to apply for funds from Defra’s Rural Community Broadband Fund because they had to show that the money required was less than 50% of the cost of the project, and that the area covered by the project fell outside the county’s proposed coverage area, i.e. in the “last 10%”.

In written evidence Mandelson said, “BT offered to provide further information under a non-disclosure agreement with Defra. The necessary NDAs were signed, and BT provided the information that it believed Defra required. Only after an initial assessment did Defra claim that it did not have all the financial information that it required, but it is believed that Defra still did not fully specify the required information, or ask BT for it. Instead, it required pilot projects to provide better ‘full costings’ information, which it still did not specify in any detail. Despite requests by pilot projects to achieve a resolution of this issue, neither Defra nor BT Openreach has sought a way to do so.”