Br0kenTeleph0n3

Following the broadband money

Why BT’s BDUK price estimates are wrong

with 17 comments

Ever since BT has been talking publicly about next generation broadband, it has quoted low figures for take-up. Whether it is right to do so, and to base its costing on low penetration, is highly debatable.

The Mike Kiely document, for which BT has not supplied a substantive rebuttal, suggests that BT is working on recovering its costs from a 20% penetration of the population.

In the towns, where it faces competition from Virgin Media, this may be warranted. Its latest financial reports suggest around 10% of homes passed take up a next generation service, but that BT Retail is winning its share of customers. Besides, it is early days; no doubt the £1bn it is spending on sports broadcast rights will help speed take-up.

However, this 20% assumption is likely to be completely wrong in rural and other not-spots, the areas that are eligible for BDUK money. The final report on Project Acccess, the £19m project to put first generation broadband into Cumbria, reports

99.84% of businesses and private citizens in Cumbria and parts of North Lancashire now have access to Broadband
At 30th April 2008, 16,612 businesses had a broadband connection, representing
71.1% of the total number of businesses

This suggests that BT is underestimating by far how many people would sign up to Infinity, and that BT is indeed overestimating how much taxpayers’ money it needs to earn a return from rural NGA deployments.

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Written by Br0kenTeleph0n3

2012/10/03 at 23:32

17 Responses

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  1. Take up will be low where those who are happy with their present speeds, which may be anything from 3M? up to 20M, choose not to upgrade. Maybe in time ISPs will choose to move customers over and the potential for voice out of a FTTC cabinet further complicates the issue.

    Somerset

    2012/10/03 at 23:41

  2. Hopefully the local authorities will include a clawback clause to recover subsidy if it turns out that the assumptions made by BT in their business model prove to be wrong. This was the case with RDA contacts for ADSL exchange enablement and generally in rural areas take-up was higher than anticipated and money was returned. This is a requirement from the EU for allowable state-aid. Having said that, do we believe that the contracts are negotiated to such a level of detail?

    David Cooper

    2012/10/03 at 23:58

  3. One wonders if the same Civil Servants in the ‘procurement’ department who royally cocked up the Rail Franchise were also involved in ‘assessing’ the various proposals from providers for access to the BDUK approved list (numbering one?) or did the ‘rot’ go higher?

    mike phillips

    2012/10/04 at 09:06

    • I thought the very same thing yesterday Mike, as I was listening to the WCML report on R4.

      Martyn Dews

      2012/10/04 at 09:28

    • Unconfirmed reports suggest that the initial model of BDUK roll-outs excluded exchange-only lines. However, by the time they were added in, ministers had already announced the money awards, so the amounts awarded eitehr will not cater for EOL upgrades, or FTTC coverage will . be less than hoped for. BDUK has not responded to queries on this issue, but if true it does suggest that the people who prepared the model were inept at best.

      Br0kenTeleph0n3

      2012/10/04 at 09:29

      • In North Yorkshire I believe that amongst the 90% of premises getting fibre 80% of those who have EO lines will get FTTC via the new hybrid cabinets being trialled in Cornwall and 20 % FTTP.

        desouzr

        2012/10/04 at 17:59

  4. The figures from Project Access if anything demonstrate the potential for low takeup in the forthcoming projects – if all those businesses and private citizens “have access to broadband” then the takeup for BDUK projects will be about convincing people that they need faster broadband and potentially a different type of broadband, this is a different sell to the idea of broadband vs dialup.

    Cornwall or Northern Ireland might be a better basis for extrapolation as we’re talking about a “second coming” of broadband in most places, and not arrival in a notspot for the first time which would naturally be looking at the area of 70% takeup.

    PhilT

    2012/10/04 at 09:45

  5. I wouldn’t quote project access as an example, if those businesses had got a decent service they wouldn’t be clamouring for broadband now. I think those are fudged figures, based on ‘connected to enabled exchanges’ and they never did get a decent connection. I think the 70% figure of businesses connected is about right, still a third of the county have substandard or non existant connections and rely on satellites or dial up. I think Cumbria has learnt its lesson, and that is where Mike Kiely did his research, and he doesn’t want the same shambles to happen again.

    Connected to enabled exchanges – the next version is ‘Homes passed’. Weasel words. But if said often and loud enough they win votes for councillors and politicians, and bT are very good at marketing.

    chrisconder

    2012/10/04 at 09:53

    • Thought you would like Project Access figures Chris. The basic point remains that there are a lot of people with connections that aren’t motivated to change especially if it costs more, hence the uptake of say FTTC isn’t going to be 100% of the 70 or 80% of people connected in a village. All those Talk Talk users for example aren’t switching over in droves where FTTC is available and they don’t even need to change ISP.

      PhilT

      2012/10/04 at 11:22

      • The Project Access report I quoted was dated March 2008. There was a subsequent report dated 6 May 2011. It is by David Ingham. LinkedIn records many people with that name, including one who is Economic Development Policy Manager at Cumbria County Council. It says: ” However despite the success at the time of the innovative Project ACCESS, today substantial areas of Cumbria operate at low speeds of 512Kbps, there are several not spot areas where there is no coverage, and technology and user demands have moved on rapidly, resulting in Cumbria again becoming disadvantaged in terms of modern ICT connectivity. Much of the network which made up Project ACCESS was based on existing BT copper wire which has been stretched as far as it will go and paradoxically the high level of take up has reduced the speeds due to the demand on the service known as the contention ratio.”

        Which rather supports Chris’s view, I believe.

        Br0kenTeleph0n3

        2012/10/04 at 22:11

      • I wonder where the contention occurs, is at the local exchange or further into the network.

        Somerset

        2012/10/04 at 22:19

  6. As one of the so-called recipients of Project Access delivered “broadband” and having to endure the nightmare of that project from outset to conclusion, I can honestly say that those figures were fudged, as was pretty much everything to do with it. But that’s another story for another day.

    However, the reality is that final third take up will be high because of the dire state of connections at present. Ergo, we should repeat what Ed Brown at ADIT did when BT declared the last 20+ exchanges in Yorkshire not viable. ADIT paid for all the exchanges to be ADSL enabled, insisted on fibre feeds into each one for future-proofing,, and stated that if the exchanges proved viable by BT’s own definitions of viability, that money would be clawed back. IIRC over £1,000,000 of taxpayer money was recouped as surprise, surprise, BT had been making it up about non viability. But it takes nuclear physicists such as Ed to work that out and deal with it, or so it seems.

    Lins

    2012/10/04 at 12:06

  7. As one in the “final third” I’m constantly left wondering why BT choose to pass those properties where VM is already available… if I was trying to sell something I sure as hell wouldn’t be targetting a market where there’s an incumbent competitor (at least not to start off with)

    Gym Trainer

    2012/10/04 at 15:43

    • Maybe because the ISPs believe they can gain customers. It’s the ISPs that pay Openreach, not the end users at home. So Sky, BT Retail, Zen, Timico, TalkTalk etc.

      Somerset

      2012/10/04 at 21:27

  8. I did some quick modeling of likely take-up for a project in rural Northumberland. I assumed in the current not-spots or poor-spots (6 Mbps). I then simply worked this through.

    The answer overall was 20%.

    Over time, these figures will change. Eventually we can expect users to migrate, or be migrated onto the ‘next gen’ systems as that becomes cheaper. But that has very little to do with the initial business case. Even with low cost of borrowing, the business case is determined in the first few years.

    James Saunby

    2012/10/05 at 07:25

  9. This blog isn’t working – I’ve tried twice to enter the calculations and it edits out the numbers. Good trick if you can do it. Bored now.

    James Saunby

    2012/10/05 at 07:26

    • Not sure what the problem is. Did yiou try downloading or copy and pasting the data?

      Br0kenTeleph0n3

      2012/10/05 at 11:32


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