Br0kenTeleph0n3

Following the broadband money

BDUK reveals next £50m broadband investment

with 16 comments

Wiltshire, Norfolk and Devon & Somerset will together receive around £50m from the government to extend high speed broadband access to residents and businesses, the government said today.

It also confirmed the creation of a £20m fund specifically to extending such access to rural areas.

The moves are the next step in the government’s plan to give the UK the “best broadband in Europe” by 2015. To do it, it has set aside £530m, and hopes to attract matching funds from European development agencies, network operators and other government budgets.

The four counties join North Yorkshire, the Highlands and Islands of Scotland, Cumbria and the Herefordshire borders in winning BDUK money. These counties got the nod from the BDUK almost a year ago, and are still in the procurement stage of their projects.

A BDUK statement on 27 May said the new bid winners would now start their procurements. It hoped they would begin upgrading their networks within a year.

Devon & Somerset were the big winners, attracting £30m, with Norfolk getting £15m and Wiltshire £4m. The final amounts will be decided “in the coming weeks”, BDUK said.

The funding round attracted 18 bids. Last week, culture minister Jeremy Hunt told the West Sussex County Council, a losing bidder, that BDUK would work with the losers to improve their chances of government money.

BDUK said too the latest news came “ahead of an announcement later this year on funding for every local authority in the country”. No further details were immediately available.

BDUK said it “anticipated that a mix of technologies will be used, including mobile, satellite and fibre connections to hubs in the heart of communities. It is hoped that suppliers will start rolling out upgraded infrastructure within a year. Internet Service Providers (ISPs) will then use these networks to offer affordable services to homes and businesses.”

Comment

The government’s emerging strategy to work through county councils to deliver “next generation access” mirrors its earlier strategy on first generation broadband. Basically they gave BT all the money to upgrade local exchanges to provide ADSL connections over copper wires. Which BT did, and now claims that 99% of homes with telephone lines can get “broadband”.

The government’s action then pretty much translated BT’s former monopoly in telephony into a present one in broadband, especially in the two-thirds of the countryside outside the towns,

BT’s coverage claim is true. In practice the quality of it’s service in terms of speed and reliability are wanting, especially when compared against the service required by customers, or against competitor nations’ ambitions, That said, communications regulator Ofcom and other bodies reckon the UK has the cheapest, most widely used broadband access in Europe, if not the world.

BT has already budgeted £2.5bn to upgrade the parts of its network that cover two-thirds of the population, and has said it will match government funding for the next 25% of the population.

A month ago, Fujitsu Telecom and Virgin Media offered to invest £2bn provided they got around £500m from BDUK and cheap access to BT’s poles and ducts. But West Sussex County Council’s experience suggests the proposal is aimed at extending Virgin Media’s cable TV footprint in towns rather than rural areas.

What seems to be missing from the broadband dialogue is a genuine attempt to find alternative sources of money where investors are prepared to wait for a return.

It is common cause that communications networks have become the “fourth utility” and the associated investment risk should therefore be evaluated accordingly. If patient investors cannot be found, it means they trust neither the government nor the management to deliver over the period. 

BT’s MD for next generation roll-out, Bill Murphy, says most BT projects today won’t get funding if payback is more than two years off. The breakeven period on its present network build is 12.5 years, he says.

Without knowing the cost basis for this claim, it is impossible to verify. But assuming he is right, the working life of copper circuits is at least 40 years (BT is working hard to extend even that), and the working life of optical fibre could be many times more.

Why should not BT’s, or indeed any other network operators’ investors not look for a return over similar periods? If only governments can afford to wait that long, why should they simply give money to private firms who will then squeeze their new assets for as much profit as they can wring out of them in the shortest possible time?

In other words, has the time come for the government to consider renationalising Openreach as the nation’s network utility? 

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Written by Br0kenTeleph0n3

2011/05/27 at 10:05

16 Responses

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  1. What other utilities are nationalised? Along with BT, gas, electric and water were privatised in the 80’s.

    Somerset

    2011/05/27 at 10:34

    • Is the nation better off for it? Or just some shareholders?

      iangrant52

      2011/05/27 at 10:58

      • Are even the shareholders better off?

        Somerset

        2011/05/27 at 19:01

      • Interesting point. You accept that the nation has not benefitted from BT’s nationalisation, so let’s look at the most obvious measure of shareholder benefit – the share price.
        According to the FT charting service, in the past five years BT’s share price has gone from around £4.20 up to almost £7.00 before collapsing to under £1.00 at the start of 2009. Since then It has doubled to around £2.00. In January Goldman Sachs issued a buy recommendation with a target price of 212p.

        iangrant52

        2011/05/28 at 07:11

  2. So BT is doing 66%, will match 25%. That leaves 9%.

    Somerset

    2011/05/27 at 19:04

  3. Whilst renationalisation sounds like a magic bullet, those old enough to remember the days of the GPO and the time it could take to get a new phone line provisioned, the dead hand of bureaucratic control, the restrictions on how the telephone system could be used, the stifling of innovation, might beg to differ!

    We see with BDUK the reemergence of Big Government interference with the market and this can only be to the detriment of the UK’s future economic properity.

    What is lacking in the UK market is effective regulation from an over-cosy OFCOM alied with a make do and mend mentality

    Guy Jarvis

    2011/05/27 at 20:27

  4. Instead of using public money to help people with a connection go a bit faster, government should put the money into innovative pilots like the Lancaster City council one. Get a few of those rural fibre to the home ones going, use funding to provide digital parish pumps and stimulate private investment in areas where take up will be good. ie rural areas. These networks would soon start to creep into urban areas because they would be 1000 times better than copper broadband. And they would be futureproof up to many more times that. That would make the incumbent stop pratting about patching up the old phone networks and start to build next generation access. Its the only way to get a digital britain. If we fall for cabinets and BET we are going to be left in the global digital slow lane, and faster countries won’t come here for our content. We have to market our content because we have hardly any manufacturing industries left. We must not fall for this superfast hype. Fibre is the future. Not a victorian phone network. It was once the best in the world, it gave us access to 1st generation broadband with very little expense, but it has served its purpose. Time to move on. Gigabit or bust. If the incumbent can’t do it then government has to stimulate the market, and the way to do it is start at the hardest to reach places and work inwards towards the profits.
    chris

    chrisconder

    2011/05/27 at 20:52

    • chris – what is this ‘content’? Countries coming here?

      What is becoming clearer is the cost and difficulty of installing new cables (fibre or otherwise). OK in a few specific areas but not where pavements have to be dug up.

      Somerset

      2011/05/28 at 07:34

      • Is that an argument to go wireless? What about backhaul?

        iangrant52

        2011/05/28 at 08:09

      • Sling it overhead, simples.

        PhilT

        2011/05/28 at 10:18

  5. ” Basically they gave BT all the money to upgrade local exchanges to provide ADSL connections over copper wires.”

    BT funded most of the ADSL rollout themselves, surely?

    They did win some / most of the Government funding at the time, but by no means all. I can remember a number of “famous” community schemes receiving funding that are no longer with us.

    PhilT

    2011/05/28 at 10:17

    • So will history repeat itself? Did we learn nothing? What could we do differently now? Do we think the present is the same as the past? Would it be unfair to suspect that the cost of backhaul and/or technical “issues” connecting to the core network may have had a role in some community networks’ demise?

      iangrant52

      2011/05/28 at 13:43

      • More likely that community networks found that the cost of installation and 24×7 support meant they could not make a profit. Also people involved lost interest.

        Time for people who make statements like ‘faster countries won’t come here for our content’ to explain what they mean, hopefully these soundbites are ignored by those who understand.

        Somerset

        2011/05/29 at 08:36

      • I’m sure it didn’t help that BT’s “whack-a-mole” strategy to underprice them didn’t help either.
        But come to the point: who is it exactly that understands?

        iangrant52

        2011/05/29 at 11:30

      • The country should have been fibrered (?) up in the 80’s but the government said no as it would mess up the cable TV companies who merged into VM. Long before the internet as we know it came along.

        So where will the funding come from for gigabit, via fibre, access, and what applications beyond HD TV need them? What bandwidth does home working and telemedicine use?

        What will people pay for faster access? Many get ‘free’ broadband as part of a package, will they pay more? Rolling out to an area means passing every property with x% takeup and being able to revisit every time a new customer comes along, costly.

        Somerset

        2011/05/29 at 19:28

      • “Rolling out to an area means passing every property with x% takeup and being able to revisit every time a new customer comes along” – Right, which is why BT is only “promising” around 75% of cabinets will be upgraded to fibre under its FTTC programme. But won’t say which ones. Which is unfair to consumers, who can’t plan to make alternative arrangements, and prevents BT competitors from making independent offers.
        Besides, what is “x”, BT’s magic number?

        iangrant52

        2011/05/29 at 20:51


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