Br0kenTeleph0n3

Following the broadband money

Why BT’s argument for BDUK cash is a red herring

with 11 comments

A recent exchange of emails got me thinking about BT basing its cost arguments for BDUK cash on a 20% take-up of FTTC, aka Infinity. There appears to be a logical flaw in its argument.

BDUK money is there to support the roll-out of FTTC in areas that are not “commercially viable” for BT. By definition, this means areas where BT is the monopoly/dominant supplier (aka Market 1 and 2 areas).

BT argues that it’s cost estimates are based on a 20% take-up. Since BT is the monopoly/dominant supplier, and even “competitive” LLU suppliers rent BT’s copper, take-up is guaranteed to be much higher than 20%, in fact (absenting fixed wireless operators) it will be 100% in Market 1 an 2 areas – at the Openreach and BT Wholesale levels.

Bottom line? BT’s 20% take-up argument is a red herring. It may hold true in Market 3 areas, but by definition that is not where BDUK may spend the money. Central and local governments should therefore reject BT’s 20% argument.

 

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Written by Br0kenTeleph0n3

2012/11/20 at 07:02

11 Responses

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  1. A question here is whether or not the 20% take-up rate is only applicable to a specific period of years, such as where BDUK funding would be involved. Eventually BT may slowly retire ADSL based services and focus on FTTC/P, at which point take-up becomes kind of a moot point (maybe a decade or two down the road.. who knows). On the other hand we still have ISDN lines..

    In the meantime take-up remains quite low but within another 3 years or so the situation might look more like 20%.

    Mark (ISPreview)

    2012/11/20 at 07:59

  2. Not sure why you think the take up rate would be any different? It’s about what customers want to buy/spend.

    neilmcrae

    2012/11/20 at 08:43

    • Point is, take-up rate is irrelevant for BDUK considerations. Of course it’s relevant for BT’s financial plan. So too is time to reach breakeven. But BT is owned by shareholders, not BDUK, so why should BDUK care about BT’s financial plan?

      Br0kenTeleph0n3

      2012/11/20 at 11:13

    • BDUK perhaps just need to know the take-up that BT have used in their plan for clawback calculations. If within an agreed period (usually 3 years) take-up is greater than the plan the EU laws on state-aid demand that the subsidy is returned. Local authority contacts should have a pro-rata formula for calculaying this clawback. It is true that BT revenue can come via both the wholesale and retail routes, so I suppose any formula should include both.

      David Cooper

      2012/11/20 at 13:41

  3. So if BT install FTTC in a Market 1 area then every customer will decide to change over to a FTTC product from one of the FTTC ISPs, even if it costs more, to give 100% take up?

    FTTC in a current Market 1 area must turn it into Market 3.

    Somerset

    2012/11/20 at 14:39

  4. I think you’ve lost the plot if you think takeup of FTTC will be 100%. Takeup of broadband of any sort is well below that and many people seem either ignorant of FTTx or happy with what they currently have.

    PhilT

    2012/11/20 at 19:13

    • Of course, it also has to be available. BT’s present implementation is patchy. Ofcom’s 2012 market report says broadband take-up has reached 76%. The poor and the elderly are the hold-outs.

      Br0kenTeleph0n3

      2012/11/21 at 01:25

      • You are diverting again. What has poor and elderly use got to do with FTTC? Please explain what you meant by 100%.

        Somerset

        2012/11/21 at 10:19

      • According the fragrant Martha Lane Fox, the poor can’t afford broadband, and many of the elderly don’t see the point. The definition of 100% is “everyone”. But perhaps we can discuss a variation: everyone who wants it and can afford it. Of course, that means BT’s take-up rate is by definition 100% 😉

        Br0kenTeleph0n3

        2012/11/21 at 10:41

  5. Surely the take-up rate has absolutely *nothing* to do with BT’s *costs*. It has everything to do with the rate of return, and will help (for commercial rollout) indicate whether the costs can be recovered within the target of 12 years or so.

    For BDUK authorities, the take-up rate (if correctly estimated) is an indicator of whether sufficient citizens will make use of their project… or whether they should use their largesse elsewhere. But again, take-up rate doesn’t affect the cost – just the profit. And, as someone else points out, the point of the EU clawback is to ensure that BT don’t make too much profit if the actual take-up is higher than the estimate.

    FTTC is less likely to hit 100% take-up in rural areas, as fewer properties are within the distance (<2km) of the cabinet.

    BT's commercial target for SFBB is 66% of lines. This *isn't* the same as meaning "market 3" (which is roughly 78% of UK); likewise the "commercially unviable" BDUK funds don't automatically go to "market 1 and 2 areas" (12% and 10% respectively) – some market 2 exchanges are on the commercially-viable lists. It is way more complicated than this lazy assessment.

    Finally… (@Somerset) FTTC won't (alone) make a market 1 exchange into market 3. There will still only be one wholesaler of broadband services.

    MikeW

    2012/11/21 at 01:47

    • Sorry to be lazy, but as you say, it’s complicated. Part of the problem is the lack of explicit maps down to cabinet level. If the deal struck with Maria Miller and Brussels holds, we shall get them. I’m not holding my breath, but then I’m a professional sceptic.

      Br0kenTeleph0n3

      2012/11/21 at 10:07


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