Following the broadband money

Welsh £100m broadband strategy questioned

with 14 comments

The Welsh government is facing questions over its broadband strategy following confirmation that part of its £30m investment in FibreSpeed, a £30m, 200-mile optical fibre to the premises (FTTP) network that connects 14 business parks in North Wales, is lying dormant.

Graham Leach, FibreSpeed’s GM, confirmed that some network elements were still dormant, limiting the reach of the network, but referred questions over the reason to the government.

Richard Brown, who runs Wispa, a Welsh broadband consultancy, invited Chris Johnson, the Welsh government’s representative on the FibreSpeed project, to explain to a public meeting why part of the network not being used.

The meeting, due on Friday, was cancelled when Johnson declined the invitation and offered a written reply. According to unconfirmed reports, the Welsh government was waiting for permission from the European Commission, which supplied some of the money for FibreSpeed.

Asked by Br0kenTeleph0ne to clarify the situation, a Welsh government spokesman said, “The Welsh government has worked with the European Commission throughout the FibreSpeed project to ensure compliance with all relevant rules and regulations and this is an ongoing process.”

Pressed on whether parts of the network were dormant, the spokesman said he had nothing to add to his statement.

FibreSpeed’s physical infrastructure is owned by the Welsh government, but supplied and operated under a 15 year contract by FibreSpeed, a Geo Networks subsidiary.

FibreSpeed’s Leach said that the government had yet to develop four of the planned 14 business parks linked to the FibreSpeed network.

However, Br0kenTeleph0n3 has learned that at least 40 subscribers on the island of Angelsey were denied high speed broadband access because the Welsh government has not allowed FibreSpeed to light an already-installed fibre link to a radio mast. If this link was lit, subscribers could receive up to a 100Mbps service.

Instead, that part of Angelsey is now served via a microwave link from the mainland, which added more than £20,000 to the cost.

Br0kenTeleph0n3 has also learned that the government could improve wireless broadband access to subscribers in Parc Cybi, a business park near Holyhead, if it permitted a 10 metre extension to an existing 15 metre mast at a cost of some £11,000 to £15,000. Planning permission for the extension was granted in April 2011, but nothing has been done.

BT said on 21 July it would provide an “up to” 20Mbps fixed wire service in Holyhead on the island.

Leach said FibreSpeed was fulfilling three of the Welsh government’s main reasons for building the network. These were to attract new businesses to North Wales, to create jobs, and to address a market failure.

Leach said that before FibreSpeed opened, BT’s prices were 2.5 to seven times higher in North Wales than in the south-east of England. Now they were on a par, he said.

Leach said that although FibreSpeed was thought up as an open access business network, internet service providers had used it to extend broadband connectivity to residents in rural “not spots” using wireless.

He said the network provided a minimum connection of 10Mbps up to 1Gbps, However, the ISPs generally offered a 6Mbps service to keep prices to around £20/month.

The Welsh government’s department for the economy and transport, considered a proposal in October 2008 to convert FibreSpeed into “an open access network to improve the availability and affordability of very high speed broadband services delivering a competitive wholesale backbone core network across Wales”, and budgeted an extra £785k to see it through. That was kicked into the long grass.

Leach is now concerned about FibreSpeed’s status as Wales prepares to spend more than £100m, some £57m coming from the UK government’s BDUK agency, on its Next Generation Broadband Wales (NGBW) project. The NGBW aims to provide a 30Mbps broadband service to most Welsh homes.

The Welsh government spokesman said all bidders in the NGBW procurement process were free to discuss how to exploit the FibreSpeed network. “The EC state aid guidelines for broadband encourage use of existing infrastructure wherever possible, and Ofcom is currently looking at UK regulations to ensure equitable widespread access to infrastructure across the UK, including Wales,” he said.

Final NGBW bids close on 30 September. Leach said he was unaware of any clear plans to integrate FibreSpeed into the NGBW system. No-one from the Welsh government had approached him, nor had he been approached by anyone from three of the four short-listed bidders, a Balfour Beatty-led consortium with Alcatel-Lucent and Cable & Wireless Worldwide, BT, Fujitsu. Geo Networks is the fourth bidder.


Written by Br0kenTeleph0n3

2011/08/05 at 16:59

14 Responses

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  1. As a follow up to Ian’s article, the response from the Welsh Gov to our invitation to answer questions is printed in full here:

    Basically, the Head of Communications at the Government believes it is ‘inappropriate’ for Government officials to answer questions.


    2011/08/07 at 07:07

  2. I wouldn’t be surprised if one of the reasons why some fibre’s haven’t been lit has to do with the heavy fibre tax but I can’t recall whether being lit or not mattered or if it applied from the moment the cable itself was laid?

    Mark - ISPreview

    2011/08/08 at 07:21

    • Fibre becomes eligible for business rates tax only once it is lit, except for BT’s fibre. BT’s liability for business rates tax is based on its entire “heriditament” or operating assets, which includes its fibre. Therefore the marginal cost to BT of lighting new fibres is almost zero, whereas FibreSpeed has to pay the full amount for every new fibre it lights, even though those fibres may be carried in the same duct.
      No-one in government has been able to tell me how much money the government earns from the tax, although estimates put it about £400m/y. If you can measure it, you can’t manage it. This is why the fibre tax is such a pernicious tax on productivity.
      Curiously, the more fibre BT puts in, the lower the value of its heriditament falls, hence the smaller its business rate tax bill. Whether there is a causal relationship, I can only guess, but I suspect the drop in the heriditament’s assessed value is more to do with BT’s loss of assets due to local loop unbundling.
      If anyone from BT or the Valuation Office Agency, which assess BT’s heriditament, can throw some light on this, I’m sure we’d all benefit.

      Ian Grant

      2011/08/08 at 09:24

      • LLU doesn’t affect BT’s rates liability as the loop stays on its books for valuation purposes. This is illustrated in the guidance on NGA rating which shows BT retaining rates liability for unbundled sub-loops.

        Isn’t BT rated on an R&E basis ? so a declining value suggests declining profitability in the relevant assets.


        2011/08/08 at 10:49

      • Phil – I stand corrected. Also, I think Ofcom’s latest report does show voice revenues on the decline, and certainly BT’s headline revenues are not growing despite its declared profits going up.

        Ian Grant

        2011/08/08 at 11:07

      • “In addition, a formula for changes in BT’s valuation was also agreed, which reduces BT’s rateable value in line with forecast changes in BT’s market share.”

        so the R&E based valuation (repeated every 5 years ?) is manipulated by market share. This may explain why it’s going down despite the amount of fibre going up.


        2011/08/08 at 16:30

      • I have asked the VOA under FOIA for a copy of the formula, only to be told it is company confidential. I haven’t appealed it because, frankly, something else came up. But if you know it, please let’s publish it here. The we can check the VOA’s sums, and we all know from Carol Vorderman’s report today how necessary that might be.
        What I can’t get my head around is why market share should have anything to do with it. If the formula is about receipts and expenditure, it should be purely about the money, right? The more profit (the difference between R & E) BT makes the more it should pay in business taxes. Anything else is, to use your word, a manipulation of the market.
        And what if BT’s forecast market share is wrong? Is there a claw-back or penalties mechanism? What access do competitors and subscribers have to damages if BT’s pricing was found to be wrong because it got this bit of its price make-up wrong?

        Ian Grant

        2011/08/08 at 16:57

  3. It’s logical Mark – but my understanding is that it has nothing to do with fibre tax. In any event the Welsh Gov (who need to help Fibrespeed with the approvals) would not be responsible for that taxation – it would be Fibrespeed. It would come from the contractual funds already committed – so no new money.

    No – taxation is not the reason (IMHO) that Fibrespeed are being hobbled.


    2011/08/08 at 08:14

  4. Are we saying that the Welsh Govt is preventing lighting of some of the fibre assets, or declining to pay extra for them to be lit ? Similarly who would fund the mast extension for Parc Cybi ?

    If these assets were in private hands the attraction of extra revenue would make the decisions obvious.


    2011/08/08 at 10:54

    • The issue is only complicated because it is not common knowledge.

      Planning permission is in place
      Assets are in place (mast exists – just needs to be taller)
      Fibrespeed have budgeted (I understand) for the lighting and increase to mast height

      Because the original contract was funded by EC money (in whole or part – unsure) it needs written approval from the EC to allow these things to take place (rudimentary check to ensure that a state is not funding a company to the detriment of others).

      That application sits on Chris Johnson’s desk unsent, as far as I am aware…

      Wonder if it has anything to do with current NGBW bid and trying to make N.Wales more attractive for other bidders… no … ICT and Head of that department Chris Johnson wouldn’t do that. I am sure he wouldn’t.


      2011/08/08 at 10:59

      • This sounds similar to “health and safety” arguments for not doing something. I really don’t believe the EU requires every piffling decision to be referred to themselves – the guidance on State Aids is pretty clear and comprehensive. It seems to be a British obsession with seeking clearance for every darned thing, an observation made at recent EU meetings.

        £5m of ERDF money was used as “Objective 1” funding, about 1/6th, so fairly simple to say this isn’t using that money.


        2011/08/08 at 16:23

      • Good point, Phil. So why the hold-up?

        Ian Grant

        2011/08/08 at 16:28

  5. I think both you chaps missed the more important bit:

    That application sits on Chris Johnson’s desk unsent, as far as I am aware…

    Regardless of our obsession or otherwise in the UK – had this been done when requested (I understand this to be in excess of 6mths ago) – the requirement to seek approval or not would be moot – and it would be lit/built already.



    2011/08/08 at 16:46

  6. […] £425m Superfast Cymru project overbuild the 14 North Wales business parks served by the FibreSpeed wholesale network. If a way is found, taxpayers will be paying twice to provide high speed broadband to the […]

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