Br0kenTeleph0n3

Following the broadband money

Serious questions raised over Welsh superfast broadband project

with 12 comments

wales-welsh-flag-16-pThe contract for ‘superfast broadband’ that the Welsh Assembly Government (WAG) has signed with BT will deliver less than politicians have promised in public statements, and appears to deal with BT and Openreach as a single entity in violation of a BT regulatory undertaking to “functionally separate” the two.

It also raises questions about the legitimacy of the money given to BT because of how it will be used.

These conclusions come from broadband consultant Richard Brown who has already asked the European Parliament whether the WAG can use SuperFast Cymru money to overbuild the FibreSpeed coverage area which has already received state aid.

Brown obtained a heavily redacted copy of the ‘Superfast-Cymru‘ contract after an eight month battle using the Freedom of Information Act (FOIA). He says the financial, coverage and timing details of the contract are missing, but what remans is still revealing.

He notes that while the contract is between BT Plc and the WAG, it is signed on behalf of BT by outgoing Openreach CEO Liv Garfield.

“There is a legal governance issue (imposed in theory by Ofcom) that each part of the BT group should have ‘Chinese walls’ between them to prevent unfair exposure to competitive information leaking from one wholly owned subsidiary to another,” Brown says.

“There is a fundamental concern that if Openreach is supposed to be a functionally separate organisation, and the CEO of Openreach is the signatory to the contract then information must (by definition) be being passed between Plc and Openreach, in a manner that has been expressly forbidden by the legal undertakings given to Ofcom.”

Brown says WAG ministers are guilty of overpromising in public what the contract will deliver in terms of speed.Ofcom has accepted the European Commission’s definition of “superfast” to mean download speeds of at least 30Mbps.

“The Welsh Government have not contracted BT to enable the delivery of superfast broadband to premises in Wales, simply that the core infrastructure (exchanges and cabinets) will enable a measurement of premises passed to reach a total of 95% for up to 24Mbps speeds,” he says.

This view is confirmed in Clause 21.4 of the contract: “The Grantee acknowledges that the Welsh Ministers will not pay any contribution or subsidy to the Grantee in respect of the Last Drop Connection” ie, the link between the street cabinet and the premises. This rules out WAG support for any fibre to the premises.

The contract commits BT to meet three targets by 30 June 2016 or at the latest by the ‘Drop Dead Date’, which has been redacted:

  1. 90% coverage of all premises in the ‘intervention area’ at >30Mbps PPiR and a minimum of 2Mbps CIR (committed information rate)
  2. 95% at >24Mbps with a minimum of 0.5Mbps CIR
  3. 40% coverage with >100Mbps with a minimum of 10Mbps CIR.

Brown says Target 2 is dismaying. “At no stage have the ministers ever claimed anything lower than 96% coverage for superfast broadband under this contract. It is clear that there is a degree of wishful thinking by the ministers that BT will choose to deliver more than they are contracted to do.”

Brown estimates 30,000 homes and businesses may be disappointed if BT fails to meet the 96% coverage target claimed by ministers. No-one knows who they might be because the post codes of the coverage area are secret.

Brown further believes there is a difference between what the WAG told the European Commission it wanted state aid permission for, and what it is buying from BT. The European Commission’s 2005 decision on state aid in the case of UK’s Rural Broadband Access Programme made it clear that only capital costs are eligible for state aid.

It said “Eligible capital costs such as investments in communications networks and equipment necessary to provide the requested broadband services have to be directly attributable to the project and incurred during the period of the Broadband Service Agreement. No operating costs will be financed.”

According to Brown, the works that are required under that contract appear to enforce requirements on BT that are explicitly not being paid for.

The Superfast Cymru contract requires BT to supply “Operational Works” that consist of maintenance and wholesale services and the sales and support of wholesale services.

Maintenance covers “updating, maintenance, fault management, performance optimisation (when required) and capacity augmentation.” Wholesale services covers “services to enable retail service providers to provide retail services over the network.”

“The inclusion of the clauses compelling BT to deliver such ‘value added’ services, as opposed to them being part of the funded delivery, lends weight to the likelihood that the ministers have assisted BT in being as tax efficient as possible,” Brown says.

Brown believes taxpayers will have to pay BT’s costs to sell them broadband. Clause 16.6 states “…The Welsh Ministers shall only pay Financial Contributions in respect of those marketing activities that the Welsh Ministers have approved in accordance with the Marketing Plan.”

This clause is wholly inappropriate, says Brown. He says Page 4 Section B makes it clear that the grant is a capital grant to BT on the grounds that infrastructure is being purchased.

“Such a commitment by the Welsh Government gives BT a disproportionate market advantage over other wholesale providers, and as such would be considered a significant influence into the market dynamics.”

Brown questions how much money BT will actually contribute to the Superfast Cymru project. The contract caps The WAG’s contribution at £195m. He notes BT has indicated its total investment in Welsh broadband, including its commercial rollout, is £220m. At Clause 21.5 the ministers “acknowledge and accept that the Grantee has made a contribution of a sum at least equal to the Maximum Grant.” That suggests BT’s extra contribution to Superfast Cymru is just £25m.

On the question of VAT, at Clause 21.11 WAG and BT agree between themselves the the contract does not cover payment in consideration of services to the ministers and that the deal is therefore exempt from VAT.

“BT are compelled to deliver wholesale services as a result of this contract (even to the extent that the Ministers have chosen to engage in price manipulation in the market space). Wholesale service provision as a requirement of the contract, does not allow for the contract to be considered as a ‘capital investment’ only contract,” says Brown.

Summing up Brown says the 96% coverage ministers claim will be delivered “does not represent a percentage of homes and businesses that will receive superfast broadband/fibre broadband. The measurement is solely on premises passed. Premises passed is a measurement of presumed capability that considers only the core infrastructure.

“This utterly ignores the capability of the line between the exchange/cabinet and the premise to deliver the faster services.”

Brown referred to the Aus$24bn Australian National Broadband Network, which also used premises passed, and which the head of BT’s NGA rollout Bill Murphy has branded a failure on Twitter.

Brown says “In August the industry press was awash with headlines … which suggest that there are approx. one third of all the (Australian) premises passed that are unable to gain access to the increased service speeds.

“Premises passed is simply not a measure of the amount of the population that will be able to gain access to improved services. It is simply a measure of the capability of the core network – something that will not change Wales’ future, but will certainly enhance BT’s.”

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Written by Br0kenTeleph0n3

2013/11/24 at 22:51

12 Responses

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  1. “Premises passed” is only a measure of the number of properties close to a twisted pair distribution cable and does not reflect even the capacity of the cable, let alone the capacity of the FTTC. Another phrase of “having access” is used frequently. This further distorts the arithmetic as those figures are the total numbers of lines connected in a PCP green cabinet, yet the largest FTTC being deployed at present is the Huawei 288; a figure far below the capacity of most PCPs. In addition BT Openreach frequently only install one set of 100 Pr tie cables so potentially there are two further sets required to cover that cabinet’s capacity all to be jammed down a single duct. Whilst the design capacity limitation is currently overcome by eventually installing a second FTTC, who is funding the duplicate works and are there any cut-off dates included in the contracts ?

    However the fundamental difficulty for end users is the lack of any Broadband Universal Service Obligation so many are lumbered with whatever BT Openreach deliver (after a minimum of 48 hours training time), sometimes without even checking if the line being enabled passes a pair quality test. (I.e. subcontractors usually do not carry test equipment and rely on the modem’s lights to indicate synchronisation of sorts.)

    Merrow Drover

    2013/11/24 at 23:43

  2. As we understand it only parts of Openreach are considered “functionally separate” from BT and in particular Ofcom left room for BT Group to invest in the underlying infrastructure. Admittedly this can create a bit of administrative awkwardness with the BDUK process but that’s not unique to Wales.

    As for the speed commitment, if you look back at the first official press release about the project from BT then that states.. “It will build on BT’s existing investment with the aim being that 96 per cent of Welsh homes and businesses will have access to world class broadband speeds of up to 80Mbps by the end of 2015″.

    Cleverly they always avoided being specific about how many would actually get greater than 24Mbps by simply talking about the headline FTTC speed and sadly we’ve been seeing a lot of that lately.

    It would be good to see the document though as the above doesn’t explain how they’ve defined CIR etc.

    • CIR – ‘means the minimum design bandwidth each Premises may receive, including Last Drop Connection, to the Point of Handover assuming that all customers simultaneously use the Network fully.’

      Somerset

      2013/11/25 at 08:43

      • “…simultaneously use the network fully.” – what does that mean? The bandwidth budget is 0.5Mbps per premises?

        Br0kenTeleph0n3

        2013/11/25 at 12:46

    • Openreach FTTC has a CIR way above the above, which might be to allow wireless solutions with typically low CIR. Nothing about 2M USC ??

      PhilT

      2013/11/25 at 12:39

      • Those details may be in the redacted material, but a contractual target of 0.5Mbps CIR for 95% does not look promising wrt 2Mbps USC.

        Br0kenTeleph0n3

        2013/11/25 at 12:42

  3. re the 1/3 of Australian premises unable to receive increased service speeds. Read the link and the comments, it appears to refer to be mainly due to access into building for internal cabling.

    ‘NBN Co confirmed that the one third of premises that could not order a service were mostly located in apartment blocks, office blocks, or other multi-dwelling units.’. And this refers to first 163k premises, not the whole of Australia.

    Somerset

    2013/11/25 at 08:56

  4. BT plc is the legal entity, hence the contracting party. Openreach isn’t a company AFAICS ?

    PhilT

    2013/11/25 at 12:35

    • Still makes a nonsense of “functional separation”, as did Sean Williams’ admission to the House of Lords that all BT divisions fight for budget from the same pot.

      Br0kenTeleph0n3

      2013/11/25 at 12:44

  5. Page 22 – ‘No capital equipment is being purchased by BT’. Really?

    Somerset

    2013/11/25 at 13:20

    • Given the obsolescence rate, leasing is popular, keeps kit off the balance sheet, improves RONA/ROCE and gives you more flexibility if your business model is selling services. And if all you are doing is lighting fibre you put in years ago (Bill Broadband says there was “infrastructure” in the FibreSpeed coverage area already) but wouldn’t let anyone else light, perhaps BT’s capex is pretty low.

      Br0kenTeleph0n3

      2013/11/25 at 14:14

  6. 5.3.2.1 commits BT to 90% of premises in the contract area to have a PPIR of greater than 30 Mbps and a CIR of 2Mbps.

    My understanding is that the CIR refers to the ‘Worst case’ with everyone making maximum demand at the same time and relates more to the capacity available at the FTTC cabinet and the supporting backhaul. while this may not seem very impressive, and I have nothing to compare it with, it would suggest 2Mbps plus would be available to the majority most of the time?

    What I find more difficult to swallow is the commitment to 30 Mbps PPIR for 90% of premises. If BT were to rely purely on VDSL it would mean that 90% of properties would have to be within 500 metres of an FTTC point… I realise that this may be feasible in many urban areas but would suggest it would be very challenging in semi-rural and rural areas. The question has to be what percentage of premises are within 500 metres the planned FTTC cabinet?

    I’m not aware of any planned alternatives that would meet the PPIR commitment even the ubiquitous satellite does not have a PPIR of 30Mbps.

    N Page

    2013/11/29 at 14:28


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